<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1997
REGISTRATION NO. 333-34729
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
THE LINC GROUP, INC.
(TO BE MERGED INTO LINC CAPITAL, INC.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 6159 36-3135040
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
303 EAST WACKER DRIVE
CHICAGO, ILLINOIS 60601
(312) 946-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
ALLEN P. PALLES
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
THE LINC GROUP, INC.
(TO BE MERGED INTO LINC CAPITAL, INC.)
303 EAST WACKER DRIVE
CHICAGO, ILLINOIS 60601
(312) 946-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS, INCLUDING COMMUNICATIONS SENT TO AGENT FOR
SERVICE, SHOULD BE SENT TO:
CARTER W. EMERSON, ESQ. WILLIAM J. GRANT, JR., ESQ.
KIRKLAND & ELLIS WILLKIE FARR & GALLAGHER
200 EAST RANDOLPH DRIVE 153 E. 53RD STREET
CHICAGO, IL 60601 NEW YORK, NY 10022
(312) 861-2052 (212) 821-8223
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 29, 1997
PROSPECTUS
2,000,000 SHARES
LOGO
COMMON STOCK
All of the shares of Common Stock, par value $0.001 per share ("Common
Stock"), offered hereby (the "Offering") are being sold by LINC Capital, Inc.
(the "Company").
Prior to the Offering, there has been no public market for the Common Stock.
It is anticipated that the initial public offering price per share of Common
Stock will be between $14 and $16. See "Underwriting" for factors considered in
determining the initial public offering price. The Common Stock has been
approved, subject to official notice of issuance, for quotation on the Nasdaq
National Market under the symbol "LNCC."
This Prospectus sets forth the information about the Company that a
prospective investor should know before purchasing Common Stock. Prospective
investors are advised to read this Prospectus and retain it for future
reference.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS FOR INFORMATION
THAT PROSPECTIVE INVESTORS SHOULD CONSIDER IN CONNECTION WITH THEIR INVESTMENT
DECISION, INCLUDING INFORMATION RELATING TO THE DILUTION THAT SUCH INVESTORS
WILL INCUR.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............ $ $ $
- ------------------------------------------------------------------------------
Total (3)............ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including certain liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $650,000.
(3) The Company has granted a 30-day option to the Underwriters to purchase up
to an aggregate of 300,000 additional shares of Common Stock on the same
terms and conditions as set forth above, solely to cover over-allotments,
if any. If all of such shares are purchased, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
-----------
The shares are being offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters, and subject to various prior
conditions, including the right to reject orders in whole or in part. It is
expected that delivery of share certificates will be made against payment
therefor at the offices of Furman Selz LLC in New York, New York on or about
, 1997.
FURMAN SELZ EVEREN SECURITIES, INC.
-----------
The date of this Prospectus is , 1997.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
WHICH STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING
THE PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON
STOCK OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information, including "Risk Factors,"
appearing elsewhere in this Prospectus and the financial statements and notes
hereto. In addition to such other information, the following summary should be
considered carefully by prospective investors in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby. Except
for historical information contained herein, this Prospectus contains forward-
looking statements that involve risks and uncertainties, such as statements of
the Company's plans, objectives, expectations and intentions. The cautionary
statements made in this Prospectus should be read as being applicable to all
related forward-looking statements wherever they appear in this Prospectus. The
Company's actual results could differ materially from those discussed herein.
Unless otherwise indicated, the information set forth in this Prospectus does
not give effect to the exercise of the Underwriters' over-allotment option.
THE COMPANY
GENERAL
LINC Capital, Inc. (the "Company") is a finance company specializing in the
origination, acquisition, securitization and servicing of equipment leases and
in the rental and distribution of analytical instruments. The Company's
principal businesses are (i) the direct origination of leases of a broad range
of equipment to emerging growth companies primarily serving the healthcare and
information technology industries ("Select Growth Leasing" activities) and (ii)
the rental and distribution of analytical instruments to companies serving the
environmental, chemical, pharmaceutical and biotechnology industries
("Instrument Rental & Distribution" activities). The Company believes that its
position as a leading provider of equipment leasing, rental and other services
to its specialized markets provides significant opportunities for internal
growth, as well as growth through the acquisition and financing of lease
portfolios originated by other lessors and the acquisition of leasing companies
which can capitalize on the existing capabilities and significant management
experience of the Company ("Portfolio Finance & Lessor Acquisition"
activities). The Company believes that its extensive experience in these
markets and its flexibility in structuring transactions to meet the needs of
both its leasing and rental customers provide it with a competitive advantage
over other sources of such services.
BACKGROUND
The Company's management team has extensive experience in the development of
specialty finance companies, with each of its three senior officers having over
25 years experience in the equipment leasing or rental industry. Since its
founding in 1975 by Mr. Martin E. Zimmerman, the Company's Chairman and Chief
Executive Officer, the Company and companies previously managed by Mr.
Zimmerman and Mr. Allen P. Palles, the Company's Executive Vice President and
Chief Financial Officer, have originated over $1.5 billion in equipment leases,
have acquired and serviced over $600 million in lease portfolios originated by
other lessors and have financed over $650 million of assets through
securitizations and other structured financings. Under the management of
Messrs. Zimmerman and Palles, the Company believes, based on management's
extensive knowledge of and experience in the equipment leasing industry, that
it became the largest independent lessor of healthcare equipment in the United
States with over $500 million in assets owned or managed in 1993 and, based on
statements made to the Company by individuals familiar with the securitization
industry as well as its own research, that it was the first company in the U.S.
to securitize healthcare equipment leases and related residual values. The
Company sold its healthcare equipment leasing and portfolio acquisition and
servicing business in 1994 to a subsidiary of Anthem Insurance Companies, Inc.
(the "1994 Sale") which Messrs. Zimmerman and Palles managed until late 1996
after its sale (the "1996 Sale") to Newcourt Credit Group (USA), Inc.
("Newcourt"). After the 1996 Sale, Messrs. Zimmerman and Palles returned to the
Company on a full-time basis to pursue opportunities in its Select Growth
Leasing and Instrument Rental & Distribution activities. The Company has also
engaged in a number of other successful activities serving the healthcare
industry, including a business providing receivables-based lending to
healthcare providers which was sold to The FINOVA Group in 1996.
3
<PAGE>
Pursuant to a non-competition agreement associated with the 1994 Sale which
expired in September 1997 (the "Non-Compete Agreement"), the Company was
effectively restricted from participating in Portfolio Finance & Lessor
Acquisition activities and from originating leases other than to emerging
growth companies. The Company will pursue such opportunities once again now
that the Non-Compete Agreement has expired. The Company will also continue to
expand its Select Growth Leasing activities which were initiated in response to
fundamental changes in the healthcare and information technology industries,
which management believes enhanced the growth dynamics for lessors serving
these industries. The Company will also continue to pursue expansion of its
Instrument Rental & Distribution activities, which have marketing, financing
and administrative synergies with its Select Growth Leasing activities. The
Company's Instrument Rental & Distribution activities were developed through
the acquisition in 1991 of a business founded by Mr. Robert E. Laing, the
Company's President and Chief Operating Officer, and the acquisition in 1992 of
the analytical instruments business of AT&T Capital Corporation ("AT&T
Capital"). Prior to founding this business, Mr. Laing spent 17 years with U.S.
Leasing International Inc. ("U.S. Leasing"), then one of the largest equipment
lessors in the U.S., and was its senior executive responsible for its extensive
rental activities.
BUSINESS ACTIVITIES
Select Growth Leasing. The Company's Select Growth Leasing activities consist
primarily of the direct origination of non-cancelable, full-payout leases to
middle and late stage emerging growth companies in the healthcare and
information technology industries. Such companies include physician practice
management organizations, rehabilitation service companies, extended care
providers, healthcare claims administrators and information service providers
and Internet and telecommunications service companies. The Company has provided
leasing to over 75 companies, including Cardiac Pathways Corporation, Mariner
Health Group, Inc., Transitional Health Services, Earthlink Network, Inc.,
Bridge Data Corporation and Intermedia Communications, Inc. A majority of the
Company's Select Growth Leasing clients are supported by institutional private
equity investors which provide capital and management resources to such
customers. Such private equity investors include Welsh Carson Anderson & Stowe,
Weiss, Peck & Greer, Essex Venture Partners and Oak Investment Partners.
Leases to individual customers typically include multiple items with an
aggregate total cost ranging from $250,000 to $2.0 million and cover a broad
variety of equipment, each with original purchase prices which are generally
less than $100,000 per item. These leases generally cover essential operating
equipment, including data processing equipment, production equipment,
analytical instruments and medical equipment. Leases are originated by
representatives located in Chicago, San Francisco, Boston and Los Angeles and
are often the result of a network of independent lease brokers and referrals
from institutional private equity investors. For the first six months of 1997
compared with the same period in 1996, new lease originations increased from
$12.5 million to $23.9 million and backlog of unfunded leases increased from
$6.4 million to $19.9 million. The Company's Select Growth Leasing activities
are expected to continue to grow due to the Company's ability to provide such
services to more established companies, which prior to September 1997 was
restricted by the Non-Compete Agreement.
The Company believes that regulatory reform, consolidations, outsourcing and
other fundamental changes in the healthcare industry, expansion of the
information technology industry and development of new technologies have
promoted the formation and growth of new companies of the type served by its
Select Growth Leasing activities. Such companies typically have limited access
to financing from commercial banks, diversified finance companies and
traditional leasing companies. The Company's experience in serving the
healthcare and the information technology industries enables it to serve the
specific needs of its customer base more effectively than its competitors by
providing a variety of financing alternatives, such as flexible lease
structures, asset-based financing, sale-leaseback transactions and secured
credit lines, while maintaining a high degree of credit quality. In a
significant number of its Select Growth Leasing transactions, the Company
receives warrants or other equity participation rights which provide additional
opportunities for profitability upon the sale of such rights. As of June 30,
1997, the Company held equity participation rights in 39 companies, 13 of which
were publicly traded.
4
<PAGE>
Since the initiation of the Company's Select Growth Leasing activities in
1993, credit losses have been less than 2.0% of lease receivables originated.
Management believes that the low level of credit losses achieved by the Company
are a result of its: (i) due diligence and credit scoring procedures
specifically designed to analyze lease transactions with emerging growth
companies in the healthcare and information technology industries; (ii)
extensive monitoring and review of such transactions by senior executives of
the Company; (iii) proactive approach to addressing delinquencies; (iv)
transaction structuring experience; (v) advanced hardware and software systems;
and (vi) extensive experience in servicing lease portfolios. As of June 30,
1997, the Company had loss reserves of 4.9% of its net investment in lease
receivables, which was well in excess of its historical experience of credit
losses. In addition, the Company's extensive experience in remarketing
equipment and conservative policies toward estimating residual values has
resulted in the Company recognizing substantial gains on the remarketing of
leased equipment. Since 1981, the Company and companies previously managed by
Messrs. Zimmerman and Palles have remarketed equipment with an original cost of
over $1.0 billion in equipment following lease expirations and realized over
$280 million in residual proceeds, more than 150% of the original estimates.
Instrument Rental & Distribution. The Company's Instrument Rental &
Distribution activities consist primarily of the rental and distribution of
analytical instruments, such as gas and liquid chromatographs, mass
spectrometers and atomic absorption systems. Such instruments typically cost
between $15,000 and $60,000 and are used by companies serving the
environmental, chemical, pharmaceutical and biotechnology industries to measure
the chemical composition of a variety of substances. The Company is a
distributor for most of the significant manufacturers of this type of
equipment, including Hewlett-Packard Company ("Hewlett-Packard"), the largest
manufacturer in this industry, The Perkin-Elmer Corporation and Varian
Associates Inc. The Company believes, based on its own research, that it is the
largest independent source of analytical instruments in the U.S. and believes,
based on oral confirmation from Hewlett-Packard, that it is the only
independent company authorized to rent Hewlett-Packard analytical instruments.
Such instruments have relatively long economic lives and have not been subject
to rapid obsolescence.
Certain segments of the market for analytical instruments have undergone a
fundamental change over the past several years in that vendors have
increasingly relied upon independent companies, such as the Company, to take
responsibility for the distribution and rental of such equipment. This is
consistent with a trend toward outsourcing among providers of a variety of
products and services and is largely the result of customer demand for
analytical instruments which are specifically tailored with certain
enhancements to meet their needs and continued customer support. These vendors
have increasingly focused on the manufacture of such equipment and allowed
independent companies to focus on other functions such as rental, inventory
management and distribution. The Company believes that its expertise in all of
these areas has allowed it to become the leading independent distribution and
rental company in the analytical instrument market.
The Company provides analytical instruments which are customized, calibrated
and ready for use and typically delivers equipment from its centralized
warehouse within 24 hours of receipt of an order. The Company services over
2,300 analytical instrument customers through its sales force of product
specialists and orders directed by its vendors. The Company's product
specialists have immediate access via laptop computers to a proprietary sales
management system which provides up-to-the-minute tracking of each item of
inventory. The Company is expanding its customer base by increasing its focus
on the chemical, pharmaceutical and biotechnology industries and will seek
opportunities to capitalize on its distribution and rental expertise and its
knowledge of the healthcare market by developing similar relationships with
vendors of medical equipment and acquiring other established rental and
distribution companies.
Portfolio Finance & Lessor Acquisition. Since 1988, the Company and companies
previously managed by Messrs. Zimmerman and Palles have acquired approximately
$325 million in lease portfolios and companies which had lease receivables of
approximately $300 million. The Company will reinitiate its Portfolio Finance &
Lessor Acquisition activities now that the Non-Compete Agreement has expired.
The Company believes there are substantial opportunities for such activities
due to the fragmented nature of the leasing industry, the inability
5
<PAGE>
of a significant number of small equipment leasing companies to efficiently
finance their portfolios and obtain more favorable financing rates through the
asset-backed securities markets and the cost of implementing new technologies
to remain competitive. The leasing companies which the Company expects to
finance or acquire are characterized by: (i) strong customer or vendor
relationships; (ii) lease transactions which range in size from $5,000 to
$250,000; (iii) needs for committed financing and servicing relationships; and
(iv) a focus on customers which are not effectively served by more traditional
funding sources. The Company also expects to pursue selective acquisitions of
companies meeting these criteria which can be integrated into the Company's
organizational structure and which can recognize synergies from the Company's
operating systems and geographic presence. Based on data available from the
Equipment Leasing Association (the "ELA"), the Company believes that there are
over 150 independent leasing companies in the U.S. with less than $50 million
in annual lease originations. The Company believes that many of these companies
are likely candidates for the Company's Portfolio Finance & Lessor Acquisition
activities.
FINANCING
The Company currently funds its activities through warehouse, revolving
credit and term loan facilities provided by a group of banks under its senior
credit facility (the "Senior Credit Facility"), as well as recourse and non-
recourse loans provided by various financial institutions. Upon achieving a
sufficient portfolio size of lease receivables, the Company expects to sell or
finance a portion of such receivables in the public and private markets,
largely through securitizations or other structured financings. Since 1987, the
Company and companies previously managed by Messrs. Zimmerman and Palles have
completed 20 securitizations and other structured financings generating over
$650 million in proceeds. The Company's financing objective is to maximize the
spread between the yield received on its leases and its cost of funds by
obtaining favorable terms on its various financing transactions. The Senior
Credit Facility will be amended upon consummation of the Offering to increase
the amount available under the facility to $100 million and to reduce the
applicable interest rates thereunder. In addition, to provide for the
securitization and sale of leases, upon consummation of the Offering, the
Company expects to enter into a Securitization Warehousing and Term Funding
Conduit Facility in an initial amount of $60 million and which may be increased
to $100 million at the Company's option based on certain conditions (the
"Securitization Facility"). As a result of the Company's established track
record in the specialty finance industry, the Company believes that the terms
of its Senior Credit Facility and Securitization Facility are superior to the
terms of similar facilities obtained by other companies in its industry of
similar size and credit characteristics.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.. 2,000,000 shares
Common Stock to be outstanding after 4,833,696 shares (1)
the Offering........................
Use of Proceeds...................... To repay indebtedness under the Company's
Senior Credit Facility. See "Use of
Proceeds."
Proposed Nasdaq National Market "LNCC"
symbol..............................
</TABLE>
- --------
(1) Does not include 166,304 shares of Common Stock issuable upon the exercise
of stock options outstanding under the Company's 1994 Stock Option Plan
(with an average exercise price of $2.15), 160,742 shares of Common Stock
issuable upon the exercise of stock options to be granted in connection
with the Offering under the Company's 1997 Stock Incentive Plan
(exercisable at the initial public offering price) and 58,332 shares of
Common Stock issuable upon the exercise of stock options to be granted in
connection with the Offering under the Company's Non-Employee Director
Option Plan (exercisable at the initial public offering price). See
"Management--Stock Option Plans."
6
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The following table sets forth summary financial and operating data for the
Company as of the dates and for the periods indicated. The summary financial
data as of and for the years ended December 31, 1994, 1995 and 1996 and as of
and for the six months ended June 30, 1997 are derived from financial
statements audited by KPMG Peat Marwick LLP. The summary pro forma statement of
operations data and the as adjusted balance sheet data give effect to (i) the
borrowing of approximately $4.9 million under the Senior Credit Facility to
redeem the preferred stock of a subsidiary of the Company (the "Subsidiary
Preferred Stock") and approximately $0.8 million borrowed to purchase certain
executives' minority interests in a subsidiary of the Company; (ii) the
repayment by an affiliated company of a loan of approximately $3.4 million from
the Company; (iii) the Offering; (iv) the application of the estimated net
proceeds from the Offering to repay the Company's indebtedness under the Senior
Credit Facility; (v) the distribution to certain stockholders of the stock of a
subsidiary of the Company which owns the Company's net assets from discontinued
operations to certain stockholders of the Company and the redemption of 482,792
shares of Common Stock in connection therewith; and (vi) anticipated changes in
the compensation of senior management. See "Use of Proceeds," "Management--
Employment and Non-Competition Agreements" and "Certain Transactions." The
summary pro forma and as adjusted data are not necessarily indicative of
results which would have been obtained had these events actually occurred or of
the Company's future results. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and notes thereto
included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues:
Sales of equipment..... $ 8,060 $10,596 $15,836 $13,852 $22,595 $ 9,962 $ 10,252
Cost of equipment sold. 6,828 8,992 13,312 11,477 18,242 7,988 8,222
------- ------- ------- ------- ------- ------- --------
Gross profit from sales
of equipment.......... 1,232 1,604 2,524 2,375 4,353 1,974 2,030
Rental and operating
lease revenue......... 8,071 7,464 8,531 9,102 7,167 3,803 3,164
Direct finance lease
income................ -- -- 339 1,467 3,055 1,289 2,598
Fee income............. -- -- 580 2,378 1,869 1,130 648
Gain on remarketing of
leased equipment...... -- -- 5 44 450 13 277
Gain on equity
participation rights.. -- -- -- -- 263 -- 97
Interest and other
income................ -- -- 352 778 657 350 779
Total net revenues..... 9,303 9,068 12,331 16,144 17,814 8,559 9,593
------- ------- ------- ------- ------- ------- --------
Expenses:
Selling, general and
administrative........ 4,480 5,257 6,842 7,524 8,008 3,717 3,963
Interest............... 782 995 1,138 1,962 2,771 1,304 1,844
Depreciation of
equipment............. 2,627 2,822 3,512 4,054 3,647 1,892 1,858
Provision for credit
losses................ 166 35 247 1,060 749 338 479
------- ------- ------- ------- ------- ------- --------
Total expenses......... 8,055 9,109 11,739 14,600 15,175 7,251 8,144
------- ------- ------- ------- ------- ------- --------
Net income from
continuing operations
before provision for
income taxes and
minority interest...... 1,248 (41) 592 1,544 2,639 1,308 1,449
Income tax expense...... 494 4 257 747 1,084 532 534
------- ------- ------- ------- ------- ------- --------
Net income from
continuing operations
before minority
interest............... 754 (45) 335 797 1,555 776 915
Minority interest....... 138 3 80 34 120 39 13
------- ------- ------- ------- ------- ------- --------
Net income (loss) from
continuing operations . $ 616 $ (48) $ 255 $ 763 $ 1,435 $ 737 $ 902
======= ======= ======= ======= ======= ======= ========
Pro forma information:
Net income from continuing operations before provision
for income taxes...................................... $ 4,160 $ 2,068 $ 2,422
Net income from continuing operations (1).............. 2,469 1,231 1,508
Net income from continuing operations per common share. $ 0.49 $ 0.25 $ 0.30
Shares used in computing net income per common share... 5,070 5,018 4,976
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Leasing:
Lease originations..... $ -- $ 9,548 $21,642 $20,479 $24,073 $12,454 $23,851
Backlog of unfunded
leases (2)............ -- 5,153 8,351 8,609 5,864 6,447 19,860
Net investment in
direct finance leases
(2)................... -- -- 8,296 17,144 31,763 23,700 43,395
Net charge-off
percentage (3)........ -- -- 0.1% 0.6% 1.3% -- 0.1%
Rental and Distribution:
Net margin on sales of
equipment............. 15.3% 15.1% 15.9% 17.1% 19.3% 19.8% 19.8%
Equipment held for
rental and operating
leases, net (2)....... $12,611 $13,840 $15,780 $18,500 $15,048 $15,579 $16,087
<CAPTION>
AS OF JUNE 30, 1997
-------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets:
Net investment in direct finance leases........................ $43,395 $43,395
Equipment held for rental and operating leases, net............ 16,087 16,087
Net assets of discontinued operations.......................... 6,204 --
Accounts and notes receivable.................................. 9,703 9,703
Deferred income taxes.......................................... 1,068 1,068
Goodwill....................................................... 1,188 1,910
Other assets................................................... 4,020 4,020
Cash and cash equivalents...................................... -- --
------- -------
Total assets.................................................. $81,665 $76,183
======= =======
Liabilities and Stockholders' Equity:
Senior credit facility and other senior notes payable.......... $46,763 $21,723
Recourse debt.................................................. 2,386 2,386
Non-recourse debt.............................................. 6,913 6,913
Accounts payable............................................... 3,805 3,761
Accrued expenses and customer deposits......................... 1,689 1,689
Subordinated debentures........................................ 5,251 5,251
------- -------
Total liabilities............................................. 66,807 41,723
Stockholders' equity........................................... 14,858 34,460
------- -------
Total liabilities and stockholders' equity.................... $81,665 $76,183
======= =======
</TABLE>
- --------
(1) The following table sets forth the calculation of pro forma net income:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ---------------
1996 1996 1997
------------ ------ -------
<S> <C> <C> <C>
Net income from continuing operations before
provision for income taxes................... $ 2,639 $1,308 $ 1,449
Pro forma adjustments:
Interest reduction (a)....................... 1,927 963 988
Increase in compensation (b)................. (377) (188) --
Goodwill amortization (c).................... (29) (15) (15)
------- ------ -------
Pro forma net income from continuing
operations before provision for income taxes. 4,160 2,068 2,422
Pro forma tax provision....................... (1,691) (837) (914)
------- ------ -------
Pro forma net income from continuing $ 2,469 $1,231 $ 1,508
operations.................................. ======= ====== =======
</TABLE>
--------
(a) The reduction in interest expense is attributable to the repayment of
approximately $25.0 million under the Senior Credit Facility resulting
from the application of the net proceeds of the Offering ($27.3
million) and of repayment of the loan due from an affiliate ($3.4
million), net of borrowing incurred to redeem the Subsidiary Preferred
Stock ($4.9 million) and to purchase certain executives' minority
interests in a subsidiary of the Company ($0.8 million). See "Use of
Proceeds" and "Certain Transactions." The interest expense reduction is
calculated as the net reduction in borrowing multiplied by the
Company's weighted average interest rate under the Senior Credit
Facility for the applicable period.
