<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________
Commission file number: 0-22740
FINANCING FOR SCIENCE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1179144
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 WATERSIDE DRIVE
FARMINGTON, CONNECTICUT 06032-3065 06032-3065
(Address of principal executive offices) (Zip Code)
(860) 676-1818
(Registrant's telephone number, including area code)
NOT APPLICABLE.
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 5,394,600 shares as of August
2, 1996.
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
June 30, December 31,
1996 1995
------------ -------------
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 2,187 $ 1,740
Restricted cash and cash equivalents 27,426 20,954
Net Investment in direct finance leases and
notes secured by equipment 194,276 187,656
Other assets 15,067 15,103
----------- ----------
Total assets $ 238,956 $ 225,453
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deferred income taxes and other liabilities $ 23,007 $ 18,237
Short-term notes payable 8,839 27,814
Long-term notes payable 174,287 148,217
Subordinated note payable 5,000 5,000
----------- ---------
Total liabilities 211,133 199,268
----------- ---------
Stockholders' Equity
Preferred stock ($.01 par; 2,000,000 shares authorized; - -
none issued)
Common stock ($.01 par; 20,000,000 shares authorized;
5,432,500 issued and 5,394,600 outstanding (1996) and 54 54
5,407,500 issued and 5,369,600 outstanding (1995))
Additional paid-in capital 22,481 22,468
Foreign currency translation adjustments (113) (104)
Retained earnings 5,564 3,930
Treasury Stock (163) (163)
---------- ----------
Total stockholders' equity 27,823 26,185
---------- ----------
Total liabilities and stockholders' equity $ 238,956 $ 225,453
========== ==========
Book value per common share outstanding $ 5.16 $ 4.88
========== ==========
</TABLE>
2
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CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months Six months
Ended June 30, Ended June 30,
1996 1995 1996 1995
--------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Direct finance leases $5,266 $4,215 $10,592 $8,346
Other revenue 1,374 2,748 2,204 3,866
--------------- -------------- -------------- ------------
Total revenue 6,640 6,963 12,796 12,212
--------------- -------------- -------------- ------------
Expenses:
Interest 3,477 2,872 6,901 5,783
Selling, general and administrative 682 1,959 1,485 3,342
Provision for losses 580 451 757 553
Depreciation and amortization 400 1,152 835 1,957
--------------- -------------- -------------- ------------
Total expenses 5,139 6,434 9,978 11,635
--------------- -------------- -------------- ------------
Earnings before income taxes 1,501 529 2,818 577
Provision for income taxes 631 222 1,184 242
--------------- -------------- -------------- ------------
Net earnings $ 870 $ 307 $ 1,634 $ 335
=============== ============== ============== ============
Net earnings per common share $ .15 $ .06 $ .29 $ .06
=============== ============== ============== ============
Weighted average number of common and common
equivalent shares 5,746 5,531 5,705 5,523
=============== ============== ============== ============
</TABLE>
3
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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Foreign
Common Additional currency
Stock paid-in translation Retained Treasury Total stockholders'
$.01 par capital adjustments earnings Stock equity
--------- ------- ----------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $53 $22,158 $ (31) $4,570 $ - $26,750
Purchases of stock -- - - - (107) (107)
Net earnings -- - - 335 - 335
Translation adjustment -- - 25 - - 25
---- ------- ------ --------- ------- -------
Balance at June 30, 1995 $54 $22,158 $ (6) $4,905 $ (107) $27,003
==== ======= ====== ========= ======= =======
Balance at January 1, 1996 $54 $22,468 $(104) $3,930 $ (163) $26,185
Issuance of common stock
upon exercise of stock option -- 13 - - - 13
Net earnings -- - - 1,634 - 1,634
Translation adjustment - - $ (9) - - (9)
---- ------- ------ --------- ------- -------
Balance at June 30, 1996 $54 $22,481 $(113) $5,564 $ (163) $ 27,823
==== ======= ====== ========= ======= =======
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net cash provided by operating activities $ 4,571 $ 3,073
--------- ---------
Cash flows from investing activities:
Finance lease related receipts, net of amounts included in 35,782 22,782
income
Purchase of equipment to be leased (39,340) (37,536)
Initial direct costs incurred (1,174) (1,310)
Purchase of office furniture and equipment (28) (178)
--------- ---------
Net cash used in investing activities (4,760) (16,242)
--------- ---------
Cash flows from financing activities:
Decrease in short-term notes payable (18,975) (8,590)
Proceeds from procurement of long-term notes payable 54,254 45,556
Principal payments on long-term notes payable (28,184) (19,021)
Increase in restricted funds on deposit with banks (6,472) (5,964)
Proceeds from issuance of common stock 13 -
Payments to acquire treasury stock - (107)
--------- ---------
Net cash provided by financing activities 636 11,874
--------- ---------
Net increase (decrease) in cash and cash equivalents 447 (1,295)
Restricted funds on deposit with banks 27,426 13,698
Cash and cash equivalents at beginning of period 1,740 3,921
--------- ------
Cash and cash equivalents at end of period $ 29,613 $ 16,324
========= =========
</TABLE>
4
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1) The information furnished in the accompanying unaudited Condensed
Consolidated Balance Sheets, Statements of Earnings, Statements of Stockholders'
Equity and Statements of Cash Flows reflects all adjustments (consisting only of
items of a normal recurring nature) which are, in the opinion of management,
necessary for a fair statement of the Company's results of operations and
financial position for the interim periods. The financial statements should be
read in conjunction with the audited financial statements and notes included in
the Company's Annual Report for the year ended December 31, 1995. The interim
financial results are not necessarily indicative of results for the full year.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is engaged in the business of leasing essential equipment
to customers in its specialized markets which include technology-based
corporations, research facilities, and health care providers. The Company's
earnings primarily result from the excess of lease revenues over the related
interest, selling, general and administrative expenses and depreciation incurred
by the Company. Interest is the single largest expense of the Company and is a
function of the amounts of and the rates of interest on outstanding indebtedness
incurred by the Company to finance its equipment lease portfolio.
The Company's lease assets are comprised of its net investment in
direct finance leases, notes secured by equipment and net investment in
operating leases. The majority of the Company's revenues are derived from its
portfolio of direct finance leases. For financial reporting purposes,
substantially all of the Company's leases are classified as direct finance
leases in accordance with Statement of Financial Accounting Standards No. 13.
The Company accounts for its initial investment in direct finance
leases by recording on the balance sheet the total minimum lease payments
receivable plus the estimated residual value of equipment plus the initial
direct costs incurred less the unearned lease income. Unearned lease income
represents the excess of total minimum lease payments plus the estimated
residual value over the cost of the equipment. Unearned lease income is
recognized, using the interest method, as direct finance lease revenue over the
term of the lease. The Company also realizes additional revenue or loss to the
extent that the amount obtained from selling or re-leasing equipment exceeds or
is less than its recorded residual value following expiration of the initial
lease term.
All lease contracts which do not meet the criteria of direct finance
leases are accounted for as operating leases. Operating leases are accounted for
on the balance sheet by recording the equipment at cost and depreciating it on a
straight line basis generally over the term of the lease to its estimated net
realizable value at the expiration of the lease term. The monthly payments are
recorded as rental income on a straight line basis over the lease term. The
Company has entered into a limited number of operating leases.
On May 20, 1996 the Company announced that it had signed a definitive
agreement pursuant to which a subsidiary of FINOVA Capital Corporation will be
merged into the Company, following which the Company will be a wholly owned
subsidiary of FINOVA Capital Corporation and the Company's stockholders will be
entitled to receive $6.40 in cash for each share of common stock held as of the
effectiveness of the merger. The merger is subject to approval by the Company's
shareholders and satisfaction of certain closing conditions and is expected to
be completed in late August, 1996.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1996 and June 30, 1995
Direct finance lease revenues for the three months ended June 30, 1996
were $5,266,000, 24.9% higher than the $4,215,000 for the comparable period in
1995, primarily due to the growth in the portfolio of direct finance leases. Net
investment in direct finance leases and notes secured by equipment increased to
$194,276,000 at June 30, 1996 from $157,965,000 at June 30, 1995, an increase of
23.0%, as a result of new lease originations. New lease originations for the
three months ended June 30, 1996 were $24,209,000, 33.9% higher than the
$18,078,000 for the comparable period in 1995, due to increased marketing
activity. The backlog, consisting of lease commitments, subject to delivery,
installation and acceptance of equipment and, in some cases, completion of lease
documentation, at June 30, 1996 was $60,460,000, compared to $51,248,000 at June
30, 1995. The increased backlog at June 30, 1996 was attributable to increased
marketing activity and temporary delays in delivery and acceptance of leased
equipment.
6
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Other revenue for the three months ended June 30, 1996 was $1,374,000,
a 50.0% decrease from the $2,748,000 for the same period in 1995. The decrease
is primarily due to the inclusion of $680,000 of patient service revenue in 1995
, whereas no such revenue was recorded during the same period in 1996,
reflecting the disposition of the Company's medical imaging centers prior to the
second quarter of 1996. Other revenue also includes interest income, gains on
residual values realized through cash sales, gains from early lease terminations
and miscellaneous fee income.
At the end of the second quarter, unearned income expected to flow from
the portfolio of finance leases (includes unearned income related to notes
secured by equipment) rose to $43,749,000, up 10.2% from the $39,692,000 at June
30, 1995. Unearned income amortizes through the Company's revenues over the
terms of the respective leases.
Interest expense for the three months ended June 30, 1996 was
$3,477,000, 21.1% higher than the $2,872,000 for the three months ended June 30,
1995. The increase was due to a larger portfolio and was partially offset by
lower interest cost on borrowings during the three months ended June 30, 1996,
compared to the same period in 1995.
Selling, general and administrative expenses for the three months ended
June 30, 1996 were $682,000, a 65.2% decrease from the $1,959,000 for the same
period in 1995. The decrease was primarily attributable to the disposition of
the Company's medical imaging centers which accounted for $682,000 of such
expenses in 1995.
Depreciation and amortization costs decreased to $400,000 for the three
months ended June 30, 1996 from $1,152,000 for the same period in 1995. The
lower level of depreciation expense, $233,000 in 1996 compared to $1,021,000 in
1995, reflects the reduced amounts of medical diagnostic systems re-deployed on
operating leases and of equipment in inventory awaiting re-lease following
termination of its initial lease term. The amortization of lease securitization
transaction costs, $167,000 in 1996 compared to $131,000 in 1995, is recognized
ratably over the lives of the pools of leased assets to which they relate.
The provision for losses on the Company's lease portfolio was increased
to $580,000 during the three months ended June 30,1996 from $451,000 for the
same period in 1995. The Company's allowances for losses were $2,755,000 at June
30, 1996 compared to $1,517,000 at June 30, 1995. Charges of $182,000 were made
against the allowances during the three months ended June 30, 1996 reflecting
the disposition of certain equipment whereas in the three months ended June 30,
1995, there were no charges to the allowances. The Company maintains allowances
at a level it deems sufficient to meet probable losses currently evident in the
portfolio. The levels of the allowances are based upon an analysis of
delinquencies and problem accounts, an assessment of overall risks and probable
future losses in the portfolio, and a review of the Company's historical loss
experience. However, there can be no assurance that the Company's reserves will
prove to be adequate.
At June 30, 1996 the level of delinquent lease receivables (defined as
leases where one or more payments are more than 30 days past due) as a percent
of the Company's total lease receivable balance was .9% compared to 2.3% at June
30, 1995.
Net earnings for the three months ended June 30, 1996 were $870,000
compared to net earnings of $307,000 for the comparable period in 1995.
Six months ended June 30, 1996 and June 30, 1995
Direct finance lease revenues for the six months ended June 30, 1996
were $10,592,000, 26.9% higher than the $8,346,000 for the comparable period in
1995, primarily due to the growth in the portfolio of direct finance leases. Net
investment in direct finance leases and notes secured by equipment increased to
$194,276,000 at June 30, 1996 from $157,965,000 at June 30, 1995, an increase of
23.0%, as a result of new lease originations. New lease originations for the six
months ended June 30, 1996 were $41,594,000, 8.1% higher than the $38,473,000
for the comparable period in 1995, due to increased marketing activity. The
backlog, consisting of lease commitments, subject to delivery, installation and
acceptance of equipment and, in some cases, completion of lease documentation,
7
<PAGE> 8
at June 30, 1996 was $60,460,000, compared to $51,248,000 at June 30, 1995. The
increased backlog at June 30, 1996 was attributable to increased marketing
activity and temporary delays in delivery and acceptance of leased equipment.
Other revenue for the six months ended June 30, 1996 was $2,204,000, a
43.0% decrease from the $3,866,000 for the same period in 1995. The decrease is
primarily due to the inclusion of $1,155,000 of patient service revenue in 1995
compared to only $22,000 in 1996, reflecting the disposition of the Company's
medical imaging centers. Other revenue also includes interest income, gains on
sales of financing transactions, gains on sales of securities, gains on residual
values realized through cash sales, gains from early lease terminations and
miscellaneous fee income.
At the end of the second quarter, unearned income expected to flow from
the portfolio of finance leases (includes unearned income related to notes
secured by equipment) rose to $43,749,000, up 10.2% from the $39,692,000 at June
30, 1995. Unearned income amortizes through the Company's revenues over the
terms of the respective leases.
Interest expense for the six months ended June 30, 1996 was $6,901,000,
19.3% higher than the $5,783,000 for the six months ended June 30, 1995. The
increase was due to a larger portfolio and was partially offset by lower
interest cost on borrowings during the six months ended June 30, 1996, compared
to the same period in 1995.
Selling, general and administrative expenses for the six months ended
June 30, 1996 were $1,485,000, a 55.6% decrease from the $3,342,000 for 1995.
The decrease was primarily attributable to the sale of the Company's medical
imaging centers which accounted for $1,288,000 of such expenses in 1995.
Depreciation and amortization costs decreased to $835,000 for the six
months ended June 30, 1996 from $1,957,000 for the same period in 1995. The
lower level of depreciation expense, $466,000 in 1996 compared to $1,727,000 in
1995, reflects the reduced amounts of medical diagnostic systems re-deployed on
operating leases and of equipment in inventory awaiting re-lease following
termination of its initial lease term. The amortization of lease securitization
transaction costs, $369,000 in 1996 compared to $230,000 in 1995, is recognized
ratably over the lives of the pools of leased assets to which they relate.
The provision for losses on the Company's lease portfolio was increased
to $757,000 during the six months ended June 30,1996 compared to $553,000 for
the same period in 1995. The Company's allowances for losses were $2,755,000 at
the six months ended June 30, 1996 compared to $1,517,000 for same period in
June 30, 1995. Charges of $1,086,000 were made against the allowances during the
six months ended June 30, 1996 reflecting the disposition of certain equipment
which was previously specially reserved for in 1995, whereas in 1995 there were
no charges to the allowances. The Company maintains allowances at a level it
deems sufficient to meet probable losses currently evident in the portfolio. The
levels of the allowances are based upon an analysis of delinquencies and problem
accounts, an assessment of overall risks and probable future losses in the
portfolio, and a review of the Company's historical loss experience. However,
there can be no assurance that the Company's reserves will prove to be adequate.
At June 30, 1996 the level of delinquent lease receivables (defined as
leases where one or more payments are more than 30 days past due) as a percent
of the Company's total lease receivable balance was .9% compared to 2.3% at June
30, 1995.
Net earnings for the six months ended June 30, 1996 were $1,634,000
compared to net earnings of $335,000 for the comparable period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's leasing activities require significant amounts of
capital. Since the Company's investments in substantially all of its leased
assets are leveraged with borrowings, its ability to originate new lease
transactions is
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dependent on credit availability. Substantially all of the assets of the Company
have been pledged to the Company's lenders as security under the Company's
various short- and long-term loan arrangements.
Funds required to support the Company's operations have been derived
from new equity, new borrowings and internally generated funds. The internally
generated funds were derived from the receipts of direct finance lease
receivables less the debt service payments associated with the receivables and
other lease-related payments, and, on occasion, sales of leased assets.
Net cash flow provided by operating activities was $4,571,000 and
$3,073,000 for the six months ended June 30, 1996 and 1995, respectively.
Net cash used in investing activities was $4,760,000 and $16,242,000
for the six months ended June 30, 1996 and 1995, respectively. The decrease in
net cash used in 1996 is due to greater levels of cash flow from the Company's
portfolio as compared to 1995.
Net cash provided by financing activities was $636,000 and $11,874,000
for the six months ended June 30, 1996 and 1995, respectively.
Short-Term Borrowings
The Company has the ability to borrow up to $44,375,000, to finance
over the short-term the purchase of equipment for lease under a revolving credit
facility with a consortium of banks. The credit facility expires on September
30, 1996, at which time the Company will be obligated to retire the outstanding
borrowings. The Company expects that following its merger with a subsidiary of
FINOVA Capital Corporation it will no longer require a bank line or funding
sources independent of its prospective parent. In the event the merger is not
consummated prior to September 30, 1996, the Company believes there will be
sufficient time to arrange further extension of the facility and to determine if
replacement or long term renewal of the facility is appropriate. However, if the
line is not renewed, the Company believes that leases funded under the line
could be sold, or discounted on a recourse or non-recourse basis as is the
industry custom, to generate sufficient proceeds to repay the then outstanding
borrowings. The borrowings are secured by lease and note receivables, the leased
equipment and other assets. The terms of the facility require, among other
things, that the Company maintain certain financial ratios and prohibit the
payment of dividends.
Asset Securitizations and Long-Term Debt
The Company completed its eighth asset securitization in June 1996,
when it transferred pools of leases to a wholly-owned special-purpose
subsidiary, FSI Funding Corp. II ("Funding Corp II"), which issued an aggregate
of $24,047,000 of senior notes and subordinated notes to a group of
institutional investors.
The senior notes issued by Funding Corp II are rated AA+ and its
subordinated notes are rated BBB by Duff & Phelps. The source of repayment for
these notes is the stream of lease payments.
Security for the notes consists of (i) a pledge of the pool of lease
assets and (ii) a $14,106,000 cash collateral account. The noteholders also have
unlimited recourse to the assets of Funding Corp II and, in addition, recourse
to the general assets of the Company for losses in the asset pool up to a
maximum of $4,702,000.
The asset securitization generated sufficient cash proceeds to the
Company to allow repayment of debt previously incurred to fund the leases.
Substantially all of the cash flow from the pool will be dedicated to servicing
the notes and, therefore, unavailable to the Company until there has been
significant amortization of the notes. The Company has realized substantial and
continuing interest expense savings through asset securitizations and in the
event the proposed merger does not occur, the Company intends to continue to use
such securitizations as a low-cost source of permanent financing for its
portfolio of new leases. There can be no certainty as to the ability of the
Company to complete future asset securitizations.
9
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 3, 1996, a complaint seeking class action status was filed against the
Company in the Superior Court of the State of Delaware on behalf of the holders
of the Company's redeemable common stock purchase warrants (the "Warrants"). The
complaint alleges that the Company breached an implied covenant of good faith
said to be implicit in the Warrant Agreement between the Company and State
Street Bank and Trust Company dated May 27, 1994 (the "Warrant Agreement") by
entering into the Agreement and Plan of Merger by and among the Company, FINOVA
Capital Corporation and FINOVA Business Credit Corp. dated as of May 19, 1996
(the "Merger Agreement"). In particular, plaintiffs allege that the Company
breached the implied covenant by reducing the exercise price of the Warrants
from $8.25 to $6.30 effective upon the Merger and offering $6.40 per share upon
exercise of the Warrants after the Merger. The $6.40 is the per share
consideration to be paid to the Company's stockholders pursuant to the Merger
Agreement. The complaint also names The FINOVA Group Inc. as a co- defendant for
allegedly inducing the Company to breach the implied covenant of good faith
associated with the Warrant Agreement and intentionally interfering with the
prospective economic advantage of the holders of the Warrants. The complaint
seeks monetary damages estimated by the plaintiffs to be approximately $3
million. The named plaintiffs include Irving B. Harris, who is the beneficial
owner of more than 5% of the Company's voting securities, and his associates
William H. Harris, William Harris & Co. Profit Sharing Trust and Jerome Kahn.
The Company believes the complaint is without merit and has filed a motion to
dismiss the action.
Except for the foregoing, the Company is not currently a party to any legal
proceedings that it believes could have, either individually or in the
aggregate, a material adverse effect upon its business or financial condition.
ITEM. 2.
(A) Pursuant to the Agreement and Plan of Merger dated as of May 19, 1996 by and
among the Company, FINOVA Capital Corporation and FINOVA Business Credit Corp.,
holders of shares of the Company's common stock are to receive $6.40 per share
upon the merger of the Company with FINOVA Business Credit Corp. The exercise
price of the Company's redeemable common stock purchase warrants are to be
reduced effective upon the merger from $8.25 to $6.30 per share. Each option
granted under the Company's stock option plans that is outstanding at the time
of the merger, whether or not vested or exercisable, shall be vested and
exercisable and shall be canceled and the holder thereof shall receive in cash
an amount equal to the excess, if any, of $6.40 per share over the exercise
price of the option multiplied by the number of shares of common stock subject
to the option.
ITEM. 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed herewith:
EXHIBIT NO. DOCUMENT
2.1 Agreement and Plan of Merger, dated as of May 19, 1996, by and among
Financing for Science International, Inc., FINOVA Capital Corporation
and FINOVA Business Credit Corp. (the "Merger Agreement") incorporated
by reference to Exhibit 2.1 to the Company's Report on Form 8-K dated
May 19, 1996.
2.2 List of Schedules to the Merger Agreement.
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The Company agrees to furnish to the Securities and Exchange Commission
upon its request a copy of any Schedule or other attachment to the
Merger Agreement.
3.1 Restated Certificate of Incorporation of the Company incorporated by
reference to Exhibit 3.1 to the Company's Report on Form 10-Q for the
period ended June 30, 1994.
3.2 By-Laws of the Company incorporated by reference to Exhibit 3.2 to the
Company's Report on Form 10-Q for the period ended June 30, 1994.
4.1 Series 1996-2 Supplemental Indenture dated as of June 27, 1996 to the
Amended and Restated Indenture by and between the Company, FSI Funding
Corp. II and Manufacturers and Traders Trust Company, Trustee, dated as
of March 1, 1996.
4.2 Purchase Price Adjustment Certificate dated June 17, 1996 providing for
the reduction of the exercise price of the Company's redeemable common
stock purchase warrants upon the occurrence of a merger of the Company
as therein described.
10.1 Amendment Agreement No. 2 dated as of June 27, 1996 to the
Contribution, Sale and Assignment Agreement by and between the Company
and FSI Funding Corp. II dated as of March 1, 1995.
10.2 Sale Agreement Supplement dated as of June 27, 1996 to the
Contribution, Sale and Assignment Agreement by and between the Company
and FSI Funding Corp. II dated as of March 1, 1995.
10.3 Employment Termination Agreement between the Company and Barry R.
Bronfin dated May 19, 1996.
10.4 Change of Control Agreement between the Company and Robert W. Maxwell
dated May 19, 1996.