(b) Changes in compensation are attributable to the employment of Messrs.
Zimmerman and Palles for the entire year of 1996 and the six months
ended June 30, 1996 at the compensation levels provided for in the
agreements to be entered into between those executives and the Company
in connection with Offering. See "Management--Employment and Non-
Competition Agreements."
(c) The goodwill amortization is attributable to goodwill created as a
result of the Company's purchase of certain executives' minority
interests in a subsidiary of the Company. See "Certain Transactions."
(2) At period end.
(3) As a percentage of net investment in direct finance leases before allowance
for doubtful accounts.
8
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully by prospective investors in evaluating
the Company and its business before purchasing shares of the Common Stock
offered hereby.
DEPENDENCE ON CREDITWORTHINESS OF LESSEES
The Company provides financing to emerging growth companies. Although the
Company will expand the types of companies to which it leases equipment and to
begin acquiring lease portfolios and other lessors, it will continue to
specialize in leases to smaller and mid-sized businesses. Leasing to small
businesses presents a somewhat greater risk of non-performance than leasing to
larger companies which are generally more creditworthy and more readily able
to utilize more traditional financing sources. The failure of the Company's
lessees to perform under their leases would result in their leases becoming
ineligible for funding under the Senior Credit Facility and excessive
delinquencies and defaults would adversely affect the Company's ability to
obtain funding and therefore its financial condition and results of operation.
No assurance can be given that the Company's experience, criteria or
procedures will afford adequate protection against such risks. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
RISK RELATED TO UTILIZATION OF RENTAL PORTFOLIO
The profitability of the Company's Instrument Rental & Distribution
activities depends, in part, on the demand for the rental and sale of specific
items in the Company's Instrument Rental & Distribution inventory and the cost
of maintaining inventory in ready to use condition. In addition, the Company's
rentals of analytical instruments are generally of short duration and the
Company's ability to profit from its investment in analytical instruments held
for rental is dependent in large part on its ability to continue to rent or
profitably sell such equipment. A decline in the demand for such equipment or
failure to rent or profitably sell such equipment could have a material
adverse effect on the Company's financial condition and results of operations.
See "Business--Instrument Rental & Distribution Activities."
DEPENDENCE ON VENDOR RELATIONSHIP
A material portion of the Company's net revenues and net income from its
Instrument Rental & Distribution activities depends on its relationship with
Hewlett-Packard as a distributor. In 1994, 1995 and 1996, approximately 46%,
52% and 46%, respectively, of the Company's net revenues were derived from the
rental, leasing and sales of analytical instruments manufactured by Hewlett-
Packard. However, the net profits from sales of Hewlett-Packard products
represented a smaller percentage of the Company's overall net profits. The
Company's agreement with Hewlett-Packard is renewable annually and the current
term expires on September 30, 1998. In the event that the Company's
relationship with Hewlett-Packard were to be terminated, such failure could
have a material adverse effect on the Company's financial condition and
results of operations. See "Business--Instrument Rental & Distribution
Activities."
ABILITY TO SUSTAIN INCREASING VOLUMES OF RECEIVABLES
The Company's ability to sustain continued growth is dependent on its
capacity to attract, evaluate, finance, acquire and service increasing volumes
of leases of suitable yield and credit quality. Accomplishing this on a cost-
effective basis is largely a function of the Company's ability to market its
products effectively, to manage the credit evaluation process to assure
adequate portfolio quality, to provide competent, attentive and efficient
servicing and to maintain access to institutional financing sources to achieve
an acceptable cost of funds for its financing programs. Failure by the Company
to do any of these things could have a material adverse effect on the
Company's financial condition and results of operations. See "Management's
Discussion and Analysis of
9
<PAGE>
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Business--Lease Portfolio Composition--Capital Resources and
Securitizations."
DEPENDENCE UPON KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of members of its senior management, particularly Messrs.
Zimmerman, Laing and Palles, as well as other officers and key personnel, many
of whom would be difficult to replace. The future success of the Company also
depends, in part, on its ability to identify, attract and retain additional
qualified personnel. Although the Company has employment agreements with
Messrs. Zimmerman, Laing and Palles, and maintains key man life insurance on
Messrs. Zimmerman and Palles, the loss of any of such executives or of other
officers or key personnel could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management."
DEPENDENCE ON EXTERNAL FINANCING
The Company funds substantially all of the equipment leases that it acquires
or originates through its warehouse facilities. The Company depends on the
pooling of leases in securitizations (in which receivables are first sold to a
special purpose entity which then sells or pledges the receivables to the
financing parties on a limited recourse basis) or other structured financings
(in which the receivables are sold or pledged directly to the financing party
on a limited recourse basis) for refinancing of amounts outstanding under its
warehouse facilities. Any adverse impact on the Company's ability to complete
securitizations, or to otherwise permanently finance its leases, could have a
material adverse effect on the Company's ability to obtain or maintain
warehouse financing facilities or the amount available under such facilities.
Any failure by the Company to renew its existing warehouse facilities or
obtain additional warehouse facilities or other financings with pricing,
advance rates and other terms consistent with its existing facilities could
have a material adverse effect on the Company's financial condition and
results of operations.
Several factors affect the Company's ability to complete securitizations,
including conditions in the securities markets generally, conditions in the
asset-backed securities markets, the credit quality of the Company's lease
portfolio, compliance of the Company's leases with the eligibility
requirements established in connection with the securitizations, the Company's
ability to obtain third-party credit enhancement and the ability of the
Company to adequately service its lease portfolio. Any substantial reduction
in the availability of the securitization market for the Company's leases or
any adverse change in the terms of such securitizations could have a material
adverse effect on the Company's financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
In general, the recourse to the Company as a result of a securitization
transaction is limited to the repurchase of receivables upon breach of the
representations and warranties made by the Company with respect to such
receivables when they were transferred to the special purpose entity and the
financing parties. However, the Company will generally retain the residual
interest in the financing entity, which represents the right to receive any
excess cash flows after payment of the obligations on the securities issued in
the securitization. The Company's right to receive this excess cash flow will
generally be subject to certain conditions specified in the securitization
documents, which are intended to provide additional credit enhancement to
holders of the securities issued in the securitization. The owner of the
residual interest generally bears the risk of loss on the entire portfolio of
securitized receivables, and fluctuations in charge-off rates and other
factors could have a material adverse effect on the Company's ability to fully
recover such residual interest and could have a material adverse effect on the
Company's financial condition and results of operations.
INTEREST RATE RISKS
Leases originated or acquired by the Company are non-cancelable and require
payments to be made by the lessee at fixed rates for specified terms. The
rates charged by the Company are based on interest rates prevailing
10
<PAGE>
in the market at the time of lease commencement or acquisition. Until the
Company's leases are securitized or otherwise sold or permanently financed,
the Company generally funds such leases under its warehouse facilities or from
working capital. Should the Company be unable to securitize or otherwise sell
or permanently finance leases with fixed rates within a reasonable period of
time after funding, the Company's operating margins could be adversely
affected by increases in interest rates. The Company expects to undertake to
hedge against the risk of interest rate increases when its equipment lease
portfolio exceeds certain amounts. Such hedging activities limit the Company's
ability to participate in the benefits of lower interest rates with respect to
the hedged portfolio of leases. In addition, there can be no assurance that
the Company's hedging activities will adequately insulate the Company from
interest rate risks. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
RISKS RELATED TO RESIDUAL VALUES
The Company retains a residual interest in the equipment covered by certain
of its leases. The estimated fair market value of the equipment at the end of
the contract term of the lease, if any, is reflected as an asset on the
Company's balance sheet. The Company's results of operations depend, to some
degree, upon its ability to realize these residual values. Realization of
residual values depends on many factors, several of which are outside the
Company's control, including general market conditions at the time of
expiration of the lease, whether there has been unusual wear and tear on, or
use of, the equipment, the cost of comparable new equipment, the extent, if
any, to which the equipment has become technologically or economically
obsolete during the contract term and the effects of any additional or amended
government regulations. If, upon the expiration of a lease, the Company sells
or refinances the underlying equipment and the amount realized is less than
the recorded value of the residual interest in such equipment, a loss
reflecting the difference will be recognized and could have a material adverse
effect on the Company's financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Lease Portfolio Composition."
ACQUISITION RISKS
An important component of the Company's growth strategy is the acquisition
of equipment leasing and rental companies. The inability of the Company to
identify suitable acquisition candidates or to complete acquisitions on
acceptable terms could adversely affect the Company's ability to expand its
business. Acquisitions made by the Company may result in potentially dilutive
issuances of equity securities, the incurrence of additional debt and expenses
related to goodwill and other intangible assets. The Company also may
experience difficulties in the assimilation of the operations, services,
products and personnel of acquired companies, an inability to sustain or
improve the historical levels of revenue and profitability of acquired
companies, the diversion of management's attention from ongoing business
operations and the potential loss of key employees of such acquired companies.
The Company currently has no agreements with regard to any acquisitions and
there can be no assurance that any will be consummated. See "Business--
Portfolio Finance & Lessor Acquisition Activities."
RISKS RELATED TO EQUITY PARTICIPATION RIGHTS
The Company frequently obtains warrants or other equity participation rights
in its Select Growth Leasing clients. While the Company generally makes no
material investment in these rights and does not assign a material carrying
value to them, failure of the Company to realize gains from their sale may
have an impact on the future earnings of the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
INDUSTRY CONCENTRATION
A substantial portion of the Company's revenues are derived from customers
in the healthcare, information technology and environmental services
industries. To the extent that such industries are adversely affected by
11
<PAGE>
economic or regulatory factors, the Company's results of operation and
financial condition may be adversely impacted. See "Business."
COMPETITION
The Company competes with leasing companies, commercial banks and other
financial institutions to provide lease financing to clients and to acquire
other leasing portfolios and leasing companies. In addition, the Company's
competitors in its Instrument Rental & Distribution activities include
manufacturers of analytical instruments. A substantial number of the Company's
competitors are significantly larger and have greater resources than the
Company. See "Business--Competition."
FLUCTUATIONS IN QUARTERLY RESULTS
The Company may experience significant fluctuations in quarterly operating
results due to a number of factors, including, among others, the timing and
volume of origination of leases, the size and timing of completion of
securitizations and the timing of sale of equity participation rights in
customers.
CONCENTRATION OF OWNERSHIP
Upon completion of this Offering, Mr. Zimmerman and members of his family
will beneficially own (including shares held by other members of management
for which Mr. Zimmerman holds proxies) approximately 53.9% of the outstanding
shares of Common Stock (approximately 50.7% if the Underwriters' over-
allotment option is exercised in full). Accordingly, these stockholders will
have the ability to control or significantly influence all matters requiring
approval by the stockholders of the Company, including the election of
directors and approval of significant corporate transactions. Such a level of
ownership may have the effect of delaying, deferring, or preventing a change
in the control of the Company. See "Principal Stockholders" and "Description
of Capital Stock--Proxies and Rights of First Refusal."
SUBSTANTIAL DILUTION
Investors in the Common Stock offered hereby will experience immediate and
substantial dilution in net tangible book value per share of $8.24. See
"Dilution."
ABSENCE OF DIVIDENDS
Following the Offering, the Company intends to retain earnings to finance
the growth and development of its business. Additionally, the Senior Credit
Facility contains certain restrictions on the Company's ability to pay
dividends on its Common Stock. Accordingly, the Company does not anticipate
paying cash dividends on the Common Stock in the foreseeable future. See
"Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 4,833,696 shares of
Common Stock outstanding. The shares of Common Stock offered hereby will be
freely tradeable without restriction or further registration under the
Securities Act of 1933 (the "Securities Act"), except for shares sold by
persons deemed to be "affiliates" of the Company or acting as "underwriters,"
as those terms are defined in the Securities Act. Following the expiration of
the lock-up period described below, all of the remaining outstanding shares of
Common Stock will be freely tradeable subject to the restrictions on resale
imposed upon "affiliates" by Rule 144 under the Securities Act. The Company,
its executive officers and directors and certain other stockholders of the
Company have agreed not to sell, offer to sell, contract to sell, pledge or
otherwise dispose of or transfer any shares of Common Stock, or any securities
convertible into or exchangeable or exercisable for, or any rights to purchase
or acquire, Common Stock for a period of 180 days commencing on the date of
this Prospectus without the prior written consent of Furman Selz LLC, other
than the issuance of options to purchase Common Stock or
12
<PAGE>
shares of Common Stock issuable upon the exercise thereof in connection with
the Company's stock option plans, provided that such shares shall not be
transferable prior to the end of the 180-day period, and other than the
issuance by the Company of capital stock in connection with acquisitions,
provided that such shares shall not be transferable prior to the end of the
180-day period. See "Shares Eligible for Future Sale" and "Underwriting."
NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock.
There can be no assurance that an active market for the Common Stock will
develop upon completion of the Offering or, if developed, that such market
will be sustained. As of the date hereof, the Company has not obtained the
three market makers required for listing on the Nasdaq National Market.
However, the Company does not foresee any difficulty in obtaining the required
number of market makers prior to the consummation of the Offering. The initial
public offering price of the Common Stock was determined through negotiations
between the Company and the representatives of the underwriters and may bear
no relationship to the market price of the Common Stock after the Offering.
Prices for the Common Stock after the Offering may be influenced by a number
of factors, including the liquidity of the market for the Common Stock,
investor perceptions of the Company and the specialty financing industry in
general and general economic and other conditions. Sales of substantial
amounts of Common Stock in the public market subsequent to the Offering could
adversely affect the market price of the Common Stock. For information
relating to the factors considered in determining the initial public offering
price, see "Underwriting." The trading price of the Common Stock could be
subject to wide fluctuations in response to variations in financial estimates
by securities analysts and other events or facts. See "Underwriting."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the issuance and sale of
the Common Stock offered hereby, after deducting the underwriting discount and
estimated offering expenses, are estimated (based upon the midpoint of the
Offering price range set forth on the cover page of this Prospectus) to be
approximately $27.3 million, or $31.5 million if the Underwriters' over-
allotment option is exercised in full. All of such net proceeds will be used
to repay indebtedness under the Company's Senior Credit Facility, including
approximately $4.9 million borrowed to redeem the Subsidiary Preferred Stock
and approximately $0.8 million borrowed to purchase certain executive's
minority interests in a subsidiary of the Company. See "Certain Transactions."
Prior to the consummation of the Offering, borrowings under the Senior Credit
Facility bear interest at the prime rate established from time to time by
Fleet Bank, N.A. as its primary lender plus up to 0.50% depending on certain
financial tests or, at the Company's option, LIBOR plus 1.75% to 2.25%
depending on such tests and mature on July 15, 1998. As of June 30, 1997, the
weighted average interest rate on borrowings under the Senior Credit Facility
was approximately 7.9%. The Senior Credit Facility will be amended upon
consummation of the Offering to increase the amount available under the
facility to $100 million and to reduce the applicable interest rates
thereunder. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
14
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of June 30, 1997 and as adjusted to give effect to (i) the borrowing of
approximately $4.9 million under the Senior Credit Facility to redeem the
Subsidiary Preferred Stock and approximately $0.8 million borrowed to purchase
certain executives' minority interests in a subsidiary of the Company; (ii)
the repayment by an affiliated company of a loan of approximately $3.4 million
from the Company; (iii) the Offering; (iv) the application of the estimated
net proceeds from the Offering to repay the Company's indebtedness under the
Senior Credit Facility; and (v) the distribution to certain stockholders of
the stock of a subsidiary of the Company which owns the Company's net assets
from discontinued operations to certain stockholders of the Company and the
redemption of 482,792 shares of Common Stock in connection therewith. This
table should be read in conjunction with the financial information appearing
elsewhere in this Prospectus. See "Use of Proceeds" and "Certain
Transactions."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
--------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Debt:
Senior credit facility and other senior notes payable... $46,763 $21,723
Recourse debt........................................... 2,386 2,386
Non-recourse debt....................................... 6,913 6,913
Subordinated debentures................................. 5,251 5,251
------- -------
Total debt (1)........................................ 61,313 36,273
------- -------
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; none outstanding........................... -- --
Common stock, $0.001 par value; 15,000,000 shares
authorized; 3,325,539 shares outstanding; as adjusted
4,824,326 shares outstanding (2)....................... 3 5
Additional paid-in capital.............................. 1,802 29,100
Deferred compensation from issuance of options.......... (221) (221)
Stock note receivable................................... (497) (497)
Treasury stock.......................................... (287) (287)
Unrealized gain on securities........................... 328 328
Retained earnings....................................... 13,730 6,032
------- -------
Total stockholders' equity............................ 14,858 34,460
------- -------
Total capitalization.................................. $76,171 $70,733
======= =======
</TABLE>
- --------
(1) See Note 6 to the Consolidated Financial Statements appearing elsewhere
herein.
(2) Does not include 166,304 shares of Common Stock issuable upon the exercise
of stock options outstanding under the Company's 1994 Stock Option Plan
(with an average exercise price of $2.15), 160,742 shares of Common Stock
issuable upon the exercise of stock options to be granted in connection
with the Offering under the Company's 1997 Stock Incentive Plan
(exercisable at the initial public offering price) and 58,332 shares of
Common Stock issuable upon the exercise of stock options to be granted in
connection with the Offering under the Company's Non-Employee Director
Option Plan (exercisable at the initial public offering price). See
"Management--Stock Option Plans."
15
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1997,
after giving effect to the distribution to certain stockholders of the stock
of a subsidiary which owns the Company's net assets from discontinued
operations and the redemption of 482,792 shares of Common Stock in connection
therewith and the redemption of the Subsidiary Preferred Stock using
additional borrowings under the Senior Credit Facility, was $6.0 million or
$2.11 per share of Common Stock. See "Certain Transactions" and "Use of
Proceeds." Net tangible book value per share represents the amount of total
tangible assets less total liabilities, divided by the number of shares of
Common Stock outstanding. After giving effect to the sale by the Company of
the shares of Common Stock offered hereby and the application of the estimated
net proceeds therefrom, the pro forma net tangible book value of the Company
at June 30, 1997 would have been $32.6 million or $6.76 per share. This
represents an immediate increase in net tangible book value of $4.65 per share
to existing stockholders and an immediate dilution in net tangible book value
of $8.24 per share to purchasers of Common Stock in the Offering ("New
Investors"). The following table illustrates the dilution in net tangible book
value per share to New Investors:
<TABLE>
<S> <C> <C>
Initial public offering price...................................... $15.00
Pro forma net tangible book value per share at June 30, 1997..... $2.11
Increase per share attributable to New Investors................. 4.65
-----
Pro forma net tangible book value per share after the Offering..... 6.76
------
Net tangible book value dilution per share to New Investors........ $ 8.24
======
</TABLE>
The following table sets forth as of June 30, 1997, the difference between
existing stockholders and New Investors with respect to the number of shares
purchased from the Company, the total consideration paid to the Company and
the average price paid per share, giving pro forma effect to the sale of
Common Stock offered hereby and the redemption of 482,792 shares of Common
Stock from certain stockholders in exchange for the distribution of the stock
of a subsidiary which owns the Company's net assets from discontinued
operations and the Subsidiary Preferred Stock. See "Certain Transactions."
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE PAID
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 2,824,326 58.5% $ 1,805,000 5.7% $ 0.64
New Investors.................. 2,000,000 41.5 30,000,000 94.3 15.00
--------- ----- ----------- -----
Total...................... 4,824,326 100.0% $31,805,000 100.0%
========= ===== =========== =====
</TABLE>
16
<PAGE>
DIVIDEND POLICY
Following the Offering, the Company intends to retain any earnings for use
in the operation and expansion of its business and therefore does not
anticipate declaring any cash dividends in the foreseeable future. The payment
of dividends, if any, will be made at the discretion of the Company's Board of
Directors and will depend upon, among other things, the Company's future
earnings, operations, capital requirements and financial condition, as well as
general business conditions and other factors. The Senior Credit Facility also
contains provisions limiting the Company's ability to pay dividends. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations--Liquidity and Capital Resources."