10.5 Principal Shareholders Letter Agreements between the Company and Barry
R. Bronfin, Electra Investment Trust, PLC, AMEV Venture Associates III,
L.P. and AMEV Venture Associates III-International, L.P. dated May 19,
1996.
10.6 Modification and Release Agreement between the Company and Sands
Brothers & Co., Ltd. dated May 19, 1996.
10.7 Modification and Release Agreement between the Company and RAS
Securities Corp. dated May 19, 1996.
10.8 Letter Agreement on subsidy payment between Barry R. Bronfin and the
Company dated May 19, 1996.
10.9 The FINOVA Group Inc. Deferred Compensation Plan to which Robert W.
Maxwell and Robert D. Pomeroy, Jr. are parties incorporated by
reference to Exhibit 10.M to the Report on Form 10-K of The FINOVA
Group Inc. for the year ended December 31, 1995 (Commission File Number
1-11011).
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10.10 Letter Agreement between Kropschot Financial Services and the Company
dated April 3, 1996.
10.11 Letter Agreement between The FINOVA Group Inc. and Richard Schwartz
dated July 31, 1996.
11 Statement re: Computation of Per Share Earnings.
27 Financial Data Schedule
(b) Reports on Form 8-K. A Report on Form 8-K dated May 19, 1996 was
filed by the Company during the period ended June 30, 1996 that reported an
event under Item 5 of the Form 8-K.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FINANCING FOR SCIENCE
INTERNATIONAL, INC.
Date: August 9, 1996 By: /s/ Robert W. Maxwell
----------------------
Robert W. Maxwell
President and Chief Operating Officer
as signatory on behalf of the Registrant
and as Chief Financial and Accounting
Officer
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page in
Sequentially
Numbered
Copy
EXHIBIT NO. DOCUMENT
<S> <C>
2.1 Agreement and Plan of Merger, dated as of May 19, 1996, by and among
Financing for Science International, Inc., FINOVA Capital Corporation
and FINOVA Business Credit Corp. (the "Merger Agreement") incorporated
by reference to Exhibit 2.1 to the Company's Report on Form 8-K dated
May 19, 1996.
2.2 List of Schedules to the Merger Agreement.
The Company agrees to furnish to the Securities and Exchange
Commission upon its request a copy of any Schedule or other
attachment to the Merger Agreement.
3.1 Restated Certificate of Incorporation of the Company incorporated by
reference to Exhibit 3.1 to the Company's Report on Form 10-Q for the
period ended June 30, 1994.
3.2 By-Laws of the Company incorporated by reference to Exhibit 3.2 to the
Company's Report on Form 10-Q for the period ended June 30, 1994.
4.1 Series 1996-2 Supplemental Indenture dated as of June 27, 1996 to the
Amended and Restated Indenture by and between the Company, FSI Funding
Corp. II and Manufacturers and Traders Trust Company, Trustee, dated as
of March 1, 1996.
4.2 Purchase Price Adjustment Certificate dated June 17, 1996 providing for
the reduction of the exercise price of the Company's redeemable common
stock purchase warrants upon the occurrence of a merger of the Company
as therein described.
10.1 Amendment Agreement No. 2 dated as of June 27, 1996 to the
Contribution, Sale and Assignment Agreement by and between the Company
and FSI Funding Corp. II dated as of March 1, 1995.
10.2 Sale Agreement Supplement dated as of June 27, 1996 to the
Contribution, Sale and Assignment Agreement by and between the Company
and FSI Funding Corp. II dated as of March 1, 1995.
10.3 Employment Termination Agreement between the Company and Barry R.
Bronfin dated May 19, 1996.
10.4 Change of Control Agreement between the Company and Robert W. Maxwell
dated May 19, 1996.
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C>
10.5 Principal Shareholders Letter Agreements between the Company and Barry
R. Bronfin, Electra Investment Trust, PLC, AMEV Venture Associates III,
L.P. and AMEV Venture Associates III-International, L.P. dated May 19,
1996.
10.6 Modification and Release Agreement between the Company and Sands
Brothers & Co., Ltd. dated May 19, 1996.
10.7 Modification and Release Agreement between the Company and RAS
Securities Corp. dated May 19, 1996.
10.8 Letter Agreement on subsidy payment between Barry R. Bronfin and the
Company dated May 19, 1996.
10.9 The FINOVA Group Inc. Deferred Compensation Plan to which Robert W.
Maxwell and Robert D. Pomeroy, Jr. are parties incorporated by
reference to Exhibit 10.M to the Report on Form 10-K of The FINOVA
Group Inc. for the year ended December 31, 1995 (Commission File Number
1-11011).
10.10 Letter Agreement between Kropschot Financial Services and the Company
dated April 3, 1996.
10.11 Letter Agreement between The FINOVA Group Inc. and Richard Schwartz
dated July 31, 1996.
11 Statement re: Computation of Per Share Earnings.
27 Financial Data Schedule
</TABLE>
15
<PAGE> 1
LIST OF SCHEDULES
Agreement and Plan of Merger
dated as of May 19, 1996,
by and among Financing for Science International, Inc.,
FINOVA Capital Corporation and FINOVA Business Credit Corp.
<TABLE>
<CAPTION>
Company Schedule: Description:
<S> <C> <C>
1.6 Payment Fund Calculations
2.1 Organization, Qualification
2.2 Subsidiaries
2.3 Blue Sky Law, Warrants, Options
2.4 Minutes
2.6 Consents
2.8 Licenses
2.11 Financing Business Representations
2.11(a)i, ii, iv, vi, viii, xi, xii Portfolio Summary by Lessee
2.11(a)iii Complete Customer Listing
2.11(a)v Lease Plus Procedures Manual Equipment Codes
2.11(a)(x) Maturing Lease Report
2.11(c) Past Due Detail Report
2.11(e)(ii) Exception to Tax Classification
2.11(f) Securitizations
2.12 Changes
2.13 Indebtedness
2.15 Contracts
2.16 Insurance
2.17 Compliance
2.18 Taxes
2.19 Claims, Litigation
2.20 Employee Benefits Plans, Agreement, Options
2.21 Employee Controversies
2.22 Environmental Matters
2.23 Intellectual Property
</TABLE>
<PAGE> 1
SERIES 1996-2
SUPPLEMENTAL INDENTURE
This SERIES 1996-2 SUPPLEMENTAL INDENTURE ("Series Supplement") is
dated as of June 27, 1996 and is entered into by and among FSI FUNDING CORP. II,
a Delaware corporation (herein called the "Company"), MANUFACTURERS AND TRADERS
TRUST COMPANY, a New York banking corporation, as trustee (herein called the
"Trustee") and FINANCING FOR SCIENCE INTERNATIONAL, INC., as Servicer (the
"Servicer").
RECITALS OF THE COMPANY
The Company, the Trustee and the Servicer, have heretofore entered into
an Amended and Restated Indenture dated as of March 1, 1996, (the "Indenture"),
pursuant to which the Company is authorized to issue up to $142,800,000 in
aggregate principal amount of its Class A Equipment Lease-Backed Pay-Through
Notes (the "Class A Notes"), and up to $25,200,000 in aggregate principal amount
of its Class B Equipment Lease-Backed Pay-Through Notes (the "Class B Notes"),
which Notes are issuable in Series.
Pursuant to the Indenture, the Company has heretofore issued and sold
$112,779,973.35 in aggregate principal amount of Class A Notes and
$19,902,348.24 in aggregate principal amount of Class B Notes.
The Company, the Trustee and the Servicer have heretofore entered into
Amendment Agreement No. 1 to Contribution, Sale and Assignment Agreement, dated
as of March 1, 1996 pursuant to which the time frames set forth in Section
5.01(j) thereof for Seller's performance of certain post-closing requirements
was extended from 75 days to 90 days.
The Company and the Trustee desire to (i) make a corresponding
amendment to the Indenture and (ii) make provision for the issuance of an
additional Series of Class A Notes and Class B Notes.
NOW, THEREFORE, THIS SERIES SUPPLEMENTAL WITNESSETH:
For and in consideration of the premises and the purchase of the Notes
for which provision is hereinafter made by the holders thereof, it is mutually
covenanted and agreed, for the equal and ratable benefit of all Noteholders, as
follows:
SECTION 1. Definitions.
Except as otherwise expressly provided herein or as the context may
otherwise require, the capitalized terms used in this Series Supplement shall
have the respective meanings specified in Appendix A to the Indenture, which is
incorporated herein by this reference. The definitions
<PAGE> 2
-2-
of such terms are applicable to the singular as well as to the plural forms of
such terms and to the masculine as well as to the feminine and neuter genders of
such terms.
SECTION 2. Amendment to Indenture.
Section 4.02(b) of the Indenture is hereby amended by deleting the
reference to 85 days and replacing it with a reference to 100 days.
SECTION 3. Name, Dating and Series Designation of the Series.
The Series of Notes created hereby shall be designated as the "Series
1996-2 Notes, Due July 15, 2002" of the Company (the "Series Notes"). The Series
Notes shall be dated as of their date of issue.
SECTION 4. Authorized Amount of the Series.
The aggregate principal amount of Series Class A Notes (the "Series
Class A Notes") which may be authenticated and delivered under this Supplemental
Indenture is limited to $20,439,676.90, and the aggregate principal amount of
Series Class B Notes (the "Series Class B Notes") which may be authenticated and
delivered under this Supplemental Indenture is limited to $3,607,001.81, except
for Notes authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other series Notes pursuant to Section 3.04, 3.05,
3.07 or 9.05 of the Indenture.
SECTION 5. Interest Rates of Series Note.
The Series Class A Notes shall bear interest on the outstanding
principal amount of each Series Class A Note at a rate per annum equal to 7.22%.
The Series Class B Notes shall bear interest on the outstanding
principal amount of each Series Class B Note at a rate per annum equal to 8.00%.
SECTION 6. Supplement to Schedule A.
Schedule A to the Indenture is hereby supplemented by the addition of
the material set forth on Schedule A hereto.
<PAGE> 3
-3-
SECTION 7. Supplement to Schedule B.
Schedule B to the Indenture is hereby supplemented by the addition of
the material set forth on Schedule B hereto.
SECTION 8. Governing Law.
Section 1.10 of the Indenture shall apply to this Supplemental
Indenture.
SECTION 9. Execution in Counterparts.
This Series Supplement may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
SECTION 10. Effective Date; Binding Effect.
This Series Supplement shall become effective as of June 27, 1996 and
shall thereafter be binding upon the Company and the Trustee and shall inure to
the benefit of the Company and the Trustee and their respective successors and
assigns, subject, however, to the limitations contained in the Original
Indenture.
SECTION 11. Effect of Headings.
The Section headings herein are for convenience only and shall not
affect the construction hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Series
Supplement to be duly executed, and their respective corporate seals to be
hereunto affixed and witnessed, all as of the day and year first above written.
FSI FUNDING CORP. II
By /s/ Robert W. Maxwell
------------------------------
Name: Robert W. Maxwell
Title: President
<PAGE> 4
-4-
MANUFACTURERS AND TRADERS TRUST
COMPANY
By /s/ Karin W. Cranz
-------------------------------
Name: Karin W. Cranz
Title: Trust Officer
FINANCING FOR SCIENCE
INTERNATIONAL, INC.