17
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating data for the
Company as of the dates and for the periods indicated. The selected financial
data as of and for the years ended December 31, 1994, 1995 and 1996 and as of
and for the six months ended June 30, 1997 are derived from financial
statements audited by KPMG Peat Marwick LLP. The selected pro forma statement
of operations data gives effect to (i) the borrowing of approximately $4.9
million under the Senior Credit Facility to redeem the Subsidiary Preferred
Stock and approximately $0.8 million borrowed to purchase certain executives'
minority interests in a subsidiary of the Company; (ii) the repayment by an
affiliated company of a loan of approximately $3.4 million from the Company;
(iii) the Offering; (iv) the application of the estimated net proceeds from
the Offering to repay the Company's indebtedness under the Senior Credit
Facility; (v) the distribution to certain stockholders of the stock of a
subsidiary of the Company which owns the Company's net assets from
discontinued operations to certain stockholders of the Company and the
redemption of 482,792 shares of Common Stock in connection therewith; and (vi)
anticipated changes in the compensation of senior management. See "Use of
Proceeds," "Management--Employment and Non-Competition Agreements" and
"Certain Transactions." The selected pro forma data is not necessarily
indicative of results which would have been obtained had these events actually
occurred or of the Company's future results. This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and notes
thereto included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------- --------------
1992 1993 1994 1995 1996 1996 1997
------ ------- ------- ------- ------- ------ -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues:
Sales of equipment..... $8,060 $10,596 $15,836 $13,852 $22,595 $9,962 $10,252
Cost of equipment sold. 6,828 8,992 13,312 11,477 18,242 7,988 8,222
------ ------- ------- ------- ------- ------ -------
Gross profit from sales
of equipment.......... 1,232 1,604 2,524 2,375 4,353 1,974 2,030
Rental and operating
lease revenue......... 8,071 7,464 8,531 9,102 7,167 3,803 3,164
Direct finance lease
income................ -- -- 339 1,467 3,055 1,289 2,598
Fee income............. -- -- 580 2,378 1,869 1,130 648
Gain on remarketing of
leased equipment...... -- -- 5 44 450 13 277
Gain on equity
participation rights.. -- -- -- -- 263 -- 97
Interest and other
income................ -- -- 352 778 657 350 779
------ ------- ------- ------- ------- ------ -------
Total net revenues..... 9,303 9,068 12,331 16,144 17,814 8,559 9,593
------ ------- ------- ------- ------- ------ -------
Expenses:
Selling, general and
administrative........ 4,480 5,257 6,842 7,524 8,008 3,717 3,963
Interest............... 782 995 1,138 1,962 2,771 1,304 1,844
Depreciation of
equipment............. 2,627 2,822 3,512 4,054 3,647 1,892 1,858
Provision for credit
losses................ 166 35 247 1,060 749 338 479
------ ------- ------- ------- ------- ------ -------
Total expenses......... 8,055 9,109 11,739 14,600 15,175 7,251 8,144
------ ------- ------- ------- ------- ------ -------
Net income from
continuing operations
before provision for
income taxes and
minority interest...... 1,248 (41) 592 1,544 2,639 1,308 1,449
Income tax expense...... 494 4 257 747 1,084 532 534
------ ------- ------- ------- ------- ------ -------
Net income from
continuing operations
before minority
interest............... 754 (45) 335 797 1,555 776 915
Minority interest....... 138 3 80 34 120 39 13
------ ------- ------- ------- ------- ------ -------
Net income (loss) from
continuing operations.. $ 616 $ (48) $ 255 $ 763 $ 1,435 $ 737 $ 902
====== ======= ======= ======= ======= ====== =======
Net income (loss) from
continuing operations
per common share....... $ 0.18 $ (0.01) $ 0.07 $ 0.22 $ 0.40 $ 0.21 $ 0.26
Dividends declared per
common share........... -- -- -- -- $ 0.26 -- --
Shares used in computing
net income (loss) per
common share........... 3,407 3,415 3,505 3,494 3,553 3,501 3,459
Pro forma information:
Net income from continuing operations before provision
for income taxes..................................... $ 4,160 $2,068 $ 2,422
Net income from continuing operations(1).............. 2,469 1,231 1,508
Net income from continuing operations per common
share................................................ $ 0.49 $ 0.25 $ 0.30
Shares used in computing net income per common share.. 5,070 5,018 4,976
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Leasing:
Lease originations..... $ -- $ 9,548 $21,642 $20,479 $24,073 $12,454 $23,851
Backlog of unfunded
leases (2)............ -- 5,153 8,351 8,609 5,864 6,447 19,860
Net investment in
direct finance leases
(2)................... -- -- 8,296 17,144 31,763 23,700 43,395
Net charge-off
percentage (3)........ -- -- 0.1% 0.6% 1.3% -- 0.1%
Rental and Distribution:
Net margin on sales of
equipment............. 15.3% 15.1% 15.9% 17.1% 19.3% 19.8% 19.8%
Equipment held for
rental and operating
leases, net (2)....... $12,611 $13,840 $15,780 $18,500 $15,048 $15,579 $16,087
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
--------------------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets:
Net investment in
direct finance leases. $ -- $ -- $ 8,296 $17,144 $31,763 $23,700 $43,395
Equipment held for
rental and operating
leases, net........... 12,611 13,840 15,780 18,500 15,048 15,579 16,087
Net assets of
discontinued
operations ........... 10,624 9,928 7,493 9,361 6,470 4,453 6,204
Accounts and notes
receivable............ 3,141 2,944 4,679 4,655 8,235 7,667 9,703
Deferred income taxes.. 2,235 2,403 2,502 1,995 1,310 1,628 1,068
Goodwill............... 882 875 869 862 851 876 1,188
Other assets........... 1,071 1,641 1,677 4,419 3,523 4,054 4,020
Cash and cash
equivalents........... 10 9 90 1,668 -- -- --
------- ------- ------- ------- ------- ------- -------
Total assets.......... $30,574 $31,640 $41,386 $58,604 $67,200 $57,957 $81,665
======= ======= ======= ======= ======= ======= =======
Liabilities and
Stockholders' Equity:
Senior credit facility
and other senior notes
payable............... $11,541 $10,917 $19,400 $31,914 $29,605 $27,547 $46,763
Recourse debt.......... -- -- -- 882 3,361 727 2,386
Non-recourse debt...... -- -- -- 4,997 8,276 4,122 6,913
Accounts payable....... 1,021 1,182 3,685 1,518 4,355 4,691 3,805
Accrued expenses and
customer deposits..... 767 1,039 2,245 2,147 2,534 2,060 1,689
Subordinated
debentures............ 4,449 4,599 4,767 4,953 5,127 5,013 5,251
------- ------- ------- ------- ------- ------- -------
Total liabilities..... 17,778 17,737 30,097 46,411 53,258 44,160 66,807
Redeemable preferred
stock................. 5,000 -- -- -- -- -- --
Stockholders' equity... 7,796 13,903 11,289 12,193 13,942 13,797 14,858
------- ------- ------- ------- ------- ------- -------
Total liabilities and
stockholders' equity. $30,574 $31,640 $41,386 $58,604 $67,200 $57,957 $81,665
======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------
(1) The following table sets forth the calculation of pro forma net income:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ------------------
1996 1996 1997
------------ -------- --------
<S> <C> <C> <C>
Net income from continuing operations
before provision for income taxes......... $ 2,639 $ 1,308 $ 1,449
Pro forma adjustments:
Interest reduction (a)................... 1,927 963 988
Increase in compensation (b)............. (377) (188) --
Goodwill amortization (c)................ (29) (15) (15)
------- -------- --------
Pro forma net income from continuing
operations before provision for income
taxes..................................... 4,160 2,068 2,422
Pro forma tax provision.................... (1,691) (837) (914)
------- -------- --------
Pro forma net income from continuing
operations ............................. $ 2,469 $ 1,231 $ 1,508
======= ======== ========
</TABLE>
--------
(a) The reduction in interest expense is attributable to the repayment of
approximately $25.0 million under the Senior Credit Facility resulting
from the application of the net proceeds of the Offering ($27.3 million)
and of repayment of the loan due from an affiliate ($3.4 million), net
of borrowing incurred to redeem the Subsidiary Preferred Stock ($4.9
million) and to purchase certain executives' minority interests in a
subsidiary of the Company ($0.8 million). See "Use of Proceeds" and
"Certain Transactions." The interest expense reduction is calculated as
the net reduction in borrowing multiplied by the Company's weighted
average interest rate under the Senior Facility for the applicable
period.
(b) Changes in compensation are attributable to the employment of Messrs.
Zimmerman and Palles for the entire year of 1996 and the six months
ended June 30, 1996 at the compensation levels provided for in the
agreements to be entered into between those executives and the Company
in connection with the Offering. See "Management--Employment and Non-
Competition Agreements."
(c) The goodwill amortization is attributable to goodwill created as a
result of the Company's purchase of certain executives' minority
interests in a subsidiary of the Company. See "Certain Transactions."
(2) At period end.
(3) As a percentage of net investment in direct finance leases before
allowance for doubtful accounts.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained in this section, which relates only to the
Company's continuing operations, should be read in conjunction with the
Consolidated Financial Statements and notes thereto appearing in this
Prospectus.
INTRODUCTION
The Company has engaged and will engage in several types of financial
transactions, each of which is reflected in a different manner in the
Company's financial statements. The Company will expand the base of customers
it serves in its Select Growth Leasing activities and will re-initiate and
expand the Portfolio Finance & Lessor Acquisition activities that it
discontinued in connection with the 1994 Sale now that the Non-Compete
Agreement has expired. In its Select Growth Leasing activities, substantially
all of the leases are direct finance leases and the Company currently funds
these leases primarily with recourse and non-recourse debt. In its Instrument
Rental & Distribution activities, the Company rents and sells new and used
instruments and funds such activities primarily through its revolving credit
facility. Substantially all of the leases involved in the Company's Portfolio
Finance & Lessor Acquisition activities will also be direct finance leases.
The Company will fund such activities through its warehouse and securitization
facilities. The following briefly describes some of the principal accounting
practices applicable to the Company's business.
Direct Finance Leases. Direct finance leases transfer substantially all
benefits and risks of equipment ownership to the lessee. A lease is accounted
for as a direct finance lease if the collectibility of lease payments is
reasonably certain and it meets one of the following criteria: (i) the lease
transfers ownership of the equipment to the lessee by the end of the lease
term; (ii) the lease contains a bargain purchase option; (iii) the lease term
at inception is at least 75% of the estimated economic life of the leased
equipment; or (iv) the present value of the minimum lease payments is at least
90% of the fair value of the leased equipment at inception of the lease. The
present value of the future lease payments and the present value of the
residual value are recorded as the initial investment in such leases. This
initial investment generally represents the cost of leased equipment. Unearned
lease income is equal to the difference between (i) the future lease payments
and residual value and (ii) their corresponding present values. Unearned lease
income is amortized and recorded as revenue over the term of the lease by
applying a constant periodic rate of return to the declining net investment.
Initial direct costs incurred in originating leases, such as salaries for
marketing personnel and commissions, are capitalized as part of the net
investment in direct finance leases and amortized over the lease term. The
Company records direct finance lease receivables as "Net investment in direct
finance leases." At the end of the lease, a remarketing gain or loss is
recorded to the extent the proceeds of sale of the equipment exceed or are
less than the originally estimated residual value. When the Company leases
analytical instruments under direct finance leases, such leases are accounted
for in the same way except that the Company records the sales value of the
instruments as revenue and the carrying value as cost of equipment sold, thus
recognizing its distribution margin. The Company's direct finance lease income
has increased substantially over the last three years due to increased
marketing and selling activities.
Rentals and Operating Leases. All rental and lease contracts which do not
meet the criteria of direct finance leases are accounted for as operating
leases. Rental arrangements are for fewer than 12 months and operating leases
have longer terms. Monthly rental and lease payments are recorded as "Rental
and operating lease revenue." Rental and leased equipment is recorded at the
Company's cost as "Equipment held for rental and operating leases" and
depreciated on a straight-line basis. The Company depreciates analytical
instruments over a seven-year life, assuming no salvage or residual value at
the end of such period. The Company has realized gains from the sale of used
analytical instruments in each year since the inception of its Instrument
Rental & Distribution activities. Rental and operating lease revenue has
decreased in the recent past due to the consolidation of the environmental
testing industry and the tendency of larger environmental testing companies
20
<PAGE>
to purchase, rather than rent, analytical instruments. This trend, in addition
to the Company's increased market penetration of pharmaceutical and
biotechnology industries, which customers also typically purchase analytical
instruments, have resulted in a significant increase in sales of equipment
since 1995.
Equity Participation Rights. The Company frequently receives warrants or
other equity participation rights from Select Growth Leasing clients in
connection with its leases to them. Such warrants or rights entitle the
Company to purchase common stock or other equity securities of the client at a
price generally based on the most recent price paid by the client's private
equity investors. The Company typically obtains the right to have such shares
included in registered public offerings of the client's stock. At the time of
receipt, the warrant or other equity participation right is recorded as an
investment. The Company does not recognize gain or loss on such securities
until they are sold. The Company periodically evaluates its portfolio of
equity participation rights and expects to sell its equity participation
rights as its portfolio companies mature based on its evaluation of the market
trends for the related clients' equity securities. As of June 30, 1997, the
Company held equity participation rights in 39 companies, 13 of which were
publicly traded.
Realization of Residual Values. Residual values are estimated at the
inception of a lease and reviewed periodically over the term of the lease.
Estimated residual values of leased equipment may be adjusted downward, but
not increased. Decreases in estimated residual values are made as the change
in residual value becomes apparent and are reflected by increased depreciation
expense for operating leases or by decreased earned lease income for direct
finance leases. When equipment is sold, the net proceeds realized in excess of
the estimated residual value are recorded as a "Gain on remarketing of leased
equipment," or the amount by which the estimated residual value exceeds the
net proceeds is recorded as a loss. To date, the Company has not had a net
loss from the realization of residual values for any quarterly period.
Servicing Fees. The Company has engaged in the business of servicing lease
portfolios originated by third parties since 1992, but due to the Non-Compete
Agreement, has not entered into a new agreement to service leases for third
parties since December 1994. The Company will reinitiate its lease portfolio
servicing activities now that the Non-Compete Agreement has expired. In
addition, the Company expects to realize servicing revenue from the
securitizations that it expects to complete in the future. Revenues from these
activities are classified as "Fee income."
Securitizations of Lease Portfolios. Prior to the 1994 Sale, the Company
permanently financed the substantial majority of its origination of healthcare
equipment leases and acquisition of lease portfolios through securitizations
and the Company intends to securitize the leases it acquires or originates in
the future. In a securitization transaction, the Company sells a pool of
leases to a wholly-owned, special purpose subsidiary. The special purpose
subsidiary simultaneously transfers an interest in the leases to a trust which
issues beneficial interests in the trust. These beneficial interests may be of
a single class or of multiple classes of senior and subordinated securities.
The Company generally retains the right to receive any excess cash flows of
the trust. When the Company sells leases in securitizations, it will recognize
gain equal to the excess of the net proceeds from the sale of the securities,
after deducting issuance expenses, over the cost basis of such leases.
Provision for Credit Losses. Each of the Company's activities involves risk
of credit loss. Management evaluates the collectibility of the Company's
leases based on the creditworthiness of the related lessee, delinquency
statistics, historical loss experience, current economic conditions and other
relevant factors. The Company provides an allowance for credit losses at the
time that the lease commences and periodically evaluates the related reserve
for credit losses, based on then current delinquency experience and the
financial status of its lessees. As of June 30, 1997, the Company had loss
reserves of 4.9% of its net investment in Select Growth Leasing receivables,
which was well in excess of its historical experience of credit losses.
Net Operating Losses. As of June 30, 1997, the Company had net operating
loss carry-forwards available to reduce future taxable income of $17.7
million.
Distribution to Certain Shareholders. The Company has adopted a plan to
distribute the stock of its wholly owned subsidiary, LINC Finance Corporation,
to certain of its shareholders. See "Certain Transactions." While the Company
has not determined the fair value of the assets to be distributed, the Company
does not believe that gain or loss, if any, which may result from their
distribution will be material to the Company's results of operations.
21
<PAGE>
RESULTS OF OPERATIONS
Six Months ended June 30, 1997 Compared to Six Months ended June 30, 1996
Income before taxes and minority interest for the Company's Select Growth
Leasing and Portfolio Finance & Lessor Acquisition activities increased from
$1.0 million to $1.1 million primarily as a result of a substantially higher
level of finance lease receivables outstanding, offset somewhat by a higher
level of selling, general and administrative expense. Income before taxes and
minority interest for the Company's Instrument Rental & Distribution
activities increased from $0.3 million to $0.4 million. While net revenues in
this segment declined by $0.6 million, this decline was offset by a decline in
expenses.
Sales of equipment increased from $10.0 million to $10.3 million, while
rental and operating lease revenue declined from $3.8 million to $3.2 million.
These changes were primarily a result of the increase in market penetration in
the pharmaceutical and biotechnology industries and consolidation in the
environmental testing industry. In addition, the Company believes that sales
of equipment in the first half of 1996 were unseasonably high due to a number
of large sales in June 1996.
Cost of equipment sold increased from $8.0 million to $8.2 million. Net
margin on sales of analytical instruments was 19.8% in the 1996 period and
19.8% in the 1997 period.
Direct finance lease income increased from $1.3 million to $2.6 million as a
result of a substantially higher level of finance lease receivables
outstanding. Net investment in direct finance leases increased from $23.7
million to $43.4 million due to increased marketing and selling activities.
New lease originations increased 92% and backlog of unfunded lease commitments
increased 208% from period to period.
As a consequence of the continuing decline in the number of leases serviced
by the Company for unrelated parties due to the Non-Compete Agreement, which
expired in September 1997, fee income declined from $1.1 million to $0.6
million.
During the first six months of 1997, gains on remarketing of leased
equipment of $0.3 million were realized. The increase in gains from the
comparable period in 1996 resulted from increased lease maturities in 1997.
During the first six months of 1997, the Company sold certain of its equity
participation rights realizing a gain of $0.1 million. No equity participation
rights were sold during the 1996 period.
Other income, which consists primarily of interest income and fees earned in
connection with Select Growth Leasing commitments, increased from $0.4 million
to $0.8 million. This was attributable to an increase in interest income
associated with the increase in interest-bearing notes receivable held by the
Company, as well as increased fees related to its Select Growth Leasing
activities.
Selling, general and administrative expenses increased from $3.7 million to
$4.0 million due primarily to increases in operations, marketing and sales
personnel associated with the Company's Select Growth Leasing activities and
preparation for the re-initiation of Portfolio Finance & Lessor Acquisition
activities, as well as increases in information systems expenditures.
Interest expense increased from $1.3 million to $1.8 million due primarily
to increased direct finance lease originations and the resulting increase in
average borrowings.
Depreciation of equipment, primarily depreciation of analytical instruments,
was $1.9 million in both periods.
The provision for credit losses increased from $0.3 million to $0.5 million
due to the volume of new leases originated. However, such provision declined
from 1.4% to 1.1% of direct finance lease receivables at the end of the
respective periods, as a result of the continued increase in the Company's
outstanding direct finance lease portfolio described above.
22
<PAGE>
The Company's effective tax rate decreased from 40.7% to 36.9% resulting
from a reduction in the applicable state income tax rates in 1997 and the
corresponding reduction in deferred taxes for prior periods.
1996 Compared to 1995
Income before taxes and minority interest for the Company's Select Growth
Leasing and Portfolio Finance & Lessor Acquisition activities increased from
$1.0 million to $1.6 million primarily as a result of a substantially higher
level of finance lease receivables outstanding. Income before taxes and
minority interest for the Company's Instrument Rental & Distribution
activities increased from $0.5 million to $1.0 million. While net revenue in
this segment declined by $0.1 million, expenses, primarily depreciation and
amortization expense, declined by $0.6 million.
Sales of equipment increased from $13.9 million to $22.6 million, while
rental and operating lease revenue declined from $9.1 million to $7.2 million.
These changes were a result of the increase in market penetration in the
pharmaceutical and biotechnology industries and consolidation in the
environmental testing industry.
Cost of equipment sold increased from $11.5 million to $18.2 million. Net
margin on sales of analytical instruments increased from 17.1% to 19.3%
primarily due to a favorable change in product mix from the prior period.
Direct finance lease income increased from $1.5 million to $3.1 million
which resulted from a substantially higher level of finance lease receivables
outstanding. Net investment in direct finance leases increased from $17.1
million to $31.8 million due to increased marketing and selling activities.
As a consequence of the decline in the number of leases serviced by the
Company for unrelated parties due to the Non-Compete Agreement, which expired
in September 1997, fee income declined from $2.4 million to $1.9 million.
Gains from remarketing of leased equipment increased from $44,000 to $0.5
million as a consequence of increased lease maturities in 1996.
Gain on equity participation rights for 1996 was $0.3 million. No gains were
realized in 1995. The change is a reflection of the growing maturity of the
Company's Select Growth Leasing portfolio.
Selling, general and administrative expenses increased from $7.5 million to
$8.0 million due primarily to increases in operations, marketing and sales
personnel associated with the Company's Select Growth Leasing and Instrument
Rental & Distribution activities.
Interest expense increased from $2.0 million to $2.8 million due primarily
to increased direct finance lease originations and the resulting increase in
average borrowings.
Depreciation of equipment declined from $4.1 million to $3.6 million
primarily due to a decrease of $3.5 million in inventory held for rental.
The provision for credit losses declined from $1.1 million to $0.7 million
primarily due to a decline in anticipated lease charge-offs.
The Company's effective tax rate decreased from 48.4% to 41.1% due to a
decrease in nondeductible expenses.
1995 Compared to 1994
Income before taxes and minority interest for the Company's Select Growth
Leasing and Portfolio Finance & Lessor Acquisition activities increased to
$1.0 million from a loss of $0.1 million. This increase resulted from a more
than doubling of the Company's net investment in direct finance leases in this
segment. Income before
23
<PAGE>
taxes and minority interest for the Company's Instrument Rental & Distribution
activities declined from $0.7 million to $0.5 million. While net revenue in
this segment increased by $0.4 million, expenses, primarily depreciation and
amortization expense, increased by $0.6 million.
Sales of equipment declined in 1995 from $15.8 million to $13.9 million
while rental and operating lease revenue increased from $8.5 million to $9.1
million. The decline in sales of equipment was attributable to reduced demand
by environmental laboratories. The increase in rental revenue was primarily
attributable to the addition of a large customer during this period.
Cost of equipment sold declined from $13.3 million to $11.5 million
reflecting the decline in sales of analytical instruments. Net margin on the
sale of analytical instruments increased from 15.9% to 17.1% due to higher
manufacturer discounts as a result of higher volume of purchases by the
Company.
Direct finance lease income increased from $0.3 million in 1994 to $1.5
million in 1995 due to an increase in the Company's net investment in direct
finance leases from $8.3 million to $17.1 million. While leases funded in 1995
remained relatively unchanged from 1994 levels, the majority of the leases
funded in 1994 were sold in that year to an unaffiliated entity, while in
1995, all of the Company's lease originations were retained.
Fee income increased from $0.6 million in 1994 to $2.4 million in 1995. This
was attributable to the acquisition by the Company in December 1994 of a
contract to service a lease portfolio on behalf of a group of financial
institutions, as well as the increase in the number of leases serviced on
behalf of an unrelated entity.
Selling, general and administrative expenses increased from $6.8 million to
$7.5 million. This was attributable primarily to the increase in staffing of
the Company's Select Growth Leasing activities.
Interest expense increased from $1.1 million to $2.0 million, reflecting
higher borrowings attributable to the increase in direct finance leases and
rental inventory.
Depreciation of equipment increased from $3.5 million to $4.1 million
primarily as a result of the increase in the Company's net investment in its
analytical instrument rental portfolio.
The provision for credit losses increased from $0.2 million to $1.1 million
due to an increase in net investment in direct finance leases and a partial
charge-off of one lease resulting from a default.
The Company's effective tax rate increased from 43.4% to 48.4% due to an
increase in nondeductible expenses.
LIQUIDITY AND CAPITAL RESOURCES
General
The Company's Select Growth Leasing and Instrument Rental & Distribution
activities are capital intensive and require access to a substantial amount of
credit to fund new equipment leases. The Company has funded its operations
primarily through cash flow from operations, borrowings under the Senior
Credit Facility, non-recourse and recourse loans and the sale of equity to the
Company's existing stockholders. The Company will continue to require access
to significant additional capital to maintain and expand its volume of leases
originated and portfolio of rental equipment as well as re-initiate its
Portfolio Finance & Lessor Acquisition activities. The Company believes that
cash flow from its operations, the net proceeds of the Offering, the net
proceeds from future securitization transactions and other borrowings and
amounts available under its Senior Credit Facility will be sufficient to fund
the Company's operations for the foreseeable future.
Cash Flow
Cash flows from operating and financing activities provided by continuing
operations are generated primarily from receipts on direct finance leases and
rentals of analytical instruments, gross profit on the sale of
24
<PAGE>
analytical instruments, realization of residual values and the financing of
new lease originations and rental inventory. Cash flows from such activities
were $10.0 million for the first six months of 1996 and $22.8 million for the
first six months of 1997 and for 1994, 1995 and 1996 were $13.0 million, $24.6
million and $27.1 million, respectively. The period to period increases result
primarily from the growth in the Company's Select Growth Leasing direct
finance lease activities.
Credit Facilities
The Company utilizes secured warehouse, revolving credit and term loan
facilities provided to it under the Senior Credit Facility by a group of
banks, including Fleet Bank N.A. as agent, to fund the acquisition and
origination of leases and the purchase of analytical instruments. As of June
30, 1997, the Company had a maximum of $54.5 million available for borrowing
under the Senior Credit Facility, of which the Company had borrowed $45.1
million. In July 1997, the amount available under the Senior Credit Facility
was increased to $75.0 million. Borrowings under the current Senior Credit
Facility bear interest at the prime rate established from time to time by
Fleet Bank N.A. as its primary lender plus up to 0.50% depending on certain
financial tests or, at the Company's option, LIBOR plus 1.75% to 2.25%
depending on such tests and matures on July 15, 1998. As of June 30, 1997 the
weighted average interest rate on borrowings under the Senior Credit Facility
was approximately 7.9%. Upon consummation of the Offering, the Senior Credit
Facility will be increased to $100 million, the interest rate payable by the
Company thereunder will be reduced to LIBOR plus 1.25% to 1.75% or the prime
rate plus up to 0.25% and its maturity will be extended to September 30, 1998.
Recourse and Non-Recourse Debt
Since 1995, the Company has permanently financed a substantial portion of
the direct finance leases originated in its Select Growth Leasing and
Instrument Rental & Distribution activities using secured recourse and non-
recourse loans provided by financial institutions. The interest rate on these
loans range from 8.18% to 9.07% and they mature on various dates from June
1999 to August 2002.
Securitizations
The Company intends to capitalize on its management's prior experience in
securitizations. Upon consummation of the Offering, the Company expects to
enter into the Securitization Facility provided by an affiliate of Fleet Bank
N.A. in an initial amount of $60 million and which may be increased to $100
million at the Company's option based on certain conditions. The
Securitization Facility will provide for an interest rate which is 0.55% in
excess of 30 day LIBOR and may be converted into an amortizing term facility
at any time. The securitization facility will provide for transfer of eligible
leases to a special purpose subsidiary not less frequently than monthly. The
terms of the facility will permit the securitization of substantially all of
the leases originated in the Company's Portfolio Finance & Lessor Acquisition
activities and Instrument Rental & Distribution activities as well as the
substantial majority of the leases originated in the Company's Select Growth
Leasing activities. See "Business--Capital Resources and Securitizations."
Recent Accounting Pronouncements
The Company anticipates that, in the future, it will finance or sell certain
of its equipment leases through securitization transactions or other
structured finance techniques. The accounting treatment of such transactions
will be governed by SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." The Company is unable to
determine the precise impact of this pronouncement on its future results of
operation and financial condition until a specific transaction occurs.
SFAS No. 128, "Earnings per Share," requires the disclosure of basic
earnings per share and diluted earnings per share for financial statements for
periods ending after December 15, 1997. The Company does not believe that this
pronouncement would have had a significant effect on reported net income per
common share had it been applied to the data presented herein.
SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," will
affect the disclosure requirements for the Company's 1998 financial
statements. The Company has not yet evaluated the effect of these
pronouncements on its disclosure requirements.
25
<PAGE>
BUSINESS
GENERAL
The Company is a finance company specializing in the origination,
acquisition, securitization and servicing of equipment leases and in the
rental and distribution of analytical instruments. The Company's principal
businesses are (i) the direct origination of leases of a broad range of
equipment to emerging growth companies primarily serving the healthcare and
information technology industries and (ii) the rental and distribution of
analytical instruments to companies serving the environmental, chemical,
pharmaceutical and biotechnology industries. The Company conducts its business
throughout the United States and, except for California, which accounts for
approximately 20% of the Company's revenues, no state accounts for more than
10% of the Company's revenues. The Company believes, based on its own research
and management's extensive knowledge of and experience in the equipment
leasing industry, that it is a leading provider of equipment leasing, rental
and other services to its specialized markets and its position as such
provides significant opportunities for internal growth, as well as growth
through the acquisition and financing of lease portfolios originated by other
lessors and the acquisition of leasing companies which can capitalize on the
existing capabilities and significant management experience of the Company.
The Company believes that its extensive experience in these markets and its
flexibility in structuring transactions to meet the needs of both its leasing
and rental customers provide it with a competitive advantage over other
sources of such services. For information regarding segment reporting, see
Note 13 to the Consolidated Financial Statements.
BACKGROUND
The Company's management team has extensive experience in the development of
specialty finance companies, with each of its three senior officers having
over 25 years experience in the equipment leasing or rental industry. Since
its founding in 1975 by Mr. Zimmerman, the Company and companies previously
managed by Messrs. Zimmerman and Palles have originated over $1.5 billion in
equipment leases and have financed over $650 million of assets through
securitizations and other structured financings to finance their activities.
The Company believes, based on statements made to the Company by individuals
familiar with the securitization industry as well as its own research, that it
was the first company in the U.S. to securitize healthcare equipment leases
and related residual values.
The Company commenced its Select Growth Leasing activities in 1986 through
its sponsorship and management of limited partnerships, a portion of whose
business was providing equipment lease financing to emerging growth companies
primarily in the healthcare and information technology industries. Beginning
in 1992, the Company focused its Select Growth Leasing activities on leasing
essential operating equipment to such emerging companies. Since 1993, the
Company has originated over $76 million in new leases through its Select
Growth Leasing activities.
The Company's Instrument Rental & Distribution activities were developed
through the acquisition in 1991 of a business founded by Mr. Laing and the
acquisition in 1992 of the analytical instruments business of AT&T Capital.
The Company has also engaged in a number of other successful activities
serving the healthcare industry, including a business providing receivables-
based lending to healthcare providers which was sold to The FINOVA Group in
1996.
The Company first entered the Portfolio Finance & Lessor Acquisition
business in 1988 through the acquisition of Scientific Leasing, Inc. The
majority of these assets consisted of a portfolio of leases of healthcare
equipment. Under the management of Messrs. Zimmerman and Palles, the Company
believes, based on management's extensive knowledge of and experience in the
equipment leasing industry, that it became the largest independent lessor of
healthcare equipment in the U.S. with over $500 million in assets owned or
managed in 1993. Since 1988, the Company and companies previously managed by
Messrs. Zimmerman and Palles have acquired approximately $325 million in lease
portfolios and companies which had lease receivables of approximately $300
million. The Company sold its healthcare equipment leasing and portfolio
acquisition and servicing business in the 1994 Sale to LINC Anthem Corporation
("LINC Anthem"), a subsidiary of Anthem Insurance Companies, Inc. Messrs.
Zimmerman and Palles managed LINC Anthem until the 1996 Sale at which time
they returned to the Company on a full-time basis to pursue opportunities in
its Select Growth Leasing and Instrument Rental & Distribution activities.
26
<PAGE>
EQUIPMENT LEASING INDUSTRY
The equipment leasing and financing industry has grown rapidly since 1986
and is a major factor in the financing of business investment in equipment.
The ELA reports that business investment in equipment exceeded $560 billion in
1996 and that equipment leasing accounted for approximately $169 billion of
total business investment in equipment, compared to business investment of
$267 billion and equipment leasing activity of $85 billion in 1986. The ELA
estimates that 80% of all U.S. businesses use leasing or financing to acquire
capital assets.
The ELA reports that over 35% of equipment leases originated in 1995
consisted of computers, office equipment, telecommunication equipment, medical
equipment and other information technology and manufacturing equipment. The
Company believes that the equipment leasing market for these and other types
of small-ticket equipment (items with a unit cost of less than $250,000) is
growing more rapidly than other leasing segments primarily as a result of (i)
declines in the per unit cost of telecommunications, computer, medical and
office equipment; (ii) improved technology making instant credit approval
possible at the point of sale; and (iii) the trend of manufacturers and
distributors of small-ticket equipment to stimulate sales by providing various
financing alternatives to their customers. These growing segments of the
equipment leasing industry are a primary focus of the Company's growth
strategy for its Select Growth Leasing and Portfolio Finance & Lessor
Acquisition activities.
The equipment leasing industry is highly fragmented, with over 700 member
companies in the ELA alone. The Company estimates that over 20% of the members
of the ELA originate less than $50 million in equipment leasing volume
annually and believes that this segment of the industry is characterized by
small, thinly-capitalized companies who generally have experienced management
and good customer relationships. The Company believes that there are numerous
additional small lessors who are not members of the ELA and that such industry
fragmentation presents substantial opportunities for its Portfolio Finance &
Lessor Acquisition activities.
GROWTH STRATEGY
The Company's goal is to be the leading specialty finance company in its
targeted markets by taking advantage of its significant management experience
and existing operating systems and capabilities. From September 1994 to
September 1997 the Non-Compete Agreement restricted the Company's Portfolio
Finance & Lessor Acquisition and Select Growth Leasing activities. The Company
will once again pursue the substantial opportunities in these areas now that
the Non-Compete Agreement has expired. The Company's strategy for growth is
based on the following key elements:
Select Growth Leasing
. expanding the Company's network of sales offices, including the recently
opened Los Angeles office
. developing leasing relationships with more established clients which fit
the Company's Select Growth Leasing profile
. developing new products, including inventory and accounts receivable
financing
Instrument Rental & Distribution
. broadening the customer base of analytical instruments in the chemical,
biotechnology and pharmaceutical industries
. developing similar relationships with vendors of medical equipment and
acquiring other established rental and distribution companies
27
<PAGE>
Portfolio Finance & Lessor Acquisition
. taking advantage of the Company's securitization capabilities, lower
financing costs and the credit and servicing experience of its management
by acquiring and financing lease portfolios originated by smaller
independent leasing companies which are not efficiently served by
traditional financing sources
. leveraging the Company's existing servicing, financing and management
infrastructure by acquiring leasing companies which provide healthcare
and information technology equipment
SELECT GROWTH LEASING ACTIVITIES
General. The Company's Select Growth Leasing activities consist primarily of
the direct origination of non-cancelable, full-payout leases to middle and
late stage emerging growth companies in the healthcare and information
technology industries. Such companies include physician practice management
organizations, rehabilitation service companies, extended care providers,
healthcare claims administrators and information service providers and
Internet and telecommunications service companies. The Company has provided
leasing to over 75 companies including Cardiac Pathways Corporation, Mariner
Health Group, Inc., Transitional Health Services, Earthlink Network, Inc.,
Bridge Data Corporation and Intermedia Communications, Inc. A majority of the
Company's Select Growth Leasing clients are supported by institutional private
equity investors which provide capital and management resources to such
customers. Such private equity investors include Welsh Carson Anderson &
Stowe, Weiss, Peck & Greer, Essex Venture Partners and Oak Investment
Partners.
Leases to individual customers typically include items with an aggregate
cost ranging from $250,000 to $2.0 million and cover a broad variety of
equipment, each with original purchase prices which are generally less than
$100,000 per item. These leases are generally for essential operating
equipment, including data processing equipment, production equipment,
analytical instruments and medical equipment. For the first six months of 1997
compared with the same period in 1996, new lease originations increased from
$12.5 million to $23.9 million and backlog of unfunded leases increased from
$6.4 million to $19.9 million. The Company's Select Growth Leasing activities
are expected to continue to grow due to the Company's ability to provide such
services to more established companies, which was restricted by the Non-
Compete Agreement.
The Company believes that regulatory reform, consolidations, outsourcing and
other fundamental changes in the healthcare industry, expansion of the
information technology industry and development of new technologies have
promoted the formation and growth of new companies of the type served by its
Select Growth Leasing activities. Such companies typically have limited access
to financing from commercial banks, diversified finance companies and
traditional leasing companies. The Company's experience in serving the
healthcare and information technology industries enables it to serve the
specific needs of its customer base more effectively than its competitors by
providing a variety of financing alternatives, such as flexible lease
structures, asset-based financing, sale-leaseback transactions and secured
credit lines, while maintaining a high degree of credit quality. In a
significant number of its Select Growth Leasing transactions, the Company
receives warrants or other equity participation rights which provide
additional opportunities for profitability upon the sale of such rights. As of
June 30, 1997, the Company held equity participation rights in 39 companies,
13 of which were publicly traded.
Sales and Marketing. Leases are originated by representatives located in
Chicago, San Francisco, Boston and Los Angeles and are often the result of a
network of independent lease brokers and referrals from institutional private
equity investors. The Company has been able to identify prospective clients
through the retention of marketing personnel having investment banking,
financial analysis and industry specific experience, the analysis of selective
information regarding venture capital investment in the healthcare and
information technology industry, direct mail advertising and representation at
major venture capital conferences and symposia. The Company has also developed
a network of independent lease brokers and investors who routinely refer
transactions to the Company.
To insure prompt customer response, the Company's marketing personnel have
direct access to the Company's customer information data bases which assist
them in responding to sales leads, preparing lease
28
<PAGE>
proposals and monitoring the progress of a transaction through the
underwriting process. In addition, the Company's sales personnel are highly
trained in the structuring of Select Growth Leasing transactions.
Underwriting and Operating Systems. Based on its ten years of experience in
serving emerging growth companies primarily in the healthcare and information
technology industry, as well as its over 22 years in the equipment leasing
industry, the Company has developed underwriting and operations criteria,
including a specialized credit rating system, for its Select Growth Leasing
business that have been effective in the selection of lessees and in
minimizing the Company's exposure to loss. The Company's Select Growth Leasing
underwriting process is based on a high level of due diligence regarding a
potential customer's business, management, product, cash flows and
institutional investors, as well as the type of equipment to be leased.
The Company is typically reimbursed by the potential Select Growth Leasing
client for its out-of-pocket due diligence costs. For each transaction in
excess of $500,000 site visits are made to the potential client by the
Company's investment managers or due diligence specialists. The Company
generally interviews the potential customer's institutional investors,
management and customers. Following completion of a due diligence memorandum,
each transaction is reviewed by at least one member of the Company's
Commitments Committee, consisting of Messrs. Zimmerman, Laing, Palles and
Byrnes and Ms. O'Brien prior to approval. All transactions in excess of $1.5
million require the unanimous approval of the Company's Commitments Committee.
Once a transaction has been approved, the Company uses its standardized
lease or loan documentation tailored to the requirements of each particular
transaction to insure protection of its equipment or collateral. In addition,
the Company utilizes the InfoLease System, the most broadly utilized lease
processing software and an industry standard, to monitor the progress of a
transaction through the documentation process and to provide servicing
information, invoicing, collection and aging status, tax information and
analytical information regarding its Select Growth Leasing portfolio following
completion of a transaction. The Company receives updated financial
information regarding customers in its Select Growth Leasing portfolio and
reviews each company in its portfolio meeting specified criteria not less
frequently than quarterly. See "--Lease Portfolio Composition."
INSTRUMENT RENTAL & DISTRIBUTION ACTIVITIES
General. The Company's Instrument Rental & Distribution activities consist
primarily of the rental and distribution of analytical instruments, such as
gas and liquid chromatographs, mass spectrometers and atomic absorption
systems. Such instruments typically cost between $15,000 and $60,000 and are
used by companies serving the environmental, chemical, pharmaceutical and
biotechnology industries to measure the chemical composition of a variety of
substances.
Certain segments of the market for analytical instruments have undergone a
fundamental change over the past several years in that vendors have
increasingly relied upon independent companies, such as the Company, to take
responsibility for the distribution and rental of such equipment. This is
consistent with a trend toward outsourcing among providers of a variety of
products and services and is largely the result of customer demand for
analytical instruments which are specifically tailored with certain
enhancements to meet their needs and continued customer support. These vendors
have increasingly focused on the manufacture of such equipment and allowed
independent companies to focus on other functions such as rental, inventory
management and distribution. The Company believes that its expertise in all of
these areas has allowed it to become the leading independent distribution and
rental company in the analytical instrument market.
The Company is a distributor for most of the significant manufacturers of
this type of equipment including Hewlett-Packard, the largest manufacturer in
this industry, The Perkin-Elmer Corporation and Varian Associates Inc. The
Company believes, based on its own research, that it is the largest
independent source of analytical instruments in the U.S. and believes, based
on oral confirmation from Hewlett-Packard, that it is the only independent
company authorized to rent Hewlett-Packard analytical instruments. In April
1996, the Company entered into a pilot program with Hewlett-Packard to
exclusively rent and distribute Hewlett-Packard's line of analytical
instrumentation to its environmental laboratory customers. As an outgrowth of
its relationship
29
<PAGE>
with Hewlett-Packard, the Company, in concert with Hewlett-Packard, has
extended its sales and rental programs in Europe to accommodate U.S.-based and
new European customers. The Company's position as a distributor of certain
types of equipment allows it to purchase such equipment at a discount which
varies from manufacturer to manufacturer.
Sales and Marketing. The Company provides analytical instruments which are
customized, calibrated and ready for use and typically delivers equipment from
its centralized warehouse within 24 hours of receipt of an order. The Company
services over 2,300 analytical instrument customers through its sales force of
product specialists and orders directed by its vendors. The Company's
customers include environmental testing laboratories, pharmaceutical and
chemical manufacturers and biotechnology companies. The Company's five largest
Instrument Rental & Distribution customers are Bausch & Lomb, Inc., Applied
Analytical Industries, Inc., Alza Corporation, Intel Corporation and Battell
Memorial Institute. The Company's product specialists have immediate access
via laptop computers to a proprietary sales management system which provides
up-to-the-minute tracking of each item of inventory. The Company's field sales
force of eight people is supported by an inside sales group of four people.
The inside sales group interacts directly with customers providing same-day
quotations by fax and converting quotations to orders as received. In
addition, a significant effort is spent developing strong relationships with
the Company's major vendors' sales people. During 1995 and 1996, the Company
increased its sales force and realigned its sales territory to increase its
penetration in the chemical, biotechnology and pharmaceutical industries. The
Company will seek opportunities to capitalize on its distribution and rental
expertise and its knowledge of the healthcare market by developing similar
relationships with vendors of medical equipment and acquiring other
established rental and distribution companies.
The Company offers its Instrument Rental & Distribution customers three
types of rental and leasing arrangements: (i) short-term rental arrangements
with terms ranging from as short as a few days to one year; (ii) operating
leases with terms ranging from one year to 48 months; and (iii) full-payout
lease programs with terms ranging from 36 to 60 months. Customers under rental
arrangements and operating leases are also offered incentives to purchase the
related analytical instrument either during the term of the lease or at the
end of the lease by applying a portion of the rental payments made by the
customer to the purchase price of the equipment. The Company believes that its
ability to provide a wide range of rental, leasing and purchase options
provides it with a competitive advantage over other providers of analytical
instruments.
To further promote awareness of its Instrument Rental & Distribution
activities, the Company advertises in trade publications targeted at key
customer groups and participates in numerous trade shows worldwide. In
addition, specific mailing lists targeting selected market segments are
purchased from specialized database providers. A desktop publishing system is
used to generate product-specific marketing literature which is mailed on a
regular basis to target segments of the Company's over 15,000 account mailing
list. Direct mail targeted at prospective users of analytical equipment has
proven to be a cost effective way to attract rent, lease and sale customers
and to increase awareness and stimulate demand.
Operations. When the Company sells new analytical instruments, the equipment
is subject to a manufacturer's warranty. When the Company sells used
analytical instruments, it typically reconditions the equipment and provides a
90-day warranty. When the Company rents such instruments, it exchanges any
instruments requiring service with units from its centralized inventory or
provides for on-site service from the manufacturer or an independent service
organization. The Company maintains its rental inventory and customizes
analytical instruments to meet its particular customers' needs through one of
the most complete repair and reconditioning facilities in the industry.
The Company utilizes a combination of proprietary software and third-party
software licensed to it by a third-party in its rental and distribution
activities. All items in the Company's Instrument Rental & Distribution
inventory are separately bar-coded and tracked. Its systems permit users to
access information regarding account history, current activity, status of
items in its inventory, utilization, pricing, billing and collections on-line.
The Company believes that the long term experience of it and its management in
utilizing these systems provides it with the ability to rapidly respond to
customer inquiries and a high level of control over its rental inventory.
30
<PAGE>
PORTFOLIO FINANCE & LESSOR ACQUISITION ACTIVITIES
General. Since 1988, the Company and companies previously managed by Messrs.
Zimmerman and Palles have acquired approximately $325 million in lease
portfolios and companies which had lease receivables of approximately $300
million. The Company will reinitiate its Portfolio Finance & Lessor
Acquisition activities now that the Non-Compete Agreement has expired. The
Company believes there are substantial opportunities for such activities due
to the fragmented nature of the leasing industry, the inability of a
significant number of small equipment leasing companies to efficiently finance
their portfolios and obtain more favorable financing rates through the asset-
backed securities markets and the cost of implementing new technologies to
remain competitive. The leasing companies which the Company expects to finance
or acquire are characterized by: (i) strong customer or vendor relationships;
(ii) lease transactions which range in size from $5,000 to $250,000; (iii)
needs for committed financing and servicing relationships; and (iv) a focus on
customers which are not effectively served by more traditional funding
sources. The Company also expects to pursue selective acquisitions of
companies meeting these criteria which can be integrated into the Company's
organizational structure and which can recognize synergies from the Company's
operating systems and geographic presence. Based on data available from the
ELA, the Company believes that there are over 150 independent leasing
companies in the U.S. with less than $50 million in annual lease originations.
The Company believes that many of these companies are likely candidates for
the Company's Portfolio Finance & Lessor Acquisition activities.
Sales and Marketing. In connection with acquisition and financing of lease
portfolios, the Company will offer two distinct programs to its customers.
Under its Warehouse Line Programs, the Company will provide limited warehouse
facilities (generally less than $1 million) to lessors on a recourse basis.
Following a warehouse period which typically will not exceed six months, the
Company will purchase the related pool of warehoused leases from the lessor on
either a partial recourse or non-recourse basis. Under its Portfolio Finance
Programs, the Company plans to acquire portfolios originated over a specified
period of time by an originator. The purchase will be credit enhanced by
either a holdback reserve or, if the creditworthiness of the originator is
acceptable, a recourse obligation of the originator. Such credit enhancement
is intended to reduce losses under this program. The Company intends that
substantially all of the leases to be acquired by it will be non-cancelable,
full-payout leases.
Underwriting and Operating Systems. The Company has developed established
underwriting processes for the management of its Portfolio Finance & Lessor
Acquisition activities based on the prior experience of its management.
Utilizing criteria previously developed by management, the Company will
perform a detailed due diligence review of each potential customer prior to
approval of a Warehouse Line or Portfolio Finance Program. The due diligence
process will include extensive site visits, a review of the potential
customer's documentation standards, credit policies, customer base, management
team, equipment focus and servicing capabilities. In connection with a
Warehouse Line Program, the Company will utilize credit application and credit
scoring systems previously developed by its management, as well as systems
developed by Dun & Bradstreet to underwrite each transaction to be financed or
purchased. It will utilize documents for each lease that meet the standards
for leases entered into directly by the Company. In connection with Portfolio
Finance Programs, the Company will re-underwrite substantially all of the
transactions in each portfolio utilizing credit scoring systems previously
developed by the Company. It will structure each Portfolio Finance Program to
utilize credit enhancement such as over-collateralization, reserves and
limited recourse obligations. The credit policies and procedures and
underwriting standards for each of the Company's activities will be reviewed
by the Credit Policy Committee of the Company's Board of Directors.