By /s/ Robert W. Maxwell
-------------------------------
Name: Robert W. Maxwell
Title: President
<PAGE> 1
PURCHASE PRICE ADJUSTMENT CERTIFICATE
The undersigned, being the President and Secretary of Financing for
Science International, Inc., a Delaware Corporation (the "Company"), do hereby
certify to State Street Bank and Trust Company (the "Warrant Agent"), pursuant
to Sections 1(f) and 12 of the Warrant Agreement, dated as of May 27, 1994, by
and between the Company and the Warrant Agent (the "Warrant Agreement"), as
follows:
1. The Company entered into an Agreement and Plan of Merger with FINOVA
Capital Corporation ("FINOVA") and FINOVA Business Credit Corp. ("Merger Sub"),
dated May 19, 1996, whereby, subject to approval by the Company's stockholders
and certain other conditions, Merger Sub will be merged (the "Merger") with and
into the Company, at the Effective Time (as defined in the Merger Agreement) and
the Company will thereby become a wholly-owned subsidiary of FINOVA. At the
Effective Time of the Merger, each share of the Company's Common Stock will be
converted into the right to receive $6.40 in cash (the "Merger Price").
2. On May 18, 1996, pursuant to Section 1(f) of the Warrant Agreement, the
Board of Directors of the Company voted to reduce the Purchase Price (as defined
in the Warrant Agreement) of the Warrants (as defined in the Warrant Agreement)
subject to consummation of the Merger, from $8.25 to $6.30. If the Merger is
completed, the Purchase Price shall be reduced at the Effective
<PAGE> 2
Time of the Merger. The Merger Agreement provides that after the Effective Time,
upon payment of the Purchase Price, Warrant holders will be entitled to receive
an amount in cash equal to the Merger Price ($6.40 per share).
EXECUTED as of this 17th day of June, 1996.
/s/ Robert Maxwell
-----------------------------
Robert Maxwell, President
/s/ Richard Schwartz
-----------------------------
Richard Schwartz, Secretary
- 2 -
<PAGE> 1
THIS AMENDMENT AGREEMENT NO. 2 TO CONTRIBUTION, SALE AND ASSIGNMENT
AGREEMENT, dated as of June 27, 1996, is entered into between FINANCING FOR
SCIENCE INTERNATIONAL, INC., a Delaware corporation (the "Seller"), and FSI
FUNDING CORP. II, a Delaware corporation (the "Company").
R E C I T A L S
WHEREAS, the Company and the Seller have heretofore entered into a
Contribution, Sale and Assignment Agreement dated as of March 1, 1995, as
amended by Amendment Agreement No. 1 to Contribution, Sale and Assignment
Agreement dated as of March 1, 1996, and as supplemented pursuant to certain
Sale Agreement Supplements (as so amended and supplemented, the "Sale
Agreement") pursuant to which the Lease Contracts (such term and other
capitalized terms used herein but not defined herein having the meanings
ascribed thereto in the Sale Agreement) assigned and the Equipment contributed
thereunder were utilized by the Company to provide collateral security for the
Notes issued by the Company pursuant to the Indenture; and
WHEREAS, the Company and the Seller wish to amend certain provisions of
the Sale Agreement;
AGREEMENTS
NOW, THEREFORE, it is hereby agreed by and between the parties hereto
that, in accordance with Section 12.04 of the Sale Agreement, the Sale Agreement
be and hereby is amended as follows:
<PAGE> 2
-2-
SECTION 2.
Section 4.02(w) of the Sale Agreement is hereby deleted in its entirety
and replaced with the following new Section 4.02(w):
(w) As of each Purchase Date, (i) the Initial Discounted Present
Value of all Lease Contracts with any one Customer will not exceed 4% of
the Initial Aggregate Discounted Present Value, and the Initial Discounted
Present Value of all Lease Contracts with the largest 10 Customer
concentrations will not exceed 35% of the Initial Aggregate Discounted
Present Value, (ii) the Initial Discounted Present Value of all Lease
Contracts with Customers in any one state will not exceed 30% of the
Initial Aggregate Discounted Present Value, and (iii) the Initial
Discounted Present Value of all Lease Contracts of Equipment subject to
Restricted Transfer Agreements will not exceed 4% of the Initial Aggregate
Discounted Present Value. As of each Purchase Date, (a) not more than 15%
of the Initial Aggregate Discounted Present Value will be attributable to
Predetermined Residual Value Leases, (b) not more than 70% of the Initial
Aggregate Discounted Present Value will be attributable to Minimal
Residual Value Leases, (c) not more than 35% of the Initial Aggregate
Discounted Present Value will be attributable to Lease Contracts with
respect to any single Equipment type, and not less than 20% of the Initial
Aggregate Discounted Present Value will be attributable to Lease Contracts
with respect to healthcare Equipment, (d) not more than 35% of the Initial
Aggregate Discounted Present Value will be attributable to Leases with a
Lease transaction rating of "4," (e) the Equipment subject to Lease
Contracts representing not more than 10% of the Initial Aggregate
Discounted Present Value will be Equipment evidenced by certificates of
title, (f) the maximum aggregate Shortfall Amount which could result from
the prepayment of all Early Termination Shortfall Contracts will not
exceed 0.1% of the Initial Aggregate Discounted Present Value at any time,
(g) not more than 30% of the Initial Aggregate Discounted Present Value
will be attributable to Loan Contracts and (h) not more than 6% of the
Initial Aggregate Discounted Present Value will be attributable to the
final (or purchase option) payment under Optional Renewal Contracts.
<PAGE> 3
-3-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement No. 2 to Contribution, Sale and Assignment Agreement to be executed
and delivered by their duly authorized officers as of the date hereof.
FSI FUNDING CORP. II
By: /s/ Robert W. Maxwell
----------------------------
Name: Robert W. Maxwell
Title: President
FINANCING FOR SCIENCE
INTERNATIONAL, INC.
By: /s/ Robert W. Maxwell
----------------------------
Name: Robert W. Maxwell
Title: President
CONSENTED TO:
MANUFACTURERS AND TRADERS TRUST COMPANY,
as Trustee
/s/ Karin W. Cranz
- ------------------------
Name: Karin W. Cranz
Title: Trust Officer
<PAGE> 1
SALE AGREEMENT SUPPLEMENT
This Supplement to the Contribution, Sale and Assignment Agreement dated
as of March 1, 1995, as amended by Amendment Agreement No. 1 thereto dated as of
March 1, 1996 and by Amendment Agreement No. 2 thereto dated as of June 27, 1996
(as so amended, the "Sale Agreement") between FSI Funding Corp. II (the
"Company") and Financing for Science International, Inc. (the "Seller") is being
executed and delivered as of the date set forth below pursuant to Section
2.01(d) of the Sale Agreement.
1. The Seller hereby sells to the Company (a) each Additional Lease
Contract listed on Schedule A hereto (the "Additional Lease Contracts") and any
and all moneys of whatsoever nature payable pursuant to such Additional Lease
Contract accruing after the Related Cut-Off Date, including without limitation
all related Lease Receivables and any Insurance Proceeds, condemnation or
indemnity payments and other amounts payable in connection with the termination
of such Additional Lease Contract, (b) all security deposits and all rights,
powers and remedies of the Seller under or in connection with such Additional
Lease Contract, whether arising under the terms of such Additional Lease
Contract, by statute, at law or in equity, or otherwise arising out of any
default by the Customer under such Additional Lease Contract, including without
limitation all rights to exercise any election or option or to make any decision
or determination or to give or receive any notice, consent, approval or waiver
thereunder, (c) each item of the Purchased Equipment subject to certain
Additional Lease Contracts, including without limitation all additions,
alterations, accessions or modifications thereto or replacements of any part
thereof, and all intangibles and other rights associated with such Purchased
Equipment, including without limitation any licenses to use or own such
Purchased Equipment and any manufacturer's or other warranties with respect to
such Purchased Equipment, (d) all documents of title, books and records
concerning the foregoing property (including without limitation all computer
programs, tapes, disks and related items containing any such information), and
(e) all proceeds of the foregoing of any nature whatsoever, including without
limitation all Insurance Proceeds and all other proceeds of the conversion,
voluntary or involuntary, of any thereof.
2. The Seller hereby contributes and transfers to the Company, as an
additional capital contribution by the Seller to its wholly-owned subsidiary,
all right, title and interest of the Seller in and to each item of the
Contributed Equipment subject to certain Additional Lease Contracts, including
without limitation all additions, alterations, accessions or modifications
thereto or replacements of any part thereof, and all intangibles and other
rights associated with such Contributed Equipment, including without limitation
any licenses to use or own such Contributed Equipment and any manufacturer's or
other warranties with respect to such Contributed Equipment, and all documents
of title, books and records concerning such Contributed Equipment (including
without limitation all computer programs, tapes, disks and related items
containing any such information).
<PAGE> 2
-2-
3. Attached hereto as Schedule A is a supplement to Schedule A to the Sale
Agreement. The Seller hereby represents and warrants that the attached Schedule
A accurately identifies and sets forth information regarding each Additional
Lease Contract.
4. Attached hereto as Schedule C is a supplement to Schedule C to the Sale
Agreement. The Seller hereby represents and warrants that the attached Schedule
C accurately sets forth information regarding the Security Deposits with respect
to each Additional Lease Contract.
5. Each Additional Lease Contract is an Eligible Lease Contract.
6. All capitalized terms used herein which are not expressly defined
herein have the meanings ascribed to such terms in Appendix A to the Sale
Agreement.
WITNESS the seal of FSI and the signature of the undersigned officer this
27th day of June, 1996.
FINANCING FOR SCIENCE
INTERNATIONAL, INC.
[Corporate Seal]
/s/ Robert W. Maxwell
----------------------------
Name: Robert W. Maxwell
Title: President
ACCEPTED:
FSI FUNDING CORP. II
/s/ Robert W. Maxwell
- --------------------------
Name: Robert W. Maxwell
Title: President
CONSENTED TO:
MANUFACTURERS AND TRADERS TRUST COMPANY,
as Trustee
/s/ Karin W. Cranz
- --------------------------
Name: Karin W. Cranz
Title: Trust Officer
<PAGE> 1
EMPLOYMENT TERMINATION AGREEMENT
This Employment Termination Agreement is entered into on May 19, 1996,
between FINANCING FOR SCIENCE INTERNATIONAL, INC., a Delaware corporation (the
"Company") and DR. BARRY R. BRONFIN of Wethersfield, Connecticut (the
"Executive"),
W I T N E S S E T H :
WHEREAS, the Company and Executive entered into an Employment Agreement
dated as of September 1, 1993, which is presently in force (the "Employment
Agreement"); and
WHEREAS, the Company is negotiating with the management of
The FINOVA Group, Inc. ("FINOVA") concerning the possible
acquisition of the Company; and
WHEREAS, in order to facilitate the negotiations with FINOVA the
Company and the Executive desire to provide for the termination of the
Employment Agreement upon the terms set forth herein in the event that such an
acquisition occurs;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
hereby agree as follows:
1. Definitions. The term "Acquisition" as used in this Agreement shall
mean an acquisition of the business of the Company by FINOVA by means of merger
or consolidation with the Company, or by a purchase of capital stock of the
Company, or by a purchase of assets of the Company, if and when incident thereto
(a) the composition of the Board of Directors of the Company (the "Board")
changes so that a majority of the Board is not comprised of individuals who were
members of the Board immediately prior to such merger, consolidation or purchase
of stock or assets or (b) the stockholders of the Company acquire the right to
receive, in exchange for or upon surrender of their stock, cash or other
securities or a combination of the two.
2. Termination of the Employment Agreement. The Executive and the
Company agree that upon the closing of an Acquisition, the Employment Agreement
shall automatically terminate and be of no further force or effect whatsoever,
and effective upon such closing Executive hereby releases the Company from any
and all obligations to him under the Employment Agreement.
3. Other Documents. The Company and the Executive agree to execute and
deliver to each other all such other and further documents as may be necessary
or appropriate to carry out the intent of this Agreement.
<PAGE> 2
4. Benefit and Burden; Governing Law. This Agreement shall
be binding upon and inure to the benefit of the Company and its
successors and assigns and the Executive and his heirs and legal
representatives and shall be governed by the laws of the State of
Connecticut.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first set forth above.
FINANCING FOR SCIENCE
INTERNATIONAL, INC.
/s/ Barry R. Bronfin By: /s/ Geoffrey W. Nelson
- ------------------------------ --------------------------------
Barry R. Bronfin Geoffrey W. Nelson
Assistant Secretary
Hereunto duly authorized
-2-
<PAGE> 1
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement is entered into as of this 19th day of
May, 1996 between FINANCING FOR SCIENCE INTERNATIONAL, INC., a Delaware
corporation having its principal offices in Farmington, Connecticut (the
"Company") and ROBERT W. MAXWELL (the "Executive").
W I T N E S S E T H :
Recitals.
Executive is employed by the Company as its President. The Board of
Directors of the Company (the "Board") has determined that it is in the best
interests of the Company and its shareholders to assure that the Company will
have the continued dedication of the Executive, notwithstanding the possibility,
threat or occurrence of a Change of Control (as defined below) of the Company.
The Board believes it is imperative to diminish the inevitable distraction of
the Executive by virtue of the personal uncertainties and risks created by a
pending or threatened Change of Control and to encourage the Executive's full
attention and dedication to the business of the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which will ensure that the compensation and benefits expectations of the
Executive will continue to be satisfied. The Company and the Executive have
therefore agreed that if the Executive should cease to be President of the
Company by reason of a Change of Control as set forth in this Agreement, his
employment will be continued in another capacity for a specified period;
NOW, THEREFORE, the Company and the Executive, in consideration of the
mutual promises set forth below, agree as follows:
1. Executive to Serve as President. The Executive shall continue to act
as President of the Company, subject to the direction and control of the
Executive Committee of the Board.
2. Definitions. The phrase "Change of Control," as used in this
Agreement, shall mean an acquisition of the Company by means of a merger or
consolidation or purchase
<PAGE> 2
of substantially all of its assets if and when incident thereto (a) the
composition of the Board changes so that a majority of the Board is not
comprised of individuals who were members of the Board immediately prior to such
merger, consolidation or purchase of assets or (b) the stockholders of the
Company acquire a right to receive, in exchange for or upon surrender of their
stock, cash or other securities or a combination of the two.
The word "cause", as used in this Agreement, shall mean conviction of a
felony or other crime involving moral turpitude, material breach by Executive of
his obligations under this Agreement, fraud or bankruptcy or insolvency of the
Executive, his refusal to follow reasonable orders or directions of the Board or
any other act or action which constitutes a material violation by Executive of
his fiduciary duty to the Company.
3. Employment Term. (a) The "Employment Term" shall commence on the
first date during the Protected Period (as defined in Section 3(d) below) on
which a Change of Control occurs (the "Effective Date") and shall expire on the
first anniversary of the Effective Date. (b) Notwithstanding anything contained
in this Agreement to the contrary, if the Executive's employment is terminated
prior to the Effective Date and the Executive reasonably demonstrates that such
termination (1) was at the request of a third party who has effectuated a Change
in Control or (2) otherwise occurred in connection with, or in anticipation of,
a Change in Control, then for all purposes of this Agreement, the Effective Date
shall mean the date immediately prior to the date of such termination of the
Executive's employment. (c) If, on the Effective Date, the Executive is not
employed by the Company for any reason (except as provided in Section 3(b)), the
Executive shall receive none of the benefits provided for in this Agreement and
the Executive shall not be obligated under any provisions of this Agreement
except for those found in Section 16 hereof. (d) For purposes of this Agreement,
the "Protected Period" shall be the two (2) year period commencing on the date
hereof.
4. Employment. (a) Subject to the provisions of Sections 10, 11, 12 and
13 hereof, the Company agrees to continue to employ the Executive and the
Executive agrees to remain in the employ of the Company during the Employment
Term unless he elects to
2
<PAGE> 3
resign from employment with the Company in accordance with Section 12 hereof.
During the Employment Term, the Executive shall be employed as the President of
the Company or in another senior executive capacity. The Executive shall perform
the duties, undertake the responsibilities and exercise the authority
customarily performed, undertaken and exercised by persons situated in similar
executive capacities. He shall also promote, by entertainment or otherwise, the
business of the Company. (b) During the Employment Term, excluding periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote all of his time and attention during usual business hours to the
business and affairs of the Company to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder. The Executive may (1)
serve on corporate, civil or charitable boards or committees and (2) manage
personal investments so long as such activities do not significantly interfere
with the performance of the Executive's responsibilities hereunder. It is
expressly understood and agreed that to the extent that any such activities have
been conducted by the Executive prior to the Effective Date, the continued
conduct of such activities (or the conduct of activities similar in nature and
scope thereto) subsequent to the Effective Date shall not thereafter be deemed
to interfere with the performance of the Executive's responsibilities to the
Company.
5. Compensation. The Company shall pay to the Executive during the
Employment Term a salary equal to the Executive's salary in effect immediately
prior to the Effective Date. Presently the Executive receives an annual salary
of $187,500 and is also entitled to receive a bonus attributable to the
operations of the Company in calendar year 1996 as determined by action of the
Executive Compensation Committee of the Board of Directors of the Company which
bonus customarily ranges in amount between 20% and 30% of the annual
compensation level of the Executive. Payment of the annual salary shall be made
twice monthly and be appropriately prorated during the first and last month of
the Employment Term.
6. Employee Benefits. During the Employment Term, the Executive shall
be entitled to participate in all employee benefit plans, practices and programs
maintained by the
3
<PAGE> 4
Company and made available to employees generally, including, without
limitation, all pension, retirement, profit sharing, savings, medical,
hospitalization, disability, dental, life and travel accident insurance benefit
plans. Unless otherwise provided, herein, the compensation and benefits under,
and the Executive's participation in, such plans, practices and programs shall
be on the same basis and terms as are applicable to employees of the Company
generally, but in no event on a basis less favorable in terms of benefit levels
and coverage than the most favorable of such plans, practices and programs
covering the Executive at any time within ninety (90) days preceding the
Effective Date, or if more favorable, at any time thereafter.
7. Executive Benefits. During the Employment Term, the Executive shall
be entitled to participate in all executive benefit or incentive compensation
plans maintained or established by the Company for the purpose of providing
compensation and/or benefits to executives of the Company. Any such plans shall
be on the same basis and terms as other similarly situated executives of the
Company, but in no event on a basis less favorable in terms of benefit levels or
reward opportunities than the most favorable benefit levels and reward
opportunities applicable to the Executive at any time within ninety (90) days
preceding the Effective Date, or if more favorable, at any time thereafter. No
additional compensation provided under any of such plans shall be deemed to
modify or otherwise affect the terms of this Agreement or any of the Executive's
entitlements hereunder.
8. Other Benefits. (a) During the Employment Term, the Executive shall
be entitled to all fringe benefits and perquisites (e.g., company cars, club
dues, physical examinations, financial planning and tax preparation services)
generally made available by the Company to its executives. Unless otherwise
provided herein, the fringe benefits and perquisites provided to the Executive
shall be on the same basis and terms as other similarly situated executives of
the Company, but in no event shall be less favorable than the most favorable
fringe benefits and perquisites applicable to the Executive at any time within
ninety (90) days preceding the Effective Date, or if more favorable, at any time
thereafter. (b) The Executive shall be entitled to receive prompt reimbursement
of all expenses reasonably
4
<PAGE> 5
incurred by him in connection with the performance of his duties hereunder or
for promoting, pursuing or otherwise furthering the business or interests of the
Company.
9. Vacation and Sick Leave. During the Employment Term, the Executive
shall be entitled to (a) an annual vacation in accordance with the policies as
periodically established by the Board for similarly situated executives of the
Company and (b) sick leave (without loss of pay) in accordance with the
Company's policies as in effect from time to time.
10. Termination for Cause. The Executive's employment by the Company
during the Employment Period may be terminated by the Company for "cause" as
defined in Section 2 hereof, but no such termination shall be deemed to have
taken place unless (i) the Company has given the Executive written notice
alleging the Executive to be guilty of the purported offense or conduct set
forth in the aforesaid definition of "cause" and specifying the particulars
thereof in detail, (ii) the Executive has been given a reasonable time and fails
to cure the conduct or offense of which he was given notice by the Company, if
the conduct or offense is such that it may be cured by reasonable action on the
part of the Executive and (iii) the Executive has been provided an opportunity
to be heard by the Board of Directors of the Acquiring Entity (as defined in
Section 11 hereof) with respect to the conduct or offense complained of. If, in
fact, the Executive's employment is terminated during the Employment Term by the
Company for Cause, as defined in Section 2, after adherence to the procedures
set forth in this Section 10, the Company shall pay the Executive all amounts
earned or accrued but not paid to the Executive through the date of termination,
including (i) salary and incentive compensation, (ii) reimbursement for
reasonable and necessary expenses incurred by the Executive on behalf of the
Company and (iii) vacation pay.
11. Constructive Termination. The Executive shall be deemed
"Constructively Terminated" if a Change of Control, as defined in this
Agreement, occurs, and if the Company or its successor, acquiror or the
surviving entity (any such successor, acquiror or surviving entity being herein
called the "Acquiring Entity"), (i) fails to keep the Executive in
5
<PAGE> 6
an executive position with substantial duties and responsibilities commensurate
with his age, experience and prior level of responsibility (provided that the
Executive will not be deemed Constructively Terminated solely because he does
not retain the title of President), or (ii) requires the Executive to spend
significantly more of his working time than he presently does outside of
Farmington, Connecticut. In the event the Executive is Constructively
Terminated, he shall have no further obligation to perform duties for either the
Company or the Acquiring Entity, but (i) he shall continue to be compensated and
receive benefits in accordance with Sections 5 through 8 of this Agreement from
the Company or the Acquiring Entity, as the case may be, and (ii) any such
termination and receipt of those benefits by the Executive shall not preclude
the Executive from receiving severance or termination benefits from the
Acquiring Entity, provided that any amounts then payable hereunder shall reduce
amounts payable under any such severance or termination benefits from the
Acquiring Entity.
12. Termination by Resignation. At any time during the Employment Term,
the Executive may resign by giving written notice to the Company. In such event,
the Company shall pay the Executive all amounts earned or accrued but not paid
to the Executive through the date of resignation, including (i) salary and
incentive compensation, (ii) reimbursement for reasonable and necessary expenses
incurred by the Executive on behalf of the Company and (iii) vacation pay.
Following such resignation, the Company shall have no further obligations to the
Executive, and the Executive shall not be bound by any of the obligations
provided for herein, except for those obligations found in Section 16.
13. Termination Due to the Executive's Death. If the Executive should
die during the Employment Term, the Executive's testamentary successors shall
receive the compensation to which the Executive is entitled pursuant to the
terms of Section 5, for a period of time equal to six months from the date of
death or through the end of the Employment Term, whichever is shorter. The
Company shall fund the obligation provided for in this Section 13 by the
purchase of a term life insurance policy on the life of the Executive whose
proceeds will be utilized by the Company to fund the payment of this obligation
in the event of the Executive's death, but any failure by the Company to procure
6
<PAGE> 7
such a policy of term life insurance or to apply any proceeds thereof to the
payment of this obligation shall not relieve the Company of the obligation
provided for in this Section 13.
14. Company's Right to Increase Compensation. Nothing in this Agreement
shall be construed to restrict the Company from increasing the Executive's
compensation, which includes but is not limited to salary, benefits, bonuses,
and stock options under the Company's stock option plan during the Protected
Period, or under the Acquiring Entity's stock option plan during the Employment
Term.