The Company intends to utilize the InfoLease system to service each lease
financed or acquired in connection with a Warehouse Line or Portfolio Finance
Program. The Company's operations and information systems management has
extensive experience in the utilization of InfoLease to manage portfolios
purchased from others. It is experienced in the critical process of rapidly
and accurately converting portfolios utilizing other systems to the Company's
own operations systems.
31
<PAGE>
LEASE PORTFOLIO COMPOSITION
Equipment Type. The following table sets forth the Company's percentage of
original cost of equipment under direct finance leases, which totaled $64.0
million as of June 30, 1997, by equipment type:
<TABLE>
<CAPTION>
% OF
EQUIPMENT TYPE EXAMPLES PORTFOLIO
-------------- -------- ---------
<C> <S> <C>
Information Systems Personal computers, area networks and
workstations.............................. 31.1%
Production Pharmaceutical manufacturing, labeling and
dispensing equipment...................... 20.4
Analytical Instruments Gas and liquid chromatographs and mass
spectrometers............................. 16.9
Medical X-ray machines, infusion pumps and surgical
equipment................................. 11.2
Telecommunications Microwave transmitters, multiplexing
equipment and telephone systems........... 7.5
Furniture and Fixtures Medical and other office furniture......... 7.2
Laboratory Microscopes, incubators and sterilizers.... 4.3
Miscellaneous Various equipment accessories.............. 1.4
-----
Total....................................................... 100.0%
=====
</TABLE>
Customers. The following table sets forth the Company's percentage of net
investment in direct finance leases, which totaled $43.4 million as of June
30, 1997, by lessee industry:
<TABLE>
<CAPTION>
% OF
TYPE OF CUSTOMER PORTFOLIO
---------------- ---------
<S> <C>
Healthcare and Healthcare Services.............................. 28.6%
Information Technology & Communications......................... 27.5
Environmental Laboratories...................................... 18.1
Service......................................................... 13.9
Biotechnology................................................... 3.3
Food Processing................................................. 2.0
Electronic Manufacturing........................................ 1.8
Other........................................................... 4.8
-----
Total....................................................... 100.0%
=====
</TABLE>
Terms of Equipment Leases. Substantially all equipment leases originated by
the Company are net leases with specified non-cancelable terms ranging from
three to six years. The terms and conditions of all of the Company's leases
are substantially similar. In most cases, the lessees are contractually
required to: (i) maintain, service and operate the equipment in accordance
with the manufacturer's and government-mandated procedures; (ii) insure the
equipment against property and casualty loss; (iii) pay all taxes associated
with the equipment; and (iv) make all scheduled contract payments regardless
of the performance of the equipment. The Company's standard forms of leases
provide that in the event of a default by the lessee, the Company can require
payment of liquidated damages and can seize and remove the equipment for
subsequent sale, refinancing or other disposal at its discretion. Any
additions, modifications or upgrades to the equipment, regardless of the
source of payment, are automatically incorporated into and deemed a part of
the equipment financed.
Residual Values. Unless the residual value of the leased equipment is sold
in connection with the securitization or sale of the lease, the estimated
residual equipment value remains on the Company's balance sheet and is
recognized as direct financing lease income over the life of the lease using
the interest method. Residual equipment values on the Company's balance sheet
as of June 30, 1997 totaled approximately $3.5 million. The Company's
extensive experience in remarketing equipment and conservative policies toward
estimating residual values has resulted in the Company recognizing substantial
gains on the remarketing of leased equipment. Since 1981, the Company and the
companies previously managed by Messrs. Zimmerman and Palles have remarketed
equipment with an original cost of over $1.0 billion in equipment following
lease expirations and realized over $280 million in residual proceeds, more
than 155% of the original estimates.
32
<PAGE>
Loss Experience. Since the initiation of the Company's leasing activities in
1993, credit losses have been less than 2.0% of lease receivables originated.
The following table sets forth the amount of deliquencies as a percentage of
Gross Contract Balance as of the period indicated and net charge-offs as a
percentage of the Company's remaining net investment in direct finance leases
as of the end the period indicated.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER ENDED
31, JUNE 30,
----------------------- ---------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Gross Contract Balance................. $14,725 $28,762 $40,377 $32,832 $53,669
31 - 60 days past due.................. 4.19% 1.91% 2.18% 2.47% 3.38%
61 - 90 days past due.................. 3.25% 0.55% 0.20% 0.35% 0.38%
Over 90 days past due.................. 0.37% 4.62% 0.49% 0.00% 0.21%
Net investment in direct finance
leases (before allowance for doubtful
accounts)............................. $ 8,545 $18,248 $33,057 $25,068 $45,239
Net charge-offs........................ $ 6 $ 104 $ 433 -- $ 62
Net charge-off percentage.............. 0.1% 0.6% 1.3% -- 0.1%
Number of leases....................... 1 3 1 -- 1
</TABLE>
Management believes that the low level of credit losses achieved by the
Company are a result of its: (i) due diligence and credit scoring procedures
specifically designed to analyze lease transactions with emerging growth
companies in the healthcare and information technology industries; (ii)
extensive monitoring and review of such transactions by senior executives of
the Company; (iii) proactive approach to addressing delinquencies; (iv)
transaction structuring experience; (v) advanced hardware and software
systems; and (vi) extensive experience in servicing lease portfolios.
Lease Servicing. The Company's Select Growth Leasing activities currently
utilize and its Portfolio Finance & Lessor Acquisition activities will utilize
the InfoLease lease processing system. This system was licensed to the Company
in 1985 on a non-exclusive basis from its developer, Decision Systems, Inc.
("DSI"), thus making the Company DSI's second non-bank licensee. The Company
was a Beta site for the development of portions of the InfoLease system. DSI
currently employs over 200 people and has over 180 licensees of the InfoLease
software. Management believes that InfoLease is the most broadly utilized
lease processing software and is thus an industry standard. The Company has
continually upgraded the InfoLease system since 1985. The Company and
companies previously managed by Messrs. Zimmerman and Palles have successfully
utilized InfoLease to process all lease originations as well as the majority
of lease portfolios financed by them.
The Company has successfully utilized InfoLease to service the lease
portfolios held by five limited partnerships and eight securitization vehicles
sponsored by the Company. The Company believes there are significant
opportunities to provide servicing of lease and loan portfolios of emerging
growth companies to larger financing sources which do not have expertise in
this market. In addition, the Company's management has had extensive
experience in the servicing of securitizations of lease portfolios acquired
from others. Management believes that its utilization of an "industry
standard" system, coupled with its extensive experience in operating and
enhancing the InfoLease system provides a competitive advantage in the
acquisition of lease portfolios and in the servicing of securitizations.
RENTAL INVENTORY COMPOSITION
Equipment Type. As of June 30, 1997, the Company owned and managed an
inventory of analytical instruments having an original cost of $21.9 million.
The Company's inventory of equipment includes over 3,000 items representing
more than 500 model types and has an average age of approximately 18 months.
33
<PAGE>
The following table sets forth the composition of the Company's rental
inventory by equipment type as of June 30, 1997:
<TABLE>
<CAPTION>
% OF
EQUIPMENT TYPE USE PRICE RANGE INVENTORY
-------------- --- ----------- ---------
<C> <S> <C> <C>
Analysis of evaporated
Gas Chromatographs organic compounds....... $15,000 - $20,000 43.5%
Separation and analysis
Mass Spectrometers of organic compounds.... 50,000 - 60,000 18.0
Analysis of dissolved
Liquid Chromatographs organic compounds....... 15,000 - 50,000 10.4
Analysis of organic
Portable Test Units vapor................... 5,000 - 60,000 7.4
Atomic Absorption Systems Analysis of metals...... 25,000 - 125,000 6.8
Accessories and
Accessories automatic samplers...... 8,000 - 12,000 13.9
-----
Total......................................................... 100.0%
=====
</TABLE>
Customers. The following table sets forth the Company's percentage of 1996
revenues from the rental and sale of analytical instruments by customer
industry:
<TABLE>
<CAPTION>
% OF
TYPE OF CUSTOMER REVENUE
---------------- -------
<S> <C>
Environmental..................................................... 61.0%
Pharmaceutical.................................................... 11.9
Chemical.......................................................... 9.4
Manufacturing..................................................... 4.5
Analytical........................................................ 2.5
Biotechnology..................................................... 2.3
Food Processing................................................... 1.5
Government........................................................ 1.3
Other............................................................. 5.6
-----
Total......................................................... 100.0%
=====
</TABLE>
Terms of Equipment Rental Agreements. The terms and conditions of all of the
Company's rental agreements are substantially similar. Substantially all of
the rental agreements have terms ranging from a few days to one year. Unlike
the Company's typical lease, the rental agreements require the Company to: (i)
maintain, service and operate the equipment in accordance with the
manufacturer's and government-mandated procedures; (ii) insure the equipment
against property and casualty loss; and (iii) pay all taxes associated with
the equipment.
Remarketing. Analytical instruments rented by the Company have relatively
long economic lives and have not been subject to rapid obsolescence. The
Company generally depreciates its rental inventory over a seven-year period to
zero salvage value. The Company has realized gains from the sale of used
analytical instruments in each year since the inception of this business.
CAPITAL RESOURCES AND SECURITIZATIONS
The Company currently funds its activities through warehouse, revolving
credit and term loan facilities provided by a group of banks under its Senior
Credit Facility, as well as recourse and non-recourse loans provided by
various financial institutions. The Senior Credit Facility will be amended
upon consummation of the Offering to increase the amount available thereunder
to $100 million and to reduce the applicable interest rates thereunder. Upon
achieving a sufficient portfolio size of lease receivables, the Company
expects to sell or finance a portion of such receivables in the public and
private markets, largely through securitizations (in which receivables are
first sold to a special purpose entity which then sells or pledges the
receivables to the financing parties on a limited recourse basis) or other
structured financings (in which the receivables are sold or pledged directly
to the financing party on a limited recourse basis). To provide for such
securitizations, upon consummation of the Offering, the Company expects to
enter into the Securitization Facility in an initial amount of $60 million and
which may be increased to $100 million at the Company's option based on
certain conditions.
34
<PAGE>
Since 1987, the Company and companies previously managed by Messrs.
Zimmerman and Palles have completed 20 securizations and other structured
financings generating over $650 million in proceeds. The Company's financing
objective is to maximize the spread between the yield received on its leases
and its cost of funds by obtaining favorable terms on its various financing
transactions. As a result of the Company's established track record in the
specialty finance industry, the Company believes that new terms of its Senior
Credit Facility and Securitization Facility are superior to the terms obtained
by other companies in its industry of similar size and credit characteristics.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
The following tables set forth the securitizations and other structured
financings completed by the Company and companies previously managed by
Messrs. Zimmerman and Palles since 1985:
SECURITIZATIONS
<TABLE>
<CAPTION>
DATE OF COMMITMENT
ISSUER RATING ISSUANCE AMOUNT
- ------ --------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Scientific Leasing Funding Corp.......... Not Rated Jul-87 $ 19,542
Scientific Leasing Funding Corp. II...... Not Rated Dec-87 10,187
LINC Finance Corporation................. AA- Jun-89 24,857
LINC Finance Corporation II.............. AA Jun-90 29,124
LINC Finance Corporation III............. A+ Jun-91 30,911
LINC Finance Corporation IV
Class A Notes.......................... AA- Apr-92 28,972
Class B Notes.......................... Not Rated Apr-92 9,657
LINC Finance Corporation V............... Not Rated Dec-92 70,000
LINC Finance Corporation VI.............. Not Rated Apr-93 58,698
LINC Finance Corporation VII............. Not Rated Dec-93 23,250
LINC Finance Corporation VIII............ Not Rated May-94 60,000
LINC Finance Corporation IX.............. Not Rated Sep-94 31,154
Anthem Financial Receivables Corp. 1995.. AA- Jun-95 72,400
LINC Anthem Receivables Corp. 1995....... Not Rated Sep-95 16,000
Anthem Financial Receivables Corp. II
1995.................................... AA- Dec-95 80,100
Newcourt LINC Receivables Corp. 1996..... Not Rated Jun-96 25,400
--------
Total Securitizations................................... 590,252
--------
OTHER STRUCTURED FINANCINGS
<CAPTION>
FINANCING PARTY
- ---------------
<S> <C> <C> <C> <C> <C>
First Union National Bank of North Carolina........ Jun-88 38,300
Sanwa Business Credit Corporation.................. Dec-90 8,291
Sanwa Business Credit Corporation.................. Oct-95 6,087
European American Bank............................. Dec-96 8,016
Newcourt Credit Group.............................. Jul-97 13,906
--------
Total Other Structured Financings....................... 74,600
--------
Total Securitizations and Other Structured Financings... $664,852
========
</TABLE>
COMPETITION
The Company competes in the equipment financing market with a number of
national, regional and local finance companies. In addition, the Company's
competitors include those equipment manufacturers that finance the sale or
lease of their products themselves and other traditional types of financial
services companies, such as commercial banks and savings and loan
associations, all of which provide financing for the purchase of
35
<PAGE>
equipment. The Company's competitors include many larger, more established
companies that may have access to capital markets and to other funding sources
which may not be available to the Company. Many of the Company's competitors
have substantially greater financial, marketing and operational resources and
longer operating histories than the Company.
EMPLOYEES
As of October 15, 1997, the Company employed 78 people on a full-time basis.
Twenty-four personnel were involved in marketing and sales, 50 were in lease
and rental processing, servicing and administrative support and four were
executive employees. No employees of the Company are represented by a labor
union. The Company believes that its relations with its employees are good.
FACILITIES
The Company's principal executive offices and its Select Growth Leasing and
Portfolio Finance & Lessor Acquisition activities are located at 303 East
Wacker Drive, Chicago, Illinois 60601 (tel. 312-946-1000) and occupy
approximately 26,000 square feet of office space. The lease for the facility,
a portion of which is subleased from Newcourt, expires on September 30, 1999.
The Company's Instrument Rental & Distribution activities are located in
Foster City, California and occupy approximately 23,500 square feet of
warehouse, laboratory and office space. This space is leased under a lease
which expires on May 31, 2002. The Company believes that its current
facilities are adequate for its existing needs and that additional suitable
space will be available as required.
LEGAL PROCEEDINGS
The Company is currently not a party to any material litigation, although it
is involved from time to time in routine litigation incidental to its
business.
36
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The executive officers, key employees and directors of the Company and their
ages as of June 30, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Martin E. Zimmerman..... 59 Chairman of the Board and Chief Executive Officer
Robert E. Laing......... 52 President, Chief Operating Officer and Director
Allen P. Palles......... 56 Executive Vice President, Chief Financial Officer and Director
Gerard M. Farren........ 56 Senior Vice President--Instrument Rental and Distribution
William J. Erbes........ 47 Senior Vice President--Business Development
Cameron Krueger......... 35 Senior Vice President--Information Systems and Portfolio Services
M. Eileen O'Brien....... 34 Vice President and Treasurer
Steven Byrnes........... 36 Vice President--Operations
Charles J. Aschauer (1). 69 Director
Stanley Green (1)(2).... 58 Director
Curtis S. Lane (1)(2)... 40 Director
Terrence J. Quinn....... 45 Director
</TABLE>
- --------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Martin E. Zimmerman serves as Chairman of the Board and Chief Executive
Officer of the Company. Mr. Zimmerman founded the Company in 1975 and has
served as Chairman of the Board and Chief Executive Officer since the
formation of the Company. From October 1994 until October 1996, he also served
as President and Chief Executive Officer of LINC Anthem and, after the sale of
LINC Anthem to Newcourt, its subsidiary Newcourt LINC Financial Inc.
("Newcourt LINC"). Before founding the Company, Mr. Zimmerman founded and
served for seven years as President of Telco Marketing Services, Inc., a
leader in the hospital equipment leasing field and the first independent
dealer in used medical equipment.
Robert E. Laing serves as President and Director of the Company. Mr. Laing
joined the Company in 1991 when it acquired his analytical instruments rental
and distribution business and has served as President, Chief Operating Officer
and Director of the Company since 1994. Prior to founding such business in
1989, he was employed for 17 years by U.S. Leasing in various capacities,
including Executive Vice President and Group Executive, Retail Group,
President of U.S. Instrument Rental, Chief Executive Officer of U.S. Portfolio
Leasing and Chief Operating Officer of U.S. Fleet Leasing. Previously, he held
marketing positions with Data Action Corporation and IBM Corporation.
Allen P. Palles serves as Executive Vice President, Chief Financial Officer
and Director of the Company. Mr. Palles joined the Company in 1983 and has
served as Chief Financial Officer and a Director of the Company since 1984.
From October 1994 until December 1996, he also served as Chief Financial
Officer of LINC Anthem and Newcourt LINC. Before joining the Company, he was
Treasurer of The Marmon Group, Inc. and held various senior financial and tax
positions at Pullman, Inc. Mr. Palles is a certified public accountant and
attorney and specializes in lease securitization.
Gerard M. Farren serves as Senior Vice President--Instrument Rental and
Distribution of the Company. Dr. Farren joined the Company in 1991 when the
Company acquired its analytical instrument rental and distribution business
and has served in his current position since that time. Previously, he was
Senior Vice President and General Manager of U.S. Analytical Instruments,
Inc., a division of U.S. Leasing, and worked with The Perkin-Elmer Corporation
in product development and sales management. Dr. Farren earned a Ph.D. in
physical chemistry from Ireland's Northern University.
37
<PAGE>
William J. Erbes serves as Senior Vice President--Business Development of
the Company. Mr. Erbes joined the Company in 1993 and has served in his
current position since 1995. Before joining the Company, he was President of
Narco Medical Services, Inc. and Senior Vice President of Medirec Inc., a
leading medical equipment rental company.
Cameron Krueger serves as Senior Vice President--Information Systems and
Portfolio Services of the Company. Mr. Krueger re-joined the Company in 1997
in his current position after having been Senior Vice President of
Thoughtworks, Inc., a consulting and systems development firm, from 1995 to
1997. From 1991 until 1995 he served as Vice President of Information Systems
of the Company.
M. Eileen O'Brien serves as Vice President and Treasurer of the Company. Ms.
O'Brien has served in her current position since 1997, and since joining the
Company in 1988, has also served as Director of Financial Planning, Manager of
Budget and Portfolio Analysis, Vice President of Human Resources and Financial
Analyst.
Steven Byrnes serves as Vice President--Operations. Mr. Byrnes re-joined the
Company in 1997 in his current position after having been Vice President,
Portfolio Management of LINC Anthem and Newcourt LINC from 1994 to 1997. From
1992 to 1994, he served as Controller of the Company's Portfolio Finance &
Lessor Acquisition activities.
Charles J. Aschauer, a Director of the Company since 1989, acts as a
corporate director and business consultant. He was employed by Abbott
Laboratories, Inc. from 1971 until his retirement in 1989, and served as
Executive Vice President and Director of that company. Previously, he held
senior positions with Whittaker Corporation, Maremont Corporation and Mead
Johnson and Company after serving as a Principal with McKinsey & Company. He
is also a Director of Boston Scientific Corporation and Trustmark Insurance
Company.
Curtis S. Lane was a Director of the Company from 1989 to August 1997 and
will once again become a Director of the Company in October 1997. Mr. Lane is
a Senior Managing Director of Bear, Stearns & Co. Inc. and head of its
healthcare investment banking group. He has served in various investment
banking capacities with Bear Stearns since 1985 and also serves on the board
of directors of Bear, Stearns & Co. Inc.
Stanley Green, a Director of the Company since 1996, was Senior Vice-
President of PacifiCorp Capital Corporation from 1987 until his retirement in
1992. Mr. Green served as President of Thomas Nationwide Computer Corporation,
a company he founded, until 1987 when it was sold to PacifiCorp Capital
Corporation. He is also an officer and Director of BioSterile Technologies,
Inc. and Thomas Computer Corporation and has been employed by M.A. Berman and
Co. since 1986.
Terrence J. Quinn, a Director of the Company since 1991, is President and
Chief Executive Officer of Quinn Capital Services, Inc., a financial advisory
firm. From March 1991 until December 1993, he was President of the Company.
Previously, he was President of Medirec Inc., Matrix Leasing International
Inc. and Churchill Capital Partners L.P. In addition, prior to consummation of
the Offering, Mr. Quinn will become the President of the entity which acquired
certain operations no longer conducted by the Company and will enter into a
consulting agreement with the Company providing for advice regarding
acquisitions. See "Certain Transactions".
COMMITTEES OF THE BOARD OF DIRECTORS
Upon consummation of the Offering, the Board of Directors will establish a
Compensation Committee, an Audit Committee and a Credit Policy Committee. The
Compensation Committee, which will be comprised of Messrs. Aschauer, Green and
Lane, will have the authority to determine compensation for the Company's
executive officers and to administer the Incentive Plan. The Audit Committee,
which will be comprised of Messrs. Green and Lane will have the authority to
make recommendations concerning the engagement of independent public
accountants, review with the independent public accountants the plan and
results of the audit engagement, review the independence of the independent
public accountants, consider the range of audit and non-audit fees and review
the adequacy of the Company's internal accounting controls. The Credit Policy
Committee, which will be comprised of Messrs. Zimmerman, Green and Quinn, will
periodically review the Company's credit policies and procedures and
underwriting standards.
38
<PAGE>
DIRECTOR COMPENSATION
Outside Directors are paid $15,000 annually. In addition, upon consummation
of the Offering, each of Messrs. Aschauer, Lane and Quinn will be granted
options with respect to 13,333 shares of Common Stock, and Mr. Green will be
granted options with respect to 18,333 shares of Common Stock. See "--Stock
Option Plans."
EXECUTIVE COMPENSATION
The following table presents certain information concerning compensation
earned for services rendered during 1996 to the Company by the Chief Executive
Officer and each of the other executive officers. Messrs. Zimmerman and Palles
were employed for a substantial portion of 1996 by LINC Anthem and Newcourt
LINC and were paid additional compensation by them. Their compensation will be
adjusted upon consummation of the Offering. See "--Employment and Non-
Competition Agreements." A substantial portion of the compensation paid to
Messrs. Zimmerman, Laing and Palles during 1996 was with respect to certain
operations no longer conducted by the Company and was charged to such
operations. See "Certain Transactions."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------ -----------------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL OTHER ANNUAL OPTIONS ALL OTHER
POSITIONS SALARY BONUS COMPENSATION (#) COMPENSATION
------------------ -------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Martin E. Zimmerman .... $328,600 $637,771 $87,137(1) -- $ --
Chairman and Chief
Executive Officer
Robert E. Laing ........ 272,100 495,000 -- 132,765 4,500
President and Chief
Operating Officer
Allen P. Palles ........ 55,450 181,686 -- 100,876 --
Executive Vice
President and Chief
Financial Officer
Gerard M. Farren........ 197,100 72,188 -- -- 4,500
Senior Vice President--
Instrument Rental and
Distribution
William J. Erbes........ 144,423 52,500 -- -- 4,500
Senior Vice President--
Business Development
</TABLE>
- --------
(1) This amount consists of life insurance premiums and tax preparation
services paid for by the Company.
The following table sets forth certain information concerning stock options
granted in 1996 to the Company's executive officers:
OPTION GRANTS IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK
SECURITIES % OF TOTAL PRICE
UNDERLYING OPTIONS/SARS EXERCISE APPRECIATION FOR
OPTIONS GRANTED TO OR BASE OPTION TERM (2)
GRANTED EMPLOYEES IN PRICE EXPIRATION -----------------
NAME (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- ---------- ------------ -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Laing.. 132,765 54.98% $2.22 12/31/2006 $185,359 $469,737
Allen P. Palles.. 100,876 41.77 2.22 12/31/2006 140,838 356,910
</TABLE>
- --------
(1) Upon consummation of the Offering, Messrs. Zimmerman, Laing, Palles and
Erbes and Dr. Farren will be granted options with respect to 20,000,
10,000, 10,000, 6,942 and 7,500 shares of Common Stock, respectively. See
"--Stock Option Plans."
(2) In calculating the potential realizable value, the Company used an
estimated market price of $2.22 per share as of the date of grant.
39
<PAGE>
None of the Company's executive officers exercised any stock options during
1996. The following table sets forth certain information regarding the stock
options held by the Company's executive officers on December 31, 1996:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING
UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT FISCAL YEAR-END 1996 IN-THE-MONEY OPTIONS
(#) AT FISCAL YEAR-END ($)(1)
-------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert E. Laing.......... 150,580(2) 146,170 $1,994,266(2) $1,977,625
Allen P. Palles.......... 60,320(2) 40,556 770,890(2) 518,306
William J. Erbes......... 7,835 5,223 105,694 70,458
</TABLE>
- --------
(1) Based upon the differences between the midpoint of the price range on the
cover of this Prospectus and the exercise price.
(2) All of such options were exercised by the executive on June 30, 1997.
EMPLOYMENT AND NON-COMPETITION AGREEMENTS
Effective as of the completion of the Offering, the Company will enter into
an employment contract with Mr. Zimmerman providing for (i) an annual base
salary of $275,000 per year, subject to increase at the discretion of the
Board of Directors; (ii) reimbursement of premiums at an annual estimated cost
of approximately $50,000 for a life insurance policy; and (iii) customary
benefits and perquisites. The agreement will have a three year evergreen term
unless either the Company or Mr. Zimmerman gives 90 days' notice of
termination. If the agreement is terminated by the Company without cause or
within 6 months prior to or one year after a change of control, Mr. Zimmerman
will be entitled to severance pay equal to three times his (i) base salary;
(ii) bonus; and (iii) employer contributions to his retirement plan for the 12
months preceding such termination, plus an additional amount if necessary to
make the executive whole with respect to any excise taxes on such severance
pay. The agreement provides that Mr. Zimmerman will not engage in other
business activities without the consent of the Company, except for charitable
and professional trade associations and passive personal investments, and
except that Mr. Zimmerman may serve as chairman and as officer and director of
an affiliated company so long as such activity does not materially interfere
with his duties to the Company. See "Certain Transactions". The agreement
prohibits Mr. Zimmerman from competing with the Company for one year following
the termination of his employment with the Company. Also, effective as of the
Offering, the Company will enter into employment contracts with Messrs. Laing,
Palles and Erbes and Dr. Farren providing for (i) an annual base salary of
$240,000 for Mr. Laing, $185,000 for Mr. Palles, $195,000 for Dr. Farren and
$142,500 for Mr. Erbes, all subject to increase at the discretion of the Board
of Directors; and (ii) customary benefits and perquisites. The agreements will
have a one year evergreen term and may be terminated by either the Company or
Mr. Laing, Mr. Palles, Dr. Farren or Mr. Erbes, respectively, upon 60 days'
notice. If the agreements are terminated by the Company without cause or
within 6 months prior to or one year after a change of control, each of Mr.
Laing, Mr. Palles, Dr. Farren and Mr. Erbes will be entitled to severance pay
equal to his (i) base salary; (ii) bonus; and (iii) employer contributions to
his retirement plan for the 12 months preceding such termination. The
agreements prohibit Messrs. Laing, Palles and Erbes and Dr. Farren from
competing with the Company for one year following the termination of their
employment with the Company. Such employment agreements will require that
Messrs. Palles, Laing, and Erbes and Dr. Farren devote substantially all of
their business time to the Company's affairs, except for charitable and
professional trade associations and passive personal investments, and with
respect to Mr. Palles, except for his services as a director of an affiliated
company. See "Certain Transactions."
EXECUTIVE INCENTIVE COMPENSATION PLAN
Effective as of the Offering, the Board of Directors adopted an Executive
Incentive Compensation Plan (the "Incentive Plan"). The Incentive Plan
provides for the payment of additional annual cash bonuses if the Company's
after-tax earnings for the fiscal year (determined without regard to payments
under the Incentive
40
<PAGE>
Plan) exceeds 17.5% of the Company's Average Common Equity (as defined below)
for such fiscal year. If the threshold is satisfied in any given fiscal year,
the aggregate award compensation that will be paid under the Incentive Plan
for that particular fiscal year (the "Incentive Pool") will be equal to 2.5%
of the Company's pre-tax earnings for such fiscal year (determined without
regard to payments under the Incentive Plan), to the extent that after-tax
earnings (determined after deduction for payments under the Incentive Plan)
are not less than 17.5% of the Company's Average Common Equity for such fiscal
year. The Average Common Equity for a fiscal year is the average of the
balance of equity attributable to the outstanding Common Stock of the Company
(including par value, additional paid in capital and retained earnings), as
reflected in the financial statements of the Company at the end of each
quarter during the fiscal year. The entire amount in each Incentive Pool will
be paid in cash to the Incentive Plan participants within three and one-half
months after the last day of the fiscal year to which such Incentive Pool
relates. Not more than 75% of the Incentive Pool will be paid to the Chief
Executive Officer, the President and the Chief Financial Officer of the
Company, with each such individual's share of such aggregate amount to be
determined by the Chief Executive Officer and subject to the approval of the
Board of Directors. The balance of the Incentive Pool will be paid to other
senior management employees of the Company as determined by the Chief
Executive Officer and subject to the approval of the Board of Directors.
STOCK OPTION PLANS
The Company adopted its 1994 Stock Option Plan and 1997 Stock Incentive Plan
to align the interests of the executives and employees of the Company with
those of its stockholders. Options covering 488,928 shares of Common Stock
were granted pursuant to the 1994 Stock Option Plan (of which options covering
166,304 shares are still outstanding) and no further options will be granted
under such Plan. The 1997 Stock Incentive Plan permits the grant of options
qualified as incentive stock options under the Internal Revenue Code and other
equity-based awards with respect to 375,000 shares of Common Stock. Upon
consummation of the Offering, Messrs. Zimmerman, Laing, Palles and Erbes and
Dr. Farren will be granted options with respect to 20,000, 10,000, 10,000,
6,942 and 7,500 shares of Common Stock, respectively. Such options will be
exercisable at the initial public offering price, will have ten year terms and
will vest in one-eighth increments over the four years following the grant
date based upon continued employment by the Company over such period. In
addition, upon consummation of the Offering other employees of the Company
will be granted options with respect to an aggregate of 106,300 shares of
Common Stock. Such options will be exercisable at the initial public offering
price, will have ten year terms and will vest over a period of four years. No
other options have been granted under the 1997 Stock Incentive Plan. Stock
options may be granted to executives and employees of the Company and its
subsidiaries. The exercise price of stock options will be determined by the
Board of Directors or a committee thereof. Subject to the terms of the 1997
Stock Incentive Plan, the Board of Directors or the Compensation Committee is
authorized to select the recipients of stock options and other awards from
among those eligible and to establish the exercise price, the number of shares
that may be issued and other terms. The exercise price of an option maybe paid
in cash, in shares of Common Stock (valued at fair market value on the date of
exercise) or by a combination thereof.
The Company has adopted, effective upon consummation of the Offering, a Non-
Employee Director Option Plan which permits the grant of options with respect
to 100,000 shares of Common Stock. Upon consummation of the Offering, each of
Messrs. Aschauer, Lane and Quinn will be granted options with respect to
13,333 shares of Common Stock, and Mr. Green will be granted options with
respect to 18,333 shares of Common Stock. Such options will be exercisable at
the initial public offering price, will have ten year terms and will vest in
one quarter increments over the two years following the grant date based upon
continued service on the Board during such period.
41
<PAGE>
CERTAIN TRANSACTIONS
Prior to consummation of the Offering, the Company will distribute to
Messrs. Zimmerman and Palles in redemption of 446,583 shares and 36,209
shares, respectively, of Common Stock of the Company held by them, all of the
stock of a subsidiary which owns the Company's net assets from discontinued
operations which consisted primarily of a portfolio of leased diagnostic
imaging equipment and other assets not used in the Company's business and the
Subsidiary Preferred Stock (the "Affiliate Group"). Unless otherwise
indicated, all numbers and percentages with respect to shares of Common Stock
contained herein, other than with respect to historical financial information,
reflect such redemption. Pursuant to an agreement (the "Servicing Agreement")
with the Affiliate Group, the Company will provide limited servicing,
including billing, collection and invoicing, for the portfolio of leases owned
by the Affiliate Group until December 31, 1999 for $83,250 for the last
quarter of 1997, $270,250 for 1998 and $212,250 for 1999. The Affiliate Group
will sub-lease from the Company approximately 2,500 square feet of space at
the Company's executive offices for approximately $68,000 per year, which is
equal to the Company's cost for such space. If the Company renews its own sub-
lease for the space, it will permit the Affiliate Group to renew such sub-
lease. In addition, the Servicing Agreement will prohibit the Affiliate Group
from competing with the Company for the longer of (i) three years or (ii) the
period of time during which Messrs. Zimmerman or Palles are employed by the
Company plus one year. The Servicing Agreement will require the Affiliate
Group to refer all lease origination opportunities it encounters to the
Company.
In connection with the distribution of the stock of the Affiliate Group to
Messrs. Zimmerman and Palles, (i) the Affiliate Group will agree to pay the
Company an aggregate of $2,508,000 until the maturity of the Company's 8 1/4%
Subordinated Debentures due 2003 (the principal balance of such Debentures
shown in the Company's financial data herein is net of such amount); (ii) the
Affiliate Group will, upon consummation of the Offering, repay a loan from the
Company (the amount of which at June 30, 1997 was $3,375,000); and (iii) the
Company will cause the Subsidiary Preferred Stock, all of which will be held
by the Affiliate Group, to be redeemed for approximately $4.9 million. Messrs.
Zimmerman, Quinn and Palles will serve as directors of the corporations
comprising the Affiliate Group, with Mr. Zimmerman as Chairman, and they will
be compensated by the Affiliate Group for their services to it. Such services
will not interfere with Messrs. Zimmerman and Palles devoting full business
time to the Company's affairs. Any other material transactions between the
Affiliate Group and the Company will be subject to the approval of the
independent directors of the Company.
Immediately after the consummation of the Offering, the Affiliate Group will
consist of operations discontinued by the Company, including the leasing of
diagnostic imaging equipment and the management of limited partnerships. The
Affiliate Group may also invest in or otherwise acquire debt and equity
securities of other companies. Prior to the consummation of the Offering, Mr.
Quinn will become the President of the parent corporation of the Affiliate
Group. The Company will separately enter into a one-year consulting agreement
with Mr. Quinn providing for advice regarding acquisitions. Under such
agreement, the Company will receive three days of consulting services per
month and Mr. Quinn will receive $6,250 per month plus expenses plus $2,500
for each day in excess of three. The agreement will be subject to termination
by the Company or Mr. Quinn upon 90 days' notice.
Upon consummation of the Offering, the Company will purchase the minority
interests in a subsidiary of the Company from each of Dr. Farren and Mr. Laing
for $417,690 and $348,439, respectively. In addition, $400,000 was paid by the
Company to Mr. Laing for a portion of his minority interest in such subsidiary
in March 1997. Such purchase prices were agreed upon through arms-length
negotiation. No independent appraisal was conducted.
42
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of October 1, 1997, and
as adjusted to reflect completion of the Offering, by: (i) each person or
entity known by the Company to own beneficially five percent or more of the
outstanding Common Stock; (ii) each member of the Board of Directors of the
Company; (iii) each executive officer of the Company; and (iv) all executive
officers of the Company and all members of the Board of Directors as a group.
Unless otherwise indicated, the address of the stockholders shown as
beneficially owning more than five percent of the Common Stock listed below is
that of the Company's principal executive offices. Except as indicated in the
footnotes to the table, the persons and entities named in the table have sole
voting and investment power with respect to all shares beneficially owned.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER THE
THE OFFERING OFFERING
----------------- -----------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------ --------- ------- --------- -------
<S> <C> <C> <C> <C>
Martin E. Zimmerman (1).................... 2,604,830 91.9% 2,604,830 53.9%
Allen P. Palles (2)........................ 273,445 9.6 273,445 5.6
Robert E. Laing (2)........................ 190,843 6.7 190,843 3.9
Curtis Lane................................ 56,327 2.0 56,327 1.2
Charles J. Aschauer (3).................... 55,493 2.0 55,493 1.2
Stanley Green (4).......................... 46,877 1.7 46,877 *
Terrence J. Quinn.......................... 39,175 1.4 39,175 *
William J. Erbes........................... 9,370 * 9,370 *
All directors and executive offices as a
group
(8 persons)............................... 2,812,072 99.2% 2,812,072 58.2%
</TABLE>
- --------
* Represents less than 1%.
(1) Includes 624,676 shares held by Mr. Zimmerman as trustee under trusts for
the benefit of his children and 611,274 shares held by Mr. Laing, Mr.
Palles and one other employee of the Company for which Mr. Zimmerman holds
proxies.
(2) All shares are subject to a proxy and right of first refusal held by Mr.
Zimmerman.
(3) All shares held by Mr. Aschauer are held by him as trustee in a living
trust the beneficiaries of which are his children.
(4) Includes 39,042 shares held by Mr. Green as trustee under a trust for the
benefit of Justine Zimmerman, a family member of Mr. Zimmerman.
43
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 15,000,000 shares of
Common Stock, par value $0.001 per share, and 1,000,000 shares of blank check
preferred stock, par value $0.01 per share. Immediately prior to the
consummation of the Offering, there will be 2,833,696 shares of Common Stock
outstanding and held of record by fifteen stockholders and no shares of
preferred stock are issued and outstanding.
COMMON STOCK
General
Holders of shares of Common Stock are entitled to share ratably in such
dividends as may be declared by the Board of Directors and paid by the Company
out of funds legally available therefor, subject to prior rights of
outstanding shares of any preferred stock and certain restrictions under
agreements governing the Company's indebtedness. See "Dividend Policy,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." In the event of any dissolution,
liquidation or winding up of the Company, holders of shares of Common Stock
are entitled to share ratably in assets remaining after payment of all
liabilities and liquidation preferences, if any.
Except as otherwise required by law, the holders of Common Stock are
entitled to one vote per share on all matters voted on by stockholders,
including the election of directors. The holders of a majority of Common Stock
represented at a meeting of stockholders can elect all of the directors to be
elected at such meeting.
Holders of shares of Common Stock have no preemptive, cumulative voting,
subscription, redemption or conversion rights. The currently outstanding
shares of Common Stock are fully paid and nonassessable, and the shares of
Common Stock to be outstanding upon completion of the Offering will be fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to the rights of any series of preferred stock which
the Company may issue in the future.
Transfer Agent and Registrar
Upon consummation of the Offering, the registrar and transfer agent for the
Common Stock will be LaSalle National Bank.
PREFERRED STOCK
The Board of Directors may, without further action by the Company's
stockholders, from time to time, authorize the issuance of shares of preferred
stock in one or more classes or series and may, at the time of issuance,
determine the powers, rights, preferences, qualifications and limitations of
any such class or series. Satisfaction of any dividend preferences on
outstanding shares of preferred stock would reduce the amount of funds
available for the payment of dividends on Common Stock. Also, holders of
preferred stock would be entitled to receive a preference payment in the event
of any liquidation, dissolution or winding up of the company before any
payment is made to the holders of Common Stock. Under certain circumstances,
the issuance of such preferred stock may render more difficult or tend to
discourage a merger, tender offer or proxy contest, the assumption of control
by a holder of a large block of the Company's securities or the removal of
incumbent directors.
PROXIES AND RIGHTS OF FIRST REFUSAL
Mr. Martin E. Zimmerman, the Company's Chairman and Chief Executive Officer,
holds proxies entitling him to vote all of the shares of Common Stock held by
certain employees of the Company, including any which may be issued upon the
exercise of stock options and holds rights of first refusal covering such
shares. Such proxies and rights may render more difficult or tend to
discourage a merger, tender offer or proxy contest, the
44
<PAGE>
assumption of control by a holder of a large block of the Company's securities
or the removal of an incumbent director. See "Principal Stockholders."
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINEES
The Bylaws of the Company include certain provisions that could have anti-
takeover effects. The provisions are intended to enhance the likelihood of
continuity and stability in the composition of, and in the policies formulated
by, the Board of Directors. The Bylaws establish an advance notice procedure
with regard to business proposed to be submitted by a stockholder at any
annual or special meeting of stockholders of the Company, including the
nomination of candidates for election as directors. The procedure provides
that a notice of proposed stockholder business must be delivered to, or mailed
and received at, the principal executive offices of the Company not less than
60 days nor more than 90 days prior to such meeting or, if less then 70 days'
notice was given for the meeting, within 10 days following the date on which
such notice was given. These advance notice procedures are designed so that
the Board of Directors will have sufficient time to review the proposal, to
develop appropriate alternatives to the proposal, and to act in what the Board
of Directors believes to be the best interests of the Company and its
stockholders. The foregoing provisions of the Bylaws may not be amended or
repealed by the stockholders of the Company except upon the vote, at a regular
or special stockholders' meeting, of the holders of at least 80% of the
outstanding shares of each class of the Company's capital stock then entitled
to vote thereon.
LIMITATIONS ON DIRECTORS' LIABILITY
The Company's Certificate of Incorporation provides that, to the fullest
extent permitted by Delaware law, no director shall be liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty as a
director. By virtue of these provisions, a director of the Company is not
personally liable for monetary damages for a breach of such director's
fiduciary duty except for liability for (i) breach of the duty of loyalty to
the Company or to its stockholders; (ii) acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law; (iii)
dividends or stock repurchases or redemptions that are unlawful under the
Delaware General Corporate Law ("DGCL"); and (iv) any transaction from which
such director receives an improper personal benefit. In addition, the
Certificate of Incorporation provides that if the DGCL is amended to authorize
the further elimination or limitation of the liability of a director, then the
liability of the directors will be eliminated or limited to the fullest extent
permitted by the DGCL, as amended.
DELAWARE STATUTE
The Company has elected to be subject to Section 203 of the DGCL ("Section
203"). Under Section 203, certain transactions and business combinations
between a corporation and an "interested stockholder" owning 15% or more of
the corporation's outstanding voting stock are restricted for a period of
three years from the date the stockholder becomes an interested stockholder.
Generally, Section 203 prohibits significant business transactions such as a
merger with, disposition of assets to, or receipt of disproportionate
financial benefits by, the interested stockholder, or any other transaction
that would increase the interested stockholders proportionate ownership of any
class or series of the Company's capital stock unless: (i) the transaction
resulting in a person's becoming an interested stockholder, or the business
combination, has been approved by the Board of Directors before the person
becomes an interested stockholder; (ii) the interested stockholder acquires
85% or more of the outstanding voting stock of the Company in the same
transaction that makes it an interested stockholder; or (iii) on or after the
date the person becomes an interested stockholder, the business combination is
approved by the Board of Directors or by the holders of at least two-thirds of
the Company's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder.
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, 4,833,696 shares of Common Stock will be
outstanding. Of these shares, the 2,000,000 shares sold in the Offering will
be freely tradeable without restriction or further registration under the
Securities Act, except that any shares purchased by "affiliates" of the
Company, as that term is defined in Rule 144 ("Affiliates"), may generally
only be sold in compliance with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
All of the remaining 2,833,696 shares of Common Stock held by existing
stockholders are deemed "Restricted Shares" under Rule 144. Subject to the 180
day lock-up agreement, the Restricted Shares will be eligible for sales
pursuant to Rule 144 in the public market following the consummation of the
Offering.
In general under Rule 144 as currently in effect, a person (or person are
aggregated), including an Affiliate, who has beneficially owned Restricted
Shares for at least one year is entitled to sell, within any three-month
period, a number of such shares that does not exceed the greater of 1% of the
then outstanding shares of Common Stock (approximately 48,337 shares
immediately after the Offering), or the average weekly trading volume in the
Common Stock in the Nasdaq National Market during the four calendar weeks
preceding the date on which notice of such sale is filed under Rule 144. In
addition, under Rule 144(k), a person who is not an Affiliate and has not been
an Affiliate for at least three months prior to the sale and who has
beneficially owned Restricted Shares for at least two years may resell such
shares without compliance with the foregoing requirements. In calculating the
holding periods described above, a holder of Restricted Shares can include the
holding periods of a prior owner who was not an Affiliate.
However, the Company, all of its officers and directors and certain other
stockholders, who in the aggregate own 2,812,070 shares of Common Stock, have
agreed to sign the 180 day lock-up agreement.
OPTIONS
Rule 701 under the Securities Act provides that shares of Common Stock
acquired on the exercise of outstanding options may be resold by persons other
than Affiliates, beginning 90 days after the date of this Prospectus, subject
only to the manner of sale provisions of Rule 144, and by Affiliates under
Rule 144 without compliance with its one-year minimum holding period, subject
to certain limitations. The Company intends to file one or more registration
statements on Form S-8 under the Securities Act to register all of the 166,304
shares of Common Stock subject to outstanding stock options and Common Stock
issuable pursuant to the Company's stock option plans which do not qualify for
an exemption under Rule 701 from the registration requirements of the
Securities Act. The Company expects to file these registration statements as
soon as practicable after the closing of the Offering, and such registration
statements are expected to become effective upon filing. Shares covered by
these registration statements will thereupon be eligible for sale in the
public markets, subject to the lock-up agreements described above, if
applicable.
46
<PAGE>
UNDERWRITING
Each of the Underwriters named below (collectively, the "Underwriters"), for
which Furman Selz LLC and EVEREN Securities, Inc. are acting as
representatives (the "Representatives"), has severally agreed, subject to the
terms and conditions set forth in the underwriting agreement dated as of
, 1997 (the "Underwriting Agreement"), to purchase, and the Company
has agreed to sell to each of the Underwriters, the aggregate number of shares
of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Furman Selz LLC.................................................
EVEREN Securities, Inc..........................................