15. Non-Compete. During the Employment Term, the Executive will not
compete directly or indirectly with the Company or the Acquiring Entity (whether
as a principal, stockholder, lender, employee, officer, director, partner, joint
venturer, owner, consultant or otherwise) or be directly or indirectly
interested in any business competing with the business being conducted by the
Company or the Acquiring Entity. Ownership of less than 1 percent of the issued
and outstanding capital stock of any corporation the stock of which is listed
upon a national exchange or regularly quoted by the National Association of
Security Dealers Automated Quotation (NASDAQ) shall not by itself be deemed to
be competition for purposes of this Section.
16. Trade Secrets. The Executive shall regard and preserve as
confidential and not use, communicate or disclose to any person, orally, in
writing or by a publication, any secret or confidential information of the
Company, regardless of where or when or how acquired by the Company, or
confidential information of others which the Company is obligated to maintain in
confidence. This obligation shall exist during the Protected Period and beyond
the Protected Period until such information becomes a matter of public knowledge
through no act of the Executive. Upon any termination of employment of the
Executive by the Company, the Executive agrees to return to employer all
documents, writings, drawings and other property of the Company within his
custody and control.
7
<PAGE> 8
17. Entire Agreement. This Agreement embodies the whole understanding
between the parties hereto with respect to the subject matter hereof and
supersedes all earlier agreements. There are no inducements, promises, terms,
conditions or obligations made or entered into by either party other than as
contained herein.
18. Modification. This Agreement may not be changed orally, but only by
means of an agreement in writing signed by the parties hereto.
19. Waiver. The waiver by any party of a breach of any provision of
this Agreement shall not operate as, or be construed as, a waiver of any
subsequent breach.
20. Applicable Law. This Agreement shall be governed and construed in
accordance with the law of the State of Connecticut.
IN WITNESS WHEREOF, the parties have hereunto set their hands as of the
date first above written.
FINANCING FOR SCIENCE
INTERNATIONAL, INC.
/s/ Robert W. Maxwell By /s/ Barry R. Bronfin
- ------------------------------ ---------------------------------------
Robert W. Maxwell Barry R. Bronfin
Executive Its Chairman of the Board and
Chief Executive Officer
Hereunto duly authorized
8
<PAGE> 1
May 19, 1996
FINOVA Capital Corporation
1850 North Central Avenue
P.O. Box 2209
Phoenix, Arizona 85002-2209
Re: Agreement and Plan of Merger, dated May 19, 1996, among Financing for
Science International, Inc., FINOVA Capital Corporation, and FINOVA
Business Credit Corp.
Gentlemen:
The undersigned represent and warrant that they hold of record and
beneficially the number of shares of Common Stock, par value $0.01 per share
("FSI Common Shares"), of Financing for Science International, Inc., a Delaware
corporation ("FSI"), set forth opposite their respective names on the signature
page hereof. Except as disclosed on the signature page hereof, the undersigned
have sole voting and investment power over such FSI Common Shares.
In order to induce FINOVA Capital Corporation ("Finova") and FINOVA
Business Credit Corp. to enter into the above-captioned Agreement (the
"Agreement") and intending to be legally bound hereby, the undersigned severally
agree as follows (all terms used herein and not otherwise defined herein shall
have the meaning ascribed thereto in the Agreement):
1. Transfer of FSI Common Shares. Each of the undersigned
severally agrees not to sell, pledge, transfer, assign, encumber or otherwise
alienate any FSI Common Shares owned by such undersigned of record or
beneficially.
2. Voting on the Merger. Each of the undersigned severally
agrees that, at the meeting at which holders of FSI Common Shares vote on the
Merger and at any adjournments thereof, the undersigned will vote all FSI Common
Shares owned of record by, and will cause to be voted all FSI Common Shares
beneficially owned by, the undersigned in favor of the Agreement and the Merger.
3. Disclosure Material. FSI has distributed to the
undersigned, and the undersigned acknowledge receipt of: (a) FSI's Annual Report
on Form 10-K for the year ended December 31, 1995; (b) all reports or documents
filed by FSI with the Securities and Exchange Commission pursuant to Section
13(a) of the Securities Exchange Act of 1934, as amended, since December 31,
1995; and (c) the proxy statement sent by FSI to its shareholders in connection
with the solicitation of proxies for the 1996 Annual Meeting of Shareholders of
FSI; and (d) FSI's 1995 Annual Report to Shareholders. Each of the undersigned
have received and reviewed the Agreement.
4. Access to Information. The undersigned and their attorneys
and accountants have had, and shall continue to have, the opportunity prior to
the Closing Date (a) to review
<PAGE> 2
with the management of Finova any matter relating to the transactions
contemplated by the Agreement and (b) to obtain any additional information (to
the extent that such information is possessed by or available to Finova without
unreasonable effort or expense) necessary to verify the accuracy of the
information and material provided pursuant to Section 3 hereof or to make an
informed investment decision concerning the transactions contemplated by the
Agreement.
5. Irrevocable Proxy. In performance of the undersigned's
obligations under Section 2 hereof, each of the undersigned hereby constitutes
and appoints Finova the true and lawful attorney and proxy of the undersigned,
with full power of substitution, for the undersigned and in their name place and
stead to vote as their proxy all FSI Common Shares of any of the undersigned, at
any and all meetings of shareholders of FSI, in favor of the Agreement and the
Merger. Each of the undersigned hereby revokes all proxies heretofore made by
the undersigned. This proxy is coupled with an interest and is irrevocable.
6. Mutual Release. From and after the Effective Time (as
defined in the Merger Agreement) each of the undersigned hereby releases the
Company and its affiliates and successors, and the Company hereby releases the
undersigned and their affiliates and their successors, from any obligation
under, waive any rights with respect to, and terminate the following agreements,
which each of the undersigned and the Company acknowledge and agree are the only
agreements, arrangements and understandings between the undersigned and the
Company or its affiliates and successors, including without limitation, all
stock purchase, registration, board representation, employment, consulting and
expense reimbursement arrangements: (a) the Series A Preferred Stock Purchase
Agreement, dated December 31, 1991 and amended by amendments dated April 10,
1992, September 25, 1992, October 27, 1993 and May 18, 1994 (as amended, the
"Series A Preferred Stock Purchase Agreement"); and (b) any and all agreements
entered into between the parties that were attached as exhibits to, or otherwise
contemplated by, the Series A Preferred stock Purchase Agreement. The foregoing
notwithstanding, the Company acknowledges receipt of the necessary Internal
Revenue Service forms from Electra Investment Trust, P.L.C. ("Electra") such
that it will not withhold any United States withholding taxes from payments made
to Electra in connection with the Merger.
7. Termination. The foregoing notwithstanding, the obligations
of the undersigned under paragraphs 1, 2 and 5 of this letter agreement shall
terminate upon the earlier of the Effective Time or termination of the
Agreement, but in no event later than October 31, 1996. In addition, the
obligations of the undersigned under paragraphs 1, 2, and 5 of this letter
agreement shall also terminate in the event that, without the prior written
consent of the undersigned, the parties to the Agreement enter into or submit to
a vote of the FSI shareholders an amendment to the Agreement adverse to the
undersigned or which, in any material respect, modifies the terms of the
transactions contemplated by the Agreement including, without limitation, a
change in the Merger Price.
-2-
<PAGE> 3
In confirmation and evidence of the foregoing, the undersigned have
executed this letter agreement on the date first set forth above.
Very truly yours,
Number of FSI Common Shares:
Electra Investment Trust, P.L.C.
1,900,000 By: /s/ H.A.L.H. Mumford
- ----------------------------- -------------------------------------
As its: Authorized Signatory
AMEV Venture Associates III, L.P
480,000 By: /s/ Martin S. Orland
- ----------------------------- -------------------------------------
As its: President of General Partner
AMEV Venture Associates III-
International, L.P
480,000 By: /s/ Martin S. Orland
- ----------------------------- -------------------------------------
As its: President of General Partner
Financing For Science International, Inc.
By: /s/ Barry R. Bronfin
-------------------------------------
As its: Chairman
ACKNOWLEDGED AND CONFIRMED:
FINOVA CAPITAL CORPORATION
By: /s/ Robert B. Radway
----------------------------
As its: Senior Vice President
-3-
<PAGE> 4
May 19, 1996
FINOVA Capital Corporation
1850 North Central Avenue
P.O. Box 2209
Phoenix, Arizona 85002-2209
Re: Agreement and Plan of Merger, dated May 19, 1996, among Financing for
Science International, Inc., FINOVA Capital Corporation, and FINOVA
Business Credit Corp.
Gentlemen:
The undersigned represents and warrants that he holds of record and
beneficially the number of shares of Common Stock, par value $0.01 per share
("FSI Common Shares"), of Financing for Science International, Inc., a Delaware
corporation ("FSI"), set forth opposite his name on the signature page hereof.
Except as disclosed on the signature page hereof, the undersigned has sole
voting and investment power over such FSI Common Shares.
In order to induce FINOVA Capital Corporation ("Finova") and FINOVA
Business Credit Corp. to enter into the above-captioned Agreement (the
"Agreement") and intending to be legally bound hereby, the undersigned agrees as
follows (all terms used herein and not otherwise defined herein shall have the
meaning ascribed thereto in the Agreement):
1. Transfer of FSI Common Shares. The undersigned agrees not
to sell, pledge, transfer, assign, encumber or otherwise alienate any FSI Common
Shares owned by the undersigned of record or beneficially.
2. Voting on the Merger. The undersigned agrees that, at the
meeting at which holders of FSI Common Shares vote on the Merger and at any
adjournments thereof, the undersigned will vote all FSI Common Shares owned of
record by, and will cause to be voted all FSI Common Shares beneficially owned
by, the undersigned in favor of the Agreement and the Merger.
3. Disclosure Material. FSI has distributed to the
undersigned, and the undersigned acknowledges receipt of: (a) FSI's Annual
Report on Form 10-K for the year ended December 31, 1995; (b) all reports or
documents filed by FSI with the Securities and Exchange Commission pursuant to
Section 13(a) of the Securities Exchange Act of 1934, as amended, since December
31, 1995; and (c) the proxy statement sent by FSI to its shareholders in
connection with the solicitation of proxies for the 1996 Annual Meeting of
Shareholders of FSI; and (d) FSI's 1995 Annual Report to Shareholders. The
undersigned has received and reviewed the Agreement.
4. Access to Information. The undersigned and his attorneys
and accountants have had, and shall continue to have, the opportunity prior to
the Closing Date (a) to review
<PAGE> 5
with the management of Finova any matter relating to the transactions
contemplated by the Agreement and (b) to obtain any additional information (to
the extent that such information is possessed by or available to Finova without
unreasonable effort or expense) necessary to verify the accuracy of the
information and material provided pursuant to Section 3 hereof or to make an
informed investment decision concerning the transactions contemplated by the
Agreement.
5. Irrevocable Proxy. In performance of the undersigned's
obligations under Section 2 hereof, the undersigned hereby constitutes and
appoints Finova the true and lawful attorney and proxy of the undersigned, with
full power of substitution, for the undersigned and in his name, place and stead
to vote as his proxy all FSI Common Shares of the undersigned, at any and all
meetings of shareholders of FSI, in favor of the Agreement and the Merger. The
undersigned hereby revokes all proxies heretofore made by the undersigned. This
proxy is coupled with an interest and is irrevocable.