---------
Total....................................................... 2,000,000
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to the approval of certain legal matters by counsel
and various other conditions. The nature of the Underwriters' obligations is
such that they are committed to purchase all of the above shares if any are
purchased. The Representatives have advised the Company that the Underwriters
propose to offer the shares of Common Stock directly to the public at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may re-allow, a concession
not in excess of $ per share to certain other dealers. After the
Offering, the offering price and other selling terms may be changed by the
Representatives.
Prior to the Offering made hereby, there has been no public market for the
Common Stock. Accordingly, the initial public offering price for the Common
Stock will be determined by negotiations among the Company and the
Representatives. Among the factors to be considered in such negotiations are
the Company's results of operations and current financial condition, estimates
of the business potential and prospects of the Company, the experience of the
Company's management, the economics of the industry in general, the general
condition of the equities market and other relevant factors. There can be no
assurance that any active trading market will develop for the Common Stock or
as to the price at which the Common Stock may trade in the public market from
time to time subsequent to the Offering.
Certain persons participating in the Offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids or effecting syndicate
covering transactions. A stabilizing bid means the placing of any bid or the
effecting of any purchase, for the purpose of pegging, fixing or maintaining
the price of the Common Stock. A syndicate covering transaction means the
placing of any bid on behalf of the underwriting syndicate or the effecting of
any purchase to reduce a short position created in connection with the
Offering. Such transactions may be effected on the Nasdaq National Market, in
the over-the-counter market, or otherwise. Such stabilizing, if commenced, may
be discontinued at any time.
The Company has granted to the Underwriters an option, expiring 30 days from
the date of this Prospectus, to purchase up to 300,000 additional shares of
Common Stock on the same terms as set forth on the cover page of this
prospectus, solely to cover over-allotments, if any, incurred in the sale of
the shares of Common Stock offered hereby. If the Underwriters exercise the
option, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase such number of additional shares of Common Stock as is
proportionate to such Underwriter's initial commitment to purchase shares from
the Company.
The Company has agreed that for a period of 180 days following the date of
this Prospectus, it will not, without the prior written consent of Furman Selz
LLC, directly or indirectly offer for sale, sell, contract to sell,
47
<PAGE>
or grant any option to purchase or otherwise dispose of any shares of the
Common Stock, except for options granted under the 1997 Stock Option Plan or
Non-Employee Director Option Plan or shares issued pursuant to the exercise of
outstanding options.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
The principal address of Furman Selz LLC is 230 Park Avenue, New York, New
York 10169. The principal address of EVEREN Securities, Inc. is 77 West Wacker
Drive, Chicago, Illinois 60601.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Kirkland & Ellis (a partnership which includes professional
corporations), Chicago, Illinois. Certain legal matters in connection with the
Offering will be passed upon for the Underwriters by Willkie Farr & Gallagher,
New York, New York.
EXPERTS
The Consolidated Financial Statements and schedule of the Company as of
December 31, 1995 and 1996 and June 30, 1997, and for each of the years in the
three-year period ended December 31, 1996 and the six months ended June 30,
1997, have been included herein and in the registration statement in reliance
upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein and in the registration statement, and
upon the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement," which term shall include all amendments, exhibits, annexes and
schedules thereto) under the Securities Act with respect to the shares of
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement. Certain items are omitted
in accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to the Registration Statement, including exhibits,
schedules and reports filed as part thereof. Statements contained in this
Prospectus as to the contents of any contract or other document referred to
are not necessarily complete, and, in each instance, reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits and
schedules thereto, may be inspected without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Room 1024, Washington, D.C. 20549 and at the Commission's Regional
Offices located at the Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material may be obtained at prescribed
rates by mail from the public reference section of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The Commission
maintains a web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission, including the Company. The address is http://www.sec.gov.
48
<PAGE>
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets, December 31, 1995 and 1996 and June 30, 1997. F-3
Consolidated Statements of Operations, years ended December 31, 1994, 1995
and 1996,
and six months ended June 30, 1996 (unaudited) and 1997.................. F-4
Consolidated Statements of Stockholders' Equity, years ended December 31,
1994, 1995 and 1996,
and six months ended June 30, 1996 (unaudited) and 1997.................. F-5
Consolidated Statements of Cash Flows, years ended December 31, 1994, 1995
and 1996,
and six months ended June 30, 1996 (unaudited) and June 30, 1997......... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
When the transaction referred to in the last paragraph of note (1)(a) of
Notes to Consolidated Financial Statements has been consummated, we will be in
a position to render the following report:
/s/ KPMG Peat Marwick LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors
LINC Capital, Inc.:
We have audited the accompanying consolidated balance sheets of LINC
Capital, Inc. and subsidiaries as of December 31, 1995 and 1996 and June 30,
1997, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1996 and the six months ended June 30, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LINC
Capital, Inc. and subsidiaries as of December 31, 1995 and 1996 and June 30,
1997, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996 and the six months
ended June 30, 1997 in conformity with generally accepted accounting
principles.
Chicago, Illinois August 26, 1997, except as to the last paragraph of note
(1)(a), which is as of October , 1997
F-2
<PAGE>
LINC CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
ASSETS 1995 1996 1997
------ ------- ------ --------
<S> <C> <C> <C>
Net investment in direct finance leases.............. $17,144 31,763 43,395
Equipment held for rental and operating leases, net.. 18,500 15,048 16,087
Accounts and notes receivable........................ 4,655 8,235 9,703
Net assets of discontinued operations................ 9,361 6,470 6,204
Other assets......................................... 4,419 3,523 4,020
Deferred income taxes................................ 1,995 1,310 1,068
Goodwill............................................. 862 851 1,188
Cash and cash equivalents............................ 1,668 -- --
------- ------ ------
Total assets..................................... $58,604 67,200 81,665
======= ====== ======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Senior credit facility and other senior notes
payable............................................. 31,914 29,605 46,763
Recourse debt........................................ 882 3,361 2,386
Nonrecourse debt..................................... 4,997 8,276 6,913
Accounts payable..................................... 1,518 4,355 3,805
Accrued expenses and customer deposits............... 2,147 2,534 1,689
Subordinated debentures.............................. 4,953 5,127 5,251
------- ------ ------
Total liabilities................................ 46,411 53,258 66,807
------- ------ ------
Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized; none outstanding...................... -- -- --
Common stock, $0.001 par value, 15,000,000 shares
authorized; 3,012,757, 3,012,757 and 3,391,442
shares issued; 3,012,757, 2,950,758, and 3,325,539
shares outstanding................................ 3 3 3
Additional paid-in capital......................... 978 978 1,802
Deferred compensation from issuance of options..... -- -- (221)
Stock note receivable.............................. (199) -- (497)
Treasury stock, at cost; 61,999 and 65,903 shares.. -- (270) (287)
Unrealized gain on securities...................... -- 348 328
Retained earnings.................................. 11,411 12,883 13,730
------- ------ ------
Total stockholders' equity....................... 12,193 13,942 14,858
------- ------ ------
Total liabilities and stockholders' equity....... $58,604 67,200 81,665
======= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
LINC CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS ENDED
31, JUNE 30,
----------------------- ------------------
1994 1995 1996 1996 1997
------- ------ ------ ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues:
Sales of equipment.............. $15,836 13,852 22,595 9,962 10,252
Cost of equipment sold.......... 13,312 11,477 18,242 7,988 8,222
------- ------ ------ ----- ------
Gross profit from sales of
equipment...................... 2,524 2,375 4,353 1,974 2,030
Rental and operating lease
revenue........................ 8,531 9,102 7,167 3,803 3,164
Direct finance lease income..... 339 1,467 3,055 1,289 2,598
Fee income...................... 580 2,378 1,869 1,130 648
Gain on remarketing of leased
equipment...................... 5 44 450 13 277
Gain on equity participation
rights......................... -- -- 263 -- 97
Interest and other income....... 352 778 657 350 779
------- ------ ------ ----- ------
Total net revenues............ 12,331 16,144 17,814 8,559 9,593
------- ------ ------ ----- ------
Expenses:
Selling, general and
administrative................. 6,842 7,524 8,008 3,717 3,963
Interest........................ 1,138 1,962 2,771 1,304 1,844
Depreciation of equipment under
rental agreements and operating
leases......................... 3,512 4,054 3,647 1,892 1,858
Provision for credit losses..... 247 1,060 749 338 479
------- ------ ------ ----- ------
Total expenses................ 11,739 14,600 15,175 7,251 8,144
------- ------ ------ ----- ------
Income from continuing operations
before income taxes and minority
interest......................... 592 1,544 2,639 1,308 1,449
Income tax expense................ 257 747 1,084 532 534
------- ------ ------ ----- ------
Income from continuing operations
before minority interest 335 797 1,555 776 915
Minority interest................. (80) (34) (120) (39) (13)
------- ------ ------ ----- ------
Net income from continuing
operations....................... 255 763 1,435 737 902
Discontinued operations:
Income (loss) from discontinued
operations, net of income tax
(benefit) in 1994, 1995 and
1996 and the six months ended
June 30, 1996 and 1997 of
($2,579), $113, ($479), ($603),
and ($3), respectively......... (3,902) 169 (706) (783) (55)
Net gain from disposal of
discontinued operations, net of
income taxes in 1994, 1995 and
1996 and the six months ended
June 30, 1996 and 1997 of $657,
$0, $1,009, $1,172, and $0,
respectively................... 985 -- 1,513 1,758 --
------- ------ ------ ----- ------
Net income (loss)................. $(2,662) 932 2,242 1,712 847
======= ====== ====== ===== ======
Per common share:
Net income from continuing
operations..................... $ .07 .22 .40 .21 .26
Net income (loss)............... (.76) .27 .63 .49 .24
======= ====== ====== ===== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
LINC CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996 AND SIX MONTHS ENDED JUNE 30,
1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TREASURY
STOCK, AT
COMMON STOCK ADDITIONAL COST UNREALIZED
----------------- PAID-IN DEFERRED STOCK NOTE ------------- GAIN ON RETAINED
SHARES AMOUNT CAPITAL COMPENSATION RECEIVABLE SHARES AMOUNT SECURITIES EARNINGS TOTAL
--------- ------ ---------- ------------ ---------- ------ ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... 3,137,594 $ 3 $ 958 $ -- $(199) -- $ -- $-- $13,141 $13,903
Net loss................ -- -- -- -- -- -- -- -- (2,662) (2,662)
Purchase and sale of
stock, net............. (131,295) -- 48 -- -- -- -- -- -- 48
--------- --- ------ ----- ----- ------ ----- ---- ------- -------
Balance at December 31,
1994................... 3,006,299 3 1,006 -- (199) -- -- -- 10,479 11,289
Net income.............. -- -- -- -- -- -- -- -- 932 932
Purchase and sale of
stock, net............. 6,458 -- (28) -- -- -- -- -- -- (28)
--------- --- ------ ----- ----- ------ ----- ---- ------- -------
Balance at December 31,
1995................... 3,012,757 3 978 -- (199) -- -- -- 11,411 12,193
Net income.............. -- -- -- -- -- -- -- -- 2,242 2,242
Purchase and sale of
stock, net............. -- -- -- -- -- 61,999 (270) -- -- (270)
Common stock dividends,
.26 per share.......... -- -- -- -- -- -- -- -- (770) (770)
Unrealized gains on
securities............. -- -- -- -- -- -- -- 348 -- 348
Payment on note......... -- -- -- -- 199 -- -- -- -- 199
--------- --- ------ ----- ----- ------ ----- ---- ------- -------
Balance at December 31,
1996................... 3,012,757 3 978 -- -- 61,999 (270) 348 12,883 13,942
Net income.............. -- -- -- -- -- -- -- -- 847 847
Purchase and sale of
stock, net............. 378,685 -- 603 -- (497) 3,904 (17) -- -- 89
Unrealized loss on
securities............. -- -- -- -- -- -- -- (20) -- (20)
Deferred compensation
from issuance of stock
options................ -- -- 221 (221) -- -- -- -- -- --
--------- --- ------ ----- ----- ------ ----- ---- ------- -------
Balance at June 30,
1997................... 3,391,442 $ 3 $1,802 $(221) $(497) 65,903 $(287) $328 $13,730 $14,858
========= === ====== ===== ===== ====== ===== ==== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
LINC CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- -------------------
1994 1995 1996 1996 1997
-------- ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............ $ (2,662) 932 2,242 1,712 847
Adjustments to reconcile net
income (loss) to net cash
provided by continuing
operations:
Net income (loss) from
discontinued operations.. 2,917 (169) (807) (975) 55
Depreciation and
amortization............. 3,567 4,108 3,739 1,915 1,933
Direct finance lease
income................... (339) (1,467) (3,055) (1,289) (2,598)
Payments on direct finance
leases................... 878 9,527 17,682 9,421 9,839
Deferred income taxes..... 246 647 763 120 464
Provision for credit
losses................... 247 1,060 749 338 479
Amortization of discount.. 168 186 174 60 124
Minority interest......... 338 292 498 228 202
Changes in assets and
liabilities:
Decrease (increase) in
receivables.............. (1,758) (182) (4,138) (3,086) (1,422)
Decrease (increase) in
other assets............. 24 (3,069) 1,205 364 (633)
Increase (decrease) in
accounts payable......... 2,503 (2,167) 2,837 3,173 (550)
Increase (decrease) in
accrued expenses and
customer deposits........ 523 138 190 96 (1,080)
-------- ------- ------- ------- -------
Cash provided by continuing
operations................... 6,652 9,836 22,079 12,077 7,660
Cash flows from discontinued
operations................. (30,400) (13,991) 15,052 2,740 7,851
-------- ------- ------- ------- -------
Cash provided by operating
activities................... (23,748) (4,155) 37,131 14,817 15,511
-------- ------- ------- ------- -------
Cash flows from investing
activities:
Cost of equipment acquired
for lease and rental ...... (14,044) (23,979) (29,422) (13,825) (22,088)
Fixed assets purchased...... (576) (277) (252) (134) (503)
Proceeds from disposal of
discontinued operations.... 5,000 4,700 8,327 7,627 --
-------- ------- ------- ------- -------
Net cash used in
investing activities... (9,620) (19,556) (21,347) (6,332) (22,591)
-------- ------- ------- ------- -------
Cash flows from financing
activities:
Net increase (decrease) in
notes payable.............. 6,259 8,179 232 (1,000) 17,550
Proceeds from recourse and
nonrecourse debt........... -- 7,087 9,966 -- --
Repayment of recourse and
nonrecourse debt........... -- (444) (4,366) (1,097) (2,481)
Purchase of stock........... -- (53) (312) -- (17)
Sale of stock............... 48 25 241 -- 106
Common stock dividends...... -- -- (770) -- --
Proceeds from notes of
discontinued operations.... 78,242 42,075 3,146 2,628 --
Payment of notes from
discontinued operations.... (51,100) (31,580) (25,589) (10,684) (8,078)
-------- ------- ------- ------- -------
Net cash provided by
(used in) financing
activities............. 33,449 25,289 (17,452) (10,153) 7,080
-------- ------- ------- ------- -------
Net increase (decrease) in
cash......................... 81 1,578 (1,668) (1,668) --
Cash at beginning of year..... 9 90 1,668 1,668 --
-------- ------- ------- ------- -------
Cash at end of year........... $ 90 1,668 -- -- --
======== ======= ======= ======= =======
Supplemental disclosures of
cash flow information:
Interest paid............... $ 1,138 1,962 2,771 1,304 1,844
Income taxes paid........... 11 100 325 270 70
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
LINC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND SIX MONTHS ENDED JUNE 30, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Business and Basis of Presentation
LINC Capital, Inc. (the "Company") is a finance company specializing in the
origination, acquisition, securitization and servicing of equipment leases and
in the rental and distribution of analytical instruments. The Company's
principal businesses are (i) the direct origination of leases to emerging
growth companies primarily serving healthcare and information technology
industries ("Select Growth Leasing" activities) and (ii) the rental, leasing
and distribution of analytical instruments to companies serving the
environmental, pharmaceutical and biotechnology industries ("Instrument Rental
& Distribution" activities). The Company also engages in the business of
acquiring, financing and servicing equipment lease and loan portfolios
originated by other lessors ("Portfolio Finance & Lessor Acquisition"
activities).
The accompanying consolidated financial statements include the operations of
the Company and all of its subsidiaries. All material intercompany accounts
and transactions have been eliminated in consolidation.
On October , 1997, LINC Capital, Inc. amended its certificate of
incorporation to authorize 1,000,000 shares of preferred stock, par value
$0.01, and 15,000,000 shares of common stock, par value $0.001 per share. On
October , 1997, The LINC Group, Inc. (the predecessor to the Company) merged
with and into LINC Capital, Inc. Upon consummation of such merger, each
outstanding share of common stock of The LINC Group, Inc. was exchanged for
0.7808 shares of common stock of LINC Capital, Inc., and each share of common
stock of LINC Capital, Inc. outstanding prior to such merger was cancelled.
All references to share and per share data in the accompanying consolidated
financial statements have been adjusted to reflect these events.
(b) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(c) Direct Finance Leases
For direct finance leases, the present value of the future lease payments
and the present value of the residual value are recorded as the initial
investment of such leases. This initial investment generally represents the
cost of leased equipment. Unearned lease income is equal to the difference
between (i) the future lease payments and residual value and (ii) their
corresponding present values. Unearned lease income is amortized and recorded
as revenue over the term of the lease by applying a constant periodic rate of
return to the declining net investment.
(d) Operating Leases
Rental income from operating leases having terms of twelve months or greater
is recognized as lease payments become due. Equipment under operating leases
is recorded at cost and depreciated on a straight-line basis to its estimated
salvage value at the end of the lease term.
The Company also rents equipment under short-term rental agreements (less
than 12 months). Such rentals are included in operating lease and other
rentals in the consolidated statement of operations.
F-7
<PAGE>
LINC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(e) Initial Direct Costs
Initial direct costs incurred by the Company in originating direct finance
and operating leases have been deferred and capitalized at the time the lease
commenced. Such costs for direct finance leases are amortized over the term of
the lease by applying a constant periodic rate of return to the declining net
investment in each lease on a straight-line method.
(f) Earnings Per Share
Earnings per common and common equivalent share are computed based on the
weighted average number of common and common equivalent shares outstanding
during each period. As required by Staff Accounting Bulletin No. 83 issued by
the Securities and Exchange Commission, common and common equivalent shares
issued by the Company during the twelve-month period preceding the initial
filing of the Registration Statement for the offering have been included in
the calculation as if they were outstanding for all periods presented (using
the treasury stock method and assuming the initial public offering price).
The number of common and common equivalent shares used in the computation of
net earnings per common share for the years ended December 31, 1994, 1995, and
1996 and the six months ended June 30, 1996 and June 30, 1997 were 3,504,947,
3,494,055, 3,553,049, 3,500,803 and 3,459,286, respectively.
(g) Goodwill
Goodwill is amortized using the straight-line method over 25 years.
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(i) Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all
short-term investments with a maturity date of three months or less at date of
purchase to be cash equivalents.
(j) Financial Instruments
The fair value of the Company's financial instruments approximates their
carrying value.
(k) Investments
The Company has classified its entire portfolio as available-for-sale.
Available-for-sale securities are stated at fair value with unrealized gains
and losses included in stockholders' equity. Fair value of the securities is
determined based on market prices. Securities for which a readily determinable
market price is not available are not recorded in the financial statements.
Realized gains and losses are included in gain on equity participation rights.
The cost of securities sold is based on the specific identification method. At
June 30, 1997, the Company held available-for-sale securities with estimated
fair values of $1,102,000, consisting of gross unrealized gains of $547,000
and a cost basis of $555,000. Cash proceeds received and gross realized gains
on the sale of investments for the years ended December 31, 1994, 1995, and
1996 and for the six months ended June 30, 1997 were $0, $0, $263,000 and
$97,000, respectively. Available-for-sale securities are reported in other
assets.
F-8
<PAGE>
LINC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(l) Stock-based Compensation
The Company utilizes the intrinsic value based method of accounting for its
stock-based compensation arrangements.
(m) Interim Financial Information
The financial statements for the six months ended June 30, 1996 are
unaudited; however, in the opinion of management, all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation have been
included.
(n) Impairment of Assets
The Company recognizes impairment losses on equipment held for rental and
operating leases and residual values of the investment in direct finance
leases when the expected future cash flows are less than the assets' carrying
value, in which case the asset is written down to its estimated recoverable
value. The Company also recognizes impairment losses on goodwill when expected
future cash flows from the related operations are less than the carrying
value. Accordingly, when indicators of impairment are present, the Company
evaluates the carrying value of goodwill in relation to the operating
performance and future undiscounted cash flows of the business and, if
necessary, adjusts goodwill to its estimated fair value. The Company has not
recorded an impairment loss during any of the operating periods presented in
the accompanying financial statements.
(2) NET INVESTMENT IN DIRECT FINANCE LEASES
Net investment in direct finance leases is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30, ---
1995 1996 1997
------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Lease contracts receivable in
installments.......................... $21,085 37,501 51,138
Estimated residual value of leased
equipment............................. 1,496 2,376 3,472
Unearned lease income.................. (4,333) (6,820) (9,371)
Allowance for doubtful receivables..... (1,104) (1,294) (1,844)
------- ------ ------
Net investment......................... $17,144 31,763 43,395
======= ====== ======
</TABLE>
Net investment related to Select Growth Leasing activities was $16,505,
$24,079, and $35,475 at December 31, 1995 and 1996 and June 30, 1997,
respectively.
At June 30, 1997 future lease contract payments to be received on direct
finance leases are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
Year Ending December 31,
1997..................................................... $10,813
1998..................................................... 17,777
1999..................................................... 12,666
2000..................................................... 7,650
2001 and thereafter...................................... 2,232
-------
Future lease contract payments............................. $51,138
=======
</TABLE>
At June 30, 1997 certain future lease contract payments have been assigned
to financial institutions (note 6).
F-9
<PAGE>
LINC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) EQUIPMENT HELD FOR RENTAL AND OPERATING LEASES, NET
The net book value of equipment held for rental and operating leases is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30, ---
1995 1996 1997
------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Equipment under operating leases.......... $ 646 430 561
Equipment under rental agreements......... 17,854 14,618 15,526
------- ------ ------
Net book value............................ $18,500 15,048 16,087
======= ====== ======
</TABLE>
The book values presented in the above table are net of accumulated
depreciation of $5,219,000, $6,297,000, and $7,507,000 at December 31, 1995,
1996 and June 30, 1997, respectively. Equipment under rental agreements is
comprised of analytical instruments.
At June 30, 1997 future contract payments to be received on operating leases
are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
Year Ending December 31,
1997..................................................... $224
1998..................................................... 60
----
Future lease contract payments to be received.............. $284
====
</TABLE>
At June 30, 1997 certain future contract payments have been assigned to
financial institutions (note 6).
(4) ESTIMATED NET BOOK VALUE OF EQUIPMENT AT LEASE TERMINATION
The following table represents the Company's estimated net book value
(residual value) of equipment at lease termination. The residual values in the
following table are recorded as components of the Company's net investment in
direct finance leases, $3,472,000, equipment held for operating leases,
$322,000, and the managed leased equipment portfolio (which is included in
other assets), $139,000, in the consolidated balance sheet at June 30, 1997.
<TABLE>
<CAPTION>
YEAR OF ESTIMATED NET
EXPECTED BOOK VALUE AT
TERMINATION TERMINATION
----------- --------------
(IN THOUSANDS)
<S> <C>
1997....................................................... $ 667
1998....................................................... 1,113
1999....................................................... 895
2000....................................................... 934
2001 and thereafter........................................ 324
------
Total..................................................... $3,933
======
</TABLE>
F-10
<PAGE>
LINC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) OTHER ASSETS
Other assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------ JUNE 30,
1995 1996 1997
------ ----- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investments available-for-sale.................. $ -- 982 1,102
Restricted cash................................. 940 976 1,031
Deposits on equipment........................... 1,532 -- 433
Property and equipment, net..................... 571 395 557
Residual values of managed lease portfolio...... 45 61 139
Prepaid expenses and miscellaneous.............. 1,331 1,109 758
------ ----- -----
Total....................................... $4,419 3,523 4,020
====== ===== =====
</TABLE>
(6) DEBT
Notes Payable
Notes payable to banks were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30, ---
1995 1996 1997
------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Senior credit facility.................... $31,150 28,000 45,100
Other..................................... 764 1,605 1,663
------- ------ ------
Total................................. $31,914 29,605 46,763
======= ====== ======
</TABLE>
At December 31, 1995 and 1996 and June 30, 1997, the Company along with its
subsidiary, LINC Quantum Analytics, Inc. and its division, LINC Capital
Partners, ("the borrowers"), had available a senior credit facility in the
amount of $41,500,000, $35,000,000, and $54,500,000, respectively, of which
$31,150,000, $28,000,000, and $45,100,000 at December 31, 1995 and 1996 and
June 30, 1997, respectively, was outstanding. The weighted-average interest
rate on the senior credit facility at December 31, 1995 and 1996 and June 30,
1997 was 8.38%, 7.82%, and 7.89%, respectively. In July 1997, the facility was
amended and increased to $75,000,000. The facility, as amended, provides for
interest at LIBOR plus 1 3/4% to 2 1/4% or, at the Company's option, prime
plus up to 1/2% with the precise rate dependent on certain leverage tests. The
facility is secured by substantially all of the assets of the borrowers and is
used by the borrowers to finance acquisition of equipment pending completion
of permanent financing and for normal working capital purposes. The facility
matures July 21, 1998 at which point in time the remaining balance of the
facility may be converted to a term loan maturing July 21, 2000.
Recourse and Nonrecourse Debt
The Company permanently finances leases with financial institutions, on
either a nonrecourse and/or partial recourse basis. In connection with these
financings, the Company receives a cash payment equal to the discounted value
of the future rentals less, in certain cases, a holdback or cash reserve (note
5). In the event of default by a lessee under a lease which has been assigned
to a lender under these financings, the lender has recourse to the lessee and
to the underlying leased equipment but no recourse to the Company except to
the extent of the recourse portion of the financing.
F-11
<PAGE>
LINC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Proceeds from the financing of leases are recorded as debt. Interest rates
in connection with these loans ranged from 8.18% to 9.07% at June 30, 1997.
At June 30, 1997 the future principal maturities of recourse and nonrecourse
debt are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
Year Ending December 31,
1997..................................................... $2,561
1998..................................................... 4,547
1999..................................................... 1,855
2000..................................................... 309
2001 and thereafter...................................... 27
------
Total recourse and nonrecourse discounted lease
rentals............................................... $9,299
======
</TABLE>
Subordinated Debentures
Subordinated debentures of the Company, which bear interest at 8 1/4% per
annum, are due June 15, 2003. Interest is payable semiannually in June and in
December. Mandatory sinking fund payments of $1,875,000 are required annually
since June 15, 1993. Sinking fund requirements have been satisfied through
June 15, 2001. The 8 1/4% Subordinated Debentures are subordinated in right of
payment to all existing and future senior indebtedness of the Company. The
subordinated debentures are convertible into the right to receive $377.30, in
cash, per $1,000 face value of debentures. The remaining principal balances of
the debentures at December 31, 1995 and 1996 and June 30, 1997 net of discount
recorded in 1988 in connection with the Company's acquisition of Scientific
Leasing, Inc. under the purchase accounting requirements of APB Opinion 16 are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30, ---
1995 1996 1997
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Subordinated debentures.................. $7,831 7,759 7,759
Less discount............................ (2,878) (2,632) (2,508)
------ ------ ------
Total................................ $4,953 5,127 5,251
====== ====== ======
</TABLE>
Covenants and Restrictions
The Company's various debt agreements contain restrictions on, among other
things, the payment of dividends, repurchase of capital stock, and the amount
of recourse indebtedness that can be incurred. Under the most restrictive
agreement, common stock dividends and capital expenditures are subject to
limitations so long as indebtedness under the agreement is outstanding.
Furthermore, the Company is required to maintain a minimum adjusted tangible
net worth (as defined), and the Company may not exceed a specified ratio of
total recourse liabilities (as defined) to adjusted tangible net worth and is
required to maintain minimum debt service coverage rations (as defined). The
Company is in compliance with these covenants.
(7) STOCK OPTIONS
The Company sponsors two non-qualified stock option plans effective as of
November 23, 1988 (the "1988 Plan") and December 1, 1994 (the "1994 Plan").
The 1988 Plan was terminated effective as of December 31, 1993. The 1994 Plan
provides for the grant of options to purchase up to 1,000,000 shares of the
Company's common stock to certain key employees and directors.
F-12
<PAGE>
LINC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At June 30, 1997, all options which had been issued under the 1988 Plan had
either lapsed or have been exercised. During the six month period ended June
30, 1997 options for 47,010 shares granted under the 1988 Plan were exercised.
Options granted under the 1988 Plan had exercise prices which ranged from
$1.87 per share to $2.68 per share. The exercise price of options granted
under the 1988 Plan is subject to adjustment in the event of the occurrence of
certain distributions which occur or are approved prior to exercise of the
related option. As a result of the plan adopted by the Company to distribute
the stock of a subsidiary which owns the Company's net assets from
discontinued operations (See Note 12), under the terms of the 1988 Plan, the
price of options exercised during 1997 was adjusted from $2.68 per share to
$.57 per share. In the event that the distribution fails to occur for any
reason, pursuant to agreements entered into with the holders of the options,
the exercise price will be readjusted to $2.68 per share.
In 1995, options for 216,218 shares were granted under the 1994 Plan at an
exercise price of $3.62 per share. In 1996, options for an additional 241,476
shares were granted under the 1994 Plan at prices which range from $4.33 per
share to $4.73 per share. In 1997, options for an additional 31,232 shares
were granted at $4.80 per share. During 1997, options for 313,254 shares were
exercised under the terms of the 1994 Plan. As a result of the plan adopted by
the Company to distribute the Affiliate Group, the price of options exercised
during 1997 and all issued but unexercised options granted under the 1994 Plan
were adjusted in accordance with the following table:
<TABLE>
<CAPTION>
ORIGINAL EXERCISE PRICE ADJUSTED EXERCISE PRICE
----------------------- -----------------------
<S> <C>
$3.62 $1.51
4.33 2.22
4.73 2.61
4.80 2.69
</TABLE>
Options granted under the 1994 Plan vest over various periods, but must be
exercised within 15 years after the grant date.
Unexercised options for 9,370 shares granted under the 1994 Plan were vested
at June 30, 1997. The balance of the unexercised options (166,304 shares) vest
during the following periods:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31:
------------
<S> <C>
1998............................ 69,724
1999............................ 36,920
2000............................ 38,839
2001............................ 10,412
2002............................ 10,409
</TABLE>
F-13
<PAGE>
LINC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the activity under the Plans during the years
ended December 31, 1994, 1995 and 1996 and the six months ended June 30, 1997:
<TABLE>
<CAPTION>
1994 1995
------------------ -------------------
WEIGHTED- WEIGHTED-
NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE
------- --------- -------- ---------
<S> <C> <C> <C> <C>
Outstanding at the beginning of
the period....................... 96,984 $1.14 65,750 $ .79
Granted......................... -- -- 216,218 1.51
Exercised....................... (31,234) 1.47 (9,370) 2.68
------- ----- -------- -----
Outstanding at the end of the
period........................... 65,750 .79 272,598 1.39
======= ===== ======== =====
Options exercisable at the end of
period........................... 33,795 .56 58,836 2.68
------- ----- -------- -----
Weighted average fair value of
options granted during the
period........................... .15
=====
<CAPTION>
1996 JUNE 30, 1997
------------------ -------------------
WEIGHTED- WEIGHTED-
NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE(1)
------- --------- -------- ---------
<S> <C> <C> <C> <C>
Outstanding at the beginning of
the period....................... 272,598 $1.39 504,704 $1.77
Granted......................... 241,476 2.23 31,234 2.69
Exercised....................... (9,370) 2.68 (360,264) 1.67
------- ----- -------- -----
Outstanding at the end of the
period........................... 504,704 1.77 175,674 2.12
======= ===== ======== =====
Options exercisable at the end of
period........................... 312,755 1.67 9,370 1.51
------- ----- -------- -----
Weighted average fair value of
options granted during the
period........................... .43 1.17
===== =====
</TABLE>
- --------
(1) Weighted average exercise prices per share have been adjusted to reflect
the adjustment to option exercise price attributable to the redemption of
shares in connection with the distribution of the Affiliate Group.
The following table summarizes information about stock options outstanding
at June 30, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
REMAINING
NUMBER CONTRACTUAL NUMBER
EXERCISE PRICES OUTSTANDING LIFE EXERCISABLE
--------------- ----------- ----------- -----------
<S> <C> <C> <C>
1.51.................................. 45,861 6 9,370
2.22.................................. 98,579 9 --
2.69.................................. 31,234 10 --
</TABLE>
F-14
<PAGE>
LINC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Options granted under the 1988 Plan are not subject
to the reporting requirements of FASB Statement No. 123. Had the compensation
cost for the 1994 plan been determined consistent with FASB Statement No. 123,
the Company's net income from continuing operations would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS
ENDED
DECEMBER SIX MONTHS
31, ENDED
---------- JUNE 30,
1995 1996 1997
---- ----- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income from continuing operations
As reported............................. $763 1,435 902
Pro forma............................... 752 1,409 873
Net income from continuing operations per
common share
As reported............................. $.22 .40 .26
Pro forma............................... .22 .40 .25
</TABLE>
The above pro forma amounts are not necessarily representative of the
effects on reported income for future years.
The fair value of each option grant is estimated on the date of grant using
the minimum value method specified by FASB Statement No. 123. The assumptions
used for the grants in 1995, 1996 and 1997 are as follows:
<TABLE>
<S> <C>
Risk-free interest rate.......... 6%
Expected lives
Options vested through December
31, 1997...................... Period from date of grant to June 30, 1997
Options vested after December
31,
1997.......................... Periods varying from four to nine years
based on exercise period permitted in
option grant.
Volatility....................... None
Dividend rate.................... None
</TABLE>
(8) INCOME TAXES
The provisions for income tax expense for continuing operations were
comprised of the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, SIX MONTHS ENDED
--------------- JUNE 30,
1994 1995 1996 1997
---- ---- ----- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Current:
Federal................ $129 -- 276 224
State.................. -- -- 43 45
Deferred:
Federal................ 70 579 562 155
State.................. 58 168 203 110
---- --- ----- ---
Total income tax
expense............. $257 747 1,084 534
==== === ===== ===
</TABLE>
F-15
<PAGE>
LINC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred taxes relate principally to the difference in the method of lease
financing revenue recognition for financial reporting purposes over cash
received (rental revenue) net of depreciation or rent expense recognized for
tax purposes. The provision for income taxes differs from the expected income
tax provision (computed by applying the Federal tax rate of 35%) for the
following reasons.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, SIX MONTHS ENDED
--------------- JUNE 30,
1994 1995 1996 1997
---- ---- ----- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Expected tax provision...... $207 540 924 507
State taxes, net of Federal
tax benefit................ 30 78 132 58
Other....................... 20 129 28 (31)
---- --- ----- ---
Income tax expense.......... $257 747 1,084 534
==== === ===== ===
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30,
1995 1996 1997
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............... $7,015 6,709 6,187
Investment tax carryforward.................... 2,741 2,741 2,741
Alternative minimum tax credit carryforwards... 129 445 669
------ ------ ------
Total gross deferred tax assets.............. 9,885 9,895 9,597
Less valuation allowance......................... (4,319) (4,319) (4,319)
------ ------ ------
Net deferred tax assets...................... 5,566 5,576 5,278
------ ------ ------
Deferred tax liabilities:
Investment in leased equipment................. (3,567) (4,008) (3,975)
Unrealized gain or securities.................. (4) (258) (235)
------ ------ ------
Total gross deferred tax liabilities......... (3,571) (4,266) (4,210)
------ ------ ------
Net deferred tax asset....................... $1,995 1,310 1,068
====== ====== ======
</TABLE>
For income tax purposes, the Company has an available net operating loss
carryforward of approximately $17,677,000 which expires beginning in 2006. The
Company also has unused investment tax credit carryforwards of approximately
$2,741,000 available to offset future taxes payable; these carryforwards
expire beginning in 1998.
F-16
<PAGE>
LINC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) OTHER COMMITMENTS
The Company leases several offices and a warehouse facility under
noncancelable operating leases. The future minimum rental payments due under
these leases are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
Year Ending December 31,
1997.................... $ 493
1998.................... 1,056
1999.................... 901
2000.................... 430
2001.................... 439
2002.................... 221
------
Total................. $3,540
======
</TABLE>
The Company's total obligation for rent was $851,000, $341,000, $538,000 and
$448,000 for 1994, 1995, 1996, and the six months ended June 30, 1997,
respectively. A substantial portion of the Company's obligation for rent, set
forth above, during 1994, 1995, 1996, and the six months ended June 30, 1997
has been allocated and charged to the Affiliate Group.
The Company's corporate headquarters and its Select Growth Leasing and
Portfolio Finance & Lessor Acquisition activities are located in Chicago,
Illinois and occupy approximately 26,000 square feet of office space. This
space is occupied under a lease which expires on September 30, 1999. The
Company's Instrument Rental & Distribution activities are located in Foster
City, California and occupy approximately 23,500 square feet of office space.
This space is occupied under a lease which expires on May 31, 2002.
In June, 1995, the Company subleased a portion of the facility of its
Instrument Rental & Distribution activities for $51,360 per annum. This
sublease expired in May, 1997 and was renewed at that time until April, 1999
for an annual rent of $70,560.
(10) LITIGATION
The Company is engaged in legal action in the ordinary course of its
business. With respect to litigation, the Company believes that it has
adequate legal defenses and believes the ultimate outcome will not have a
material effect on the Company's consolidated financial position.
F-17
<PAGE>
LINC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) SEGMENT INFORMATION
The company's operations have been classified into two business segments:
select growth/portfolio finance and instrument rental and distribution. The
select growth/portfolio finance segment includes the Select Growth Leasing and
Portfolio Finance & Lessor Acquisition activities. The instrument rental and
distribution segment include Instrument Rental & Distribution activities. Net
assets of discontinued operations is included in total assets of the Select
Growth/Portfolio Finance segment.
<TABLE>
<CAPTION>
SELECT GROWTH/ INSTRUMENT
PORTFOLIO RENTAL &
FINANCE DISTRIBUTION CONSOLIDATED
-------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1997
Total net revenues............ $ 4,490 $ 5,103 $ 9,593
Depreciation and amortization
expense...................... 209 1,724 1,933
Total expenses................ 3,417 4,727 8,144
Income from continuing
operations before income
taxes and minority interest.. 1,073 376 1,449
Capital expenditures.......... 20,193 2,398 22,591
Total assets.................. 60,976 20,689 81,665
YEAR ENDED DECEMBER 31, 1996
Total net revenues............ $ 6,516 11,298 17,814
Depreciation and amortization
expense...................... 231 3,508 3,739
Total expenses................ 4,921 10,254 15,175
Income from continuing
operations before income
taxes and minority interest.. 1,595 1,044 2,639
Capital expenditures.......... 26,985 2,689 29,674
Total assets.................. 45,177 22,023 67,200
YEAR ENDED DECEMBER 31, 1995
Total net revenues............ $ 4,760 11,384 16,144
Depreciation and amortization
expense...................... 205 3,903 4,108
Total expenses................ 3,730 10,870 14,600
Income from continuing
operations before income
taxes and minority interest.. 1,030 514 1,544
Capital expenditures.......... 17,015 7,241 24,256
Total assets.................. 33,763 24,841 58,604
YEAR ENDED DECEMBER 31, 1994
Total net revenues............ $ 1,330 11,001 12,331
Depreciation and amortization
expense...................... 480 3,087 3,567
Total expenses................ 1,439 10,300 11,739
Income (loss) from continuing
operations before income
taxes and minority interest.. (109) 701 592
Capital expenditures.......... 7,651 6,969 14,620
Total assets.................. 17,956 23,430 41,386
</TABLE>
F-18
<PAGE>
LINC CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(12) DISTRIBUTIONS TO CERTAIN SHAREHOLDERS AND DISCONTINUED OPERATIONS
In June 1997, the Company adopted a plan to transfer to its wholly owned
subsidiary, LINC Finance Corporation, certain assets and related liabilities
not used in the Company's continuing businesses and the preferred stock issued
by the Company's subsidiary, Linc Quantum Analytics, Inc. (the "Subsidiary
Preferred Stock").
Pursuant to the plan adopted by the Company, promptly following such
transfers, the stock of LINC Finance Corporation will be distributed to
certain of the Company's shareholders in redemption of 482,792 shares of the
Common Stock of the Company.
The results of operation of LINC Finance Corporation and certain related
businesses, including those related businesses disposed of in prior years,
have been classified as discontinued operations in the accompanying financial
statements. Revenues of such discontinued operations for the years ended
December 31, 1994, 1995 and 1996 and the six months ended June 30, 1996 and
June 30, 1997 were $46,650,000, $33,053,000, $24,450,000, $16,048,000 and
$5,511,000, respectively.
The principal assets of discontinued operations at June 30, 1997 consist of
a portfolio of leased diagnostic medical imaging equipment and an art
collection. While the Company has not determined the fair value of the assets
to be distributed, the Company does not believe that gain or loss, if any,
resulting from their distribution will be material to the Company's future
results of operation.
The Company has agreed to provide certain limited lease servicing activities
to LINC Finance Corporation, including billing, collection and invoicing, for
the remaining portfolio of leases owned by LINC Finance Corporation until
December 31, 1999 for $83,250 for the last quarter of 1997, $270,250 for 1998
and $212,250 for 1999. In addition, LINC Finance Corporation shall sub-lease
from the Company approximately 2,500 square feet of space adjacent to the
Company's executive offices for approximately $68,000 per year, which is equal
to the Company's cost for such space. If the Company renews its own sub-lease
for the space, it will permit LINC Finance Corporation to renew such sub-
lease. The agreements relating to the distribution of the assets and
liabilities of the Discontinued Operations will prohibit LINC Finance
Corporation from competing with the Company for the longer of (i) three years
or (ii) the period of time during which certain officers are employed by the
Company plus one year. Such Agreements will require LINC Finance Corporation
to refer all lease origination opportunities that its employees may encounter
to the Company.
In connection with the distribution of the stock of LINC Finance
Corporation, (i) LINC Finance Corporation will agree to pay the Company an
aggregate of $2,508,000 until the maturity of the Company's 8 1/4%
Subordinated Debentures due 2003 (the principal balance of such Debentures
shown in the Company's financial statements herein is net of such amount);
(ii) LINC Finance Corporation will, upon consummation of the Offering, repay a
loan from the Company to it (which portion at June 30, 1997 was $3,375,000);
and (iii) the Company will cause the Subsidiary Preferred Stock, all of which
will be held by LINC Finance Corporation, to be redeemed for $4.7 million plus
accrued dividends.
F-19
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY LINC CAPITAL, INC. OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 14
Capitalization............................................................ 15
Dilution.................................................................. 16
Dividend Policy........................................................... 17
Selected Financial Data................................................... 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 20
Business.................................................................. 26
Management................................................................ 37
Certain Transactions...................................................... 42
Principal Stockholders.................................................... 43
Description of Capital Stock.............................................. 44
Shares Eligible for Future Sale........................................... 46
Underwriting.............................................................. 47
Legal Matters............................................................. 48
Experts................................................................... 48
Additional Information.................................................... 48
Consolidated Financial Statements......................................... F-1
</TABLE>
---------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,000,000 SHARES
[LOGO OF LINC CAPITAL, INC.]
COMMON STOCK
---------------
PROSPECTUS
---------------
FURMAN SELZ
EVEREN SECURITIES, INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses, to be paid solely by the
Company, of the issuance and distribution of the securities being registered:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 11,152
NASD filing fee................................................. 4,180
Nasdaq National Market original listing fee..................... $ 29,122
Blue Sky fees and expenses (including attorneys' fees and
expenses)...................................................... 5,000
Printing expenses............................................... 200,000
Accounting fees and expenses.................................... 125,000
Transfer agent's fees and expenses.............................. 10,000
Legal fees and expenses......................................... 250,000
Miscellaneous expenses.......................................... 15,546
--------
Total....................................................... $650,000
========
</TABLE>
- --------
* To be provided by Amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware ("Section 145")
provides that a Delaware corporation may indemnify any persons who are, or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of
the fact that such person was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the corporation's best interests and, with respect to any criminal action
or proceeding, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may indemnify any persons who are, or are
threatened to be made, a party to any threatened, pending or completed action
or suit by or in the right of the corporation by reason of the fact that such
person was a director, officer, employee or agent of such corporation, or is
or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit, provided such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests except
that no indemnification is permitted without judicial approval if the officer
or director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director has actually and reasonably incurred.
The Company's Certificate of Incorporation and By-laws provide for the
indemnification of Directors and officers of the Company to the fullest extent
permitted by Section 145.
In that regard, the By-laws provide that the Company shall indemnify any
person whom it has the power to indemnify by Section 145 from or against any
and all of the expenses, liabilities or other matters referred to or covered
in Section 145, and such indemnification is not exclusive of other rights to
which such person shall be entitled under any By-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to
II-1
<PAGE>
action in such person's official capacity for or in behalf of the Company
and/or any subsidiary of the Company and as to action in another capacity while
holding such office and shall continue as to such person who has ceased to be a
director, officer, employee, or agent of the Company and/or subsidiary of the
Company and shall inure to the benefit of the heirs, executors, and
administrators of such person.
The Company expects to enter into indemnification agreements with each of its
executive officers and Directors prior to the completion of the Offering.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Within the last three years, the Company has issued shares of Common Stock
upon the exercise of employee and director stock options at prices ranging from
$0.56 to $2.61 in reliance upon exemptions contained in Section 4(2) of the
Securities Act and Rule 701 adopted under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
NUMBER
------
<C> <S> <C>
1.1 Form of Underwriting Agreement+
**3.1 Form of Restated Certificate of Incorporation of the Com-
pany
**3.2 Form of Restated Bylaws of the Company
4.1 Form of certificate representing shares of