6. Release. From and after the Effective Time (as defined in
the Merger Agreement) the undersigned hereby releases the Company and its
affiliates and successors from any obligation under, waives any rights with
respect to, and terminates all agreements, arrangements and understandings
between the undersigned and the Company or its affiliates and successors
including without limitation all stock purchase, registration, board
representation, employment, consulting and expense reimbursement arrangements.
7. Termination. The foregoing notwithstanding, the obligations
of the undersigned under paragraphs 1, 2 and 5 of this letter agreement shall
terminate upon the earlier of the Effective Time or termination of the
Agreement, but in no event later than October 31, 1996. In addition, the
obligations of the undersigned under paragraphs 1, 2, and 5 of this letter
agreement shall also terminate in the event that, without the prior written
consent of the undersigned, the parties to the Agreement enter into or submit to
a vote of the FSI shareholders an amendment to the Agreement adverse to the
undersigned or which, in any material respect, modifies the terms of the
transactions contemplated by the Agreement including, without limitation, a
change in the Merger Price.
-2-
<PAGE> 6
In confirmation and evidence of the foregoing, the undersigned have
executed this letter agreement on the date first set forth above.
Very truly yours,
Number of FSI Common Shares:
1,197,200* /s/ Barry R. Bronfin
- ---------------------------------- ----------------------------------------
Barry R. Bronfin
* 250,000 shares held of record
by Dr. Bronfin's spouse.
ACKNOWLEDGED AND CONFIRMED:
FINOVA CAPITAL CORPORATION
By: /s/ Robert B. Radway
-------------------------------
As its: Senior Vice President
-3-
<PAGE> 1
MODIFICATION AND RELEASE AGREEMENT
THIS MODIFICATION AND RELEASE AGREEMENT ("Agreement") is made and
entered into this 19th day of May 1996 by and among Financing for Science
International, Inc. (the "Company") and Sands Brothers & Co., Ltd. ("Sands
Brothers").
RECITALS:
A. The Company, Sands Brothers and certain other underwriters (Sands
Brothers and such other underwriters being hereinafter collectively referred to
as the "Underwriters") are parties to an Underwriting Agreement, dated May 20,
1994 and amended as to Sands Brothers as of January 3, 1995 (as amended, the
"Underwriting Agreement"), pursuant to which the Underwriters purchased certain
securities from the Company for ultimate distribution and sale to the public.
B. Section 4 of the Underwriting Agreement contains certain covenants
of the Company, several of which remain in full force and effect for a period of
five years following the effective date of the purchase and sale of securities
pursuant to the Underwriting Agreement.
C. In connection with the transactions contemplated by the Underwriting
Agreement, the Company and Sands Brothers also entered into an Underwriters'
Warrant Agreement, dated as of May 27, 1994 (the "Underwriters' Warrant
Agreement"), and the Company and State Street Bank and Trust Company entered
into a Warrant Agreement, dated as of May 27, 1994 (the "Warrant Agreement").
D. The Company and Sands Brothers also are parties to an Investment
Banking Agreement, dated May 20, 1994 and amended as of January 3, 1995 (as
amended, the "Investment Banking Agreement"), pursuant to which Sands Brothers
has certain preferential rights with respect to specified investment banking
services which may be needed by the Company during the term of the Investment
Banking Agreement.
E. The Company is contemplating entering into a Merger Agreement (the
"Merger Agreement") with FINOVA Capital Corporation ("FINOVA") and its wholly
owned subsidiary, FINOVA Business Credit Corp. (the "Subsidiary"), pursuant to
which the Company will merge with the Subsidiary (the "Merger") and the
stockholders of the Company will receive in exchange for their shares of Company
common stock the consideration specified in the Merger Agreement.
F. In order to facilitate the execution and delivery of the definitive
Merger Agreement, the Company has requested Sands Brothers (i) to relinquish the
rights it has under or by virtue of (a) Section 4 of the Underwriting Agreement,
(b) the Underwriters' Warrant Agreement, and (c) Section 4 of the Warrant
Agreement and (ii) to terminate the Investment Banking Agreement, except for
Section 9 thereof.
G. Sands Brothers is willing to agree to such a release and termination
on the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises and agreements
hereinafter set forth and intending to be legally bound, the parties hereby
agree as follows:
<PAGE> 2
1. Release. From and after the Effective Time (as defined in Section 4
below), Sands Brothers hereby relinquishes the rights it has under or by virtue
of (i) Section 4 of the Underwriting Agreement, (ii) the Underwriters' Warrant
Agreement, and (iii) Section 4 of the Warrant Agreement. Sands Brothers
represents and warrants that the foregoing agreements, this Agreement and the
Investment Banking Agreement are the only agreements, whether written or oral,
between the parties.
2. Termination of Investment Banking Agreement. At the Effective Time,
the Investment Banking Agreement shall terminate and be of no further force or
effect, except for Section 9 thereof.
3. Payments to Sands Brothers. At the Effective Time, and as a
condition precedent to the effectiveness of the terms and conditions contained
herein, the Company shall pay Sands Brothers a lump-sum payment of Three Hundred
Thousand Dollars ($300,000.00) (the "Termination Fee") and its counsel fees and
expenses not to exceed $5,000. The Termination Fee and such legal fees shall be
paid at the Effective Time (as defined below) by cash or certified check.
4. Effective Time. Sections 1, 2 and 3 of this Agreement shall become
effective at the effective time of the Merger (the "Effective Time"). The
closing held in connection with the transactions contemplated by this Agreement
(the "Closing") shall be held simultaneously with the closing held in connection
with the Merger.
5. Ongoing Force and Effect. Except as provided herein, all of the
Company's obligations to Sands Brothers under the Underwriting Agreement and the
Warrant Agreement and the Investment Banking Agreement shall remain unmodified
and shall continue in full force and effect. The elimination of any provisions
of such agreements shall not affect or impair any rights Sands Brothers has with
respect to the indemnification and contribution provisions contained therein,
which the parties acknowledge shall remain in full force and effect.
6. Further Assurances. From and after the date hereof, each party to
this Agreement shall take such further actions, and execute and deliver such
further agreements, instruments, certificates and other documents, as the other
party hereto may reasonably request in order to carry out the provisions hereof
and consummate the transactions contemplated hereby or, at and after the
Effective Time, to evidence the consummation of the transactions contemplated by
this Agreement.
7. Covenant not to Sue. In consideration of One Hundred Dollars
($100.00) this day paid and for other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, Sands Brothers hereby
covenants and agrees that neither it nor any affiliate of Sands Brothers,
directly or indirectly, shall ever initiate, file, commence, prosecute, bring or
take any actual and affirmative action to encourage or support any form of
action or other legal proceeding against the Company, FINOVA or any of its or
their affiliates on account of, but only on account of, any of the transactions
contemplated by the Merger Agreement, including, without limitation, by or on
account of the treatment in the Merger Agreement of the Redeemable Warrants and
the Underwriters' Warrants (as those terms are defined in the Underwriting
Agreement); provided, however, that this paragraph shall not prevent Sands
Brothers from commencing litigation, arbitration or any action to enforce its
rights to indemnification and contribution under the Underwriters Agreement, the
Underwriters Warrant Agreement and the Investment Banking Agreement. For
purposes of this Section 7, an "affiliate" of any person shall include any
person or entity that, directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
-2-
<PAGE> 3
such person and, without limitation, shall include each such entities, their
directors, officers, stockholders and agents, but shall expressly exclude (i)
any limited partnership affiliated with Sands Brothers and (ii) any holder of
securities of the Company that acquired his securities through Sands Brothers
including, without limitation, any subscriber in the Company's initial public
offering and any investor who acquired securities of the Company in the
secondary market through Sands Brothers.
8. Termination. In the event that either (a) the Merger Agreement is
terminated for any reason whatsoever, or (b) the Closing does not take place on
or before October 1, 1996, this Agreement shall become null and void ab initio
and shall be of no further force or effect.
9. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut.
(b) This Agreement shall be binding on the successors and
assigns, if any, of the parties.
(c) This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument.
(d) The parties may execute and deliver this Agreement by
facsimile transmission of executed signature pages, and this Agreement shall be
effective upon the receipt of such facsimile transmission. Notwithstanding the
foregoing, each party shall promptly deliver to the other a manually executed
original copy of this Agreement.
(e) Steven B. Sands, a director of the Company, did not
participate in the resolution of the Board of Directors of the Company to enter
into this Agreement or to make any payments to Sands Brothers.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered on its behalf by a duly authorized
representative thereof.
FINANCING FOR SCIENCE
INTERNATIONAL, INC.
By: /s/ Barry R. Bronfin
-------------------------------------
Name: Barry R. Bronfin
Title: Chairman
SANDS BROTHERS & CO., LTD.
By: /s/ Charles L. Robinson
-------------------------------------
Name: Charles L. Robinson
Title: Managing Director
-3-
<PAGE> 1
MODIFICATION AND RELEASE AGREEMENT
THIS MODIFICATION AND RELEASE AGREEMENT ("Agreement") is made and
entered into this 19th day of May 1996 by and among Financing for Science
International, Inc. (the "Company") and RAS Securities Corp. ("RAS").
RECITALS:
A. The Company, RAS and certain other underwriters (RAS and such other
underwriters being hereinafter collectively referred to as the "Underwriters")
are parties to an Underwriting Agreement, dated May 20, 1994 (the "Underwriting
Agreement"), pursuant to which the Underwriters purchased certain securities
from the Company for the ultimate distribution and sale to the public.
B. Section 4 of the Underwriting Agreement contains certain covenants
of the Company, several of which purport to remain in full force and effect for
a period of five years following the effective date of the purchase and sale of
securities pursuant to the Underwriting Agreement.
C. In connection with the transactions contemplated by the Underwriting
Agreement, the Company and RAS also entered into an Underwriters' Warrant
Agreement, dated as of May 27, 1996 (the "Underwriters' Warrant Agreement"), and
the Company and State Street Bank and Trust Company entered into a Warrant
Agreement, dated as of May 27, 1996 (the "Warrant Agreement").
D. The Company is contemplating entering into a Merger Agreement (the
"Merger Agreement") with FINOVA Capital Corporation ("FINOVA") and its wholly
owned subsidiary, FINOVA Business Credit Corp. (the "Subsidiary"), pursuant to
which the Company will merge with the Subsidiary (the "Merger") and the
stockholders of the Company will receive in exchange for their shares of Company
common stock the consideration specified in the Merger Agreement.
E. In order to facilitate the execution and delivery of a definitive
Merger Agreement, the Company has requested RAS to relinquish any rights it may
have under or by virtue of (i) Section 4 of the Underwriting Agreement, (ii) the
Underwriters' Warrant Agreement, and (iii) Section 4 of the Warrant Agreement.
F. RAS is willing to agree to such a release on the terms and subject
to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises and agreements
hereinafter set forth and intending to be legally bound, the parties hereby
agree as follows:
1. Release. From and after the Effective Time (as defined in Section 3
below), RAS hereby relinquishes any rights it may have under or by virtue of (i)
Section 4 of the Underwriting Agreement, (ii) the Underwriters' Warrant
Agreement, and (iii) Section 4 of the Warrant Agreement. From and after the
Effective Time, RAS shall have no continuing rights against the Company under or
by virtue of such agreements. RAS represents and warrants that the foregoing
agreements are the only agreements, whether written or oral, between the
parties.
<PAGE> 2
2. Payment to RAS. At the Effective Time, the Company shall pay RAS a
lump-sum payment of Fifty Thousand Dollars ($50,000.00). Such amount shall be
due and payable at the Closing (as defined in Section 3 below) by cash or
certified check.
3. Effective Time. Sections 1 and 2 of this Agreement shall become
effective at the effective time of the Merger (the "Effective Time"). The
closing held in connection with the transactions contemplated by this Agreement
(the "Closing") shall be held simultaneously with the closing held in connection
with the Merger.
4. Ongoing Force and Effect. Except as provided herein, all of the
Company's obligations to RAS under the Underwriting Agreement shall remain
unmodified and continue in full force and effect.
5. Further Assurances. From and after the date hereof, each party to
this Agreement shall take such further actions, and execute and deliver such
further agreements, instruments, certificates and other documents, as the other
party hereto may reasonably request in order to carry out the provisions hereof
and consummate the transactions contemplated hereby or, at and after the
Effective Time, to evidence the consummation of the transactions contemplated by
this Agreement.
6. Covenant not to Sue. In consideration of One Hundred Dollars
($100.00) this day paid and for other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, RAS hereby covenants
and agrees that neither it nor any affiliate of RAS, directly or indirectly,
shall ever initiate, file, commence, prosecute, bring, encourage or support any
form of action or other legal proceeding against the Company, FINOVA or any of
its or their affiliates and will not sue or, as much as it lies within its power
to prevent, permit the Company, FINOVA or any of its or their affiliates to be
sued, on account of any of the transactions contemplated by the Merger
Agreement, including, without limitation, by or on account of the treatment in
the Merger of the Redeemable Warrants and the Underwriters' Warrants (as those
terms are defined in the Underwriting Agreement). For purposes of this Section
6, an "affiliate" of any person shall include any person or entity that,
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such person and, without
limitation, shall include each such entitles directors, officers, employees and
their counsel, stockholders or agents.
7. Termination. In the event that either (a) the Merger Agreement is
terminated for any reason whatsoever, or (b) the Closing does not take place on
or before October 1, 1996, this Agreement shall become null and void and shall
be of no further force or effect, except for the provisions of Section 6 hereof,
which shall survive any termination of this Agreement.
8. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut.
(b) This Agreement shall be binding on the successors and
assigns, if any, of the parties.
(c) This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument.
-2-
<PAGE> 3
(d) The parties may execute and deliver this Agreement by
facsimile transmission of executed signature pages, and this Agreement shall be
effective upon the receipt of such facsimile transmission. Notwithstanding the
foregoing, each party shall promptly deliver to the other a manually executed
original copy of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered on its behalf by a duly authorized
representative thereof.
FINANCING FOR SCIENCE
INTERNATIONAL, INC.
By: /s/ Barry R. Bronfin
-------------------------------------
Name: Barry R. Bronfin
Title: Chairman
RAS SECURITIES CORP.
By: /s/ Eric Rainer Bashford C.F.A.
-------------------------------------
Name: Eric Rainer Bashford
Title: President
-3-
<PAGE> 1
BARRY R. BRONFIN
77 Meadowgate
Wethersfield, CT 06109
May 19, 1996
Financing for Science International, Inc.
10 Waterside Drive
Farmington, CT 06032-3065
Ladies and Gentlemen:
In order to induce Financing for Science International, Inc. (the
"Company") to enter into the Agreement and Plan of Merger, dated as of the date
hereof (the "Merger Agreement"), among the Company, FINOVA Capital Corporation
("Parent") and FINOVA Business Credit Corp. (the "Merger Sub"), and intending
to be legally bound hereby, the undersigned agrees as follows:
All terms used herein and not otherwise defined herein shall have the
meaning ascribed thereto in the Merger Agreement.
1. Subsidy Payment. Whereas the obligations of Parent and Merger Sub to
consummate the transactions contemplated by the Merger Agreement are subject to,
among other things, the requirement that the Per Share Amount, as defined in
Section 4.2 of the Merger Agreement, shall not be less than $6.35 and whereas
the undersigned desires to ensure that the Merger is consummated, the
undersigned hereby agrees to pay to the Company at the Closing, to the extent
that the Per Share Amount is less than $6.35, up to $250,000, as a subsidy
payment to the Company (the "Subsidy Payment"), such that the Per Share Amount
shall be no less than $6.35.
2. Setoff. The undersigned further agrees that in the event that
a payment is due by the undersigned to the Company pursuant to paragraph 1 above
and that the undersigned has not paid the Subsidy Payment to the Company on or
prior to such time as the Paying Agent is required to pay the Merger Price for
the Certificates owned and surrendered by the undersigned, the undersigned
hereby authorizes the Paying Agent, at the option of the Company, to deduct the
full amount of the Subsidy Payment then owed by the undersigned to the Company
and to turn such amount over to the Company.
<PAGE> 2
Financing for Science International, Inc.
May 19, 1996
Page 2
3. Termination. In the event that either (a) the Merger Agreement is
terminated for any reason whatsoever, or (b) the Closing does not take place on
or before November 1, 1996, this Letter Agreement shall become null and void
and shall be of no further force or effect.
4. Miscellaneous.
(a) The undersigned agrees to be bound by the determination of the
Per Share Amount as calculated pursuant to Section 4.2 of the Merger Agreement.
In the event that the Per Share Amount is disputed by the Company or Parent, no
payment shall be due from the undersigned until such time that such dispute has
been resolved in accordance with Section 4.2(c) of the Merger Agreement or
otherwise agreed upon by Parent and the Company.
(b) The undersigned agrees that neither the execution of this Letter
Agreement nor the payment of any Subsidy Payment by or on behalf of the
undersigned shall entitle the undersigned to any additional equity or debt
securities of, or ownership or other interest in, the Company.
(c) This Letter Agreement shall be governed and construed in
accordance with the laws of the state of Connecticut and shall be binding on
the successors and assigns, if any, of the undersigned and shall inure to the
benefit of Parent and/or Merger Sub as successors to the Company and any other
successors or assigns of the Company.
In confirmation and evidence of the foregoing, the undersigned has
executed this Letter Agreement on the date first set forth above.
Very truly yours,
/s/ BARRY R. BRONFIN
------------------------------------
Barry R. Bronfin
Accepted:
FINANCING FOR SCIENCE INTERNATIONAL, INC.
By: /s/ GEOFFREY W. NELSON
-----------------------------
Geoffrey W. Nelson
Its: Assistant Secretary
----------------------------
Date: May 19, 1996
---------------------------
<PAGE> 1
[KROPSCHOT FINANCIAL SERVICES LETTERHEAD]
April 3, 1996
PRIVATE AND CONFIDENTIAL
Dr. Barry R. Bronfin, Chairman
Financing for Science International, Inc.
10 Waterside Drive, Suite 300
Farmington, CT 06032
Dear Barry:
I appreciated the opportunity to talk with you and your Board of Directors
regarding your possible need for a fairness opinion for Financing for Science
International, Inc. As we discussed, I believe that Kropschot Financial
Services is uniquely qualified to perform this work for you. I would be the
person principally responsible for the project, and I would be assisted by
Senior Vice President Martin Shames. Background information on both of us is
enclosed. If you are ready for us to commence this project on April 8th, we
expect to complete our work by April 19th.
Following are the terms under which Kropschot Financial Services proposes to
undertake this engagement:
* Fee - The services of Mr. Shames and me will be billed at an
hourly rate of $350. Our fee will not exceed $35,000 unless
there are special requirements, such as a separate consideration
of the value of stock warrants and options and/or a valuation of
the stock of an acquirer.
* Retainer - A retainer of $10,000 is payable upon your acceptance
of this proposal. The retainer will be deducted from our final
billing for this project.
* Expenses - Kropschot Financial Services will be reimbursed for
reasonable travel and miscellaneous expenses incurred for this
assignment.
* Indemnification - Financing for Science International, Inc. will
indemnify and hold harmless Kropschot Financial Services, its
employees and agents against any liability, losses, claims and
damages (including legal fees and related expenses) to which
they may become subject as a result of or in connection with the
rendering of services under this agreement, provided, however,
that this indemnity shall not apply in the case of willful
misconduct or gross negligence on the part of Kropschot
Financial Services in performance of the services hereunder.
<PAGE> 2
-2-
If you are in agreement with the above terms, please sign and return one copy
of this agreement. We look forward to being of service to you.
Sincerely,
KROPSCHOT FINANCIAL SERVICES
/s/ Bruce E. Kropschot
- ---------------------------
Bruce E. Kropschot
President
BEK:bdk
encl.
AGREED TO AND ACCEPTED THIS 16th DAY OF APRIL, 1996
Financing for Science International, Inc.
/s/ Barry R. Bronfin
- ---------------------------------------
Barry R. Bronfin, Chairman
<PAGE> 1
July 31, 1996
Mr. Richard Schwartz
Sr. Vice President, Secretary & General Counsel
Financing for Science International, Inc.
Dear Richard:
This letter will serve to confirm the arrangements associated with your
employment by Financing for Science International, Inc. or its successor entity
(the "Company") following the acquisition of Financing for Science
International, Inc. by the FINOVA Group Inc. or one of its subsidiaries. It is
our sincere hope that you will find these terms acceptable and continue in your
position with the Company. Nevertheless, either you or the Company is free to
terminate the employment relationship at anytime with or without cause.
- - You have agreed to remain in your position with the Company with the title
of Vice President, Associate General Counsel and Assistant Secretary, for a
six (6) month transition period beginning on the closing date of FINOVA's
acquisition of the Company, estimated to be September 1, 1996. Unless you
otherwise consent, you will remain at the Company's office located in
Farmington, Ct.. Your compensation shall continue during such period at the
annual rate of $125,000. If you complete this transition period or are
terminated by the Company without good cause, you will be paid by the Company
a Transition Bonus of $37,500 in addition to severance payments due under
currently existing plans and policies of the Company in the amount of $38,462
plus any accrued and unused vacation.
- - You will be eligible (based on customary performance factors) to receive a
pro-rated bonus payment based on your 1995 bonus. This bonus will continue to
accrue for each month of employment you complete through the end of the
transition period.
- - If we mutually agree to continue your position beyond the six month
transition period, your employment will be subject to mutually agreeable terms
and will follow the general employment policies and practices of the Company.
If you agree to the terms as outlined in this letter, please sign below.
Sincerely, ACKNOWLEDGED:
/s/ William J. Hallinan /s/ Richard Schwartz
- ----------------------- --------------------
William J. Hallinan Richard Schwartz
Senior Vice President-
General Counsel & Secretary
The FINOVA Group Inc.
<PAGE> 1
EXHIBIT 11
FINANCING FOR SCIENCE INTERNATIONAL, INC.
COMPUTATION OF EARNINGS PER SHARE
For the three and six months ended June 30, 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
------------------ ----------------
<S> <C> <C>
Net earnings $ 870 $ 1,634
====== =========
Weighted average number of shares outstanding 5,433 5,428
Weighted average shares issuable on exercise of 351 315
dilutive stock options
Weighted average shares of treasury stock (38) (38)
------ ---------
Weighted average number of common and common equivalent shares 5,746 5,705
====== =========
Net earnings per share $ .15 $ .29
====== =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 29,613
<SECURITIES> 0
<RECEIVABLES> 202,313
<ALLOWANCES> 1,582
<INVENTORY> 0
<CURRENT-ASSETS> 230,344
<PP&E> 12,288
<DEPRECIATION> 3,676
<TOTAL-ASSETS> 238,956
<CURRENT-LIABILITIES> 31,846
<BONDS> 179,287
0
0
<COMMON> 54
<OTHER-SE> 27,769
<TOTAL-LIABILITY-AND-EQUITY> 238,956
<SALES> 0
<TOTAL-REVENUES> 12,796
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,320
<LOSS-PROVISION> 757
<INTEREST-EXPENSE> 6,901
<INCOME-PRETAX> 2,818
<INCOME-TAX> 1,184
<INCOME-CONTINUING> 1,634
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,634
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
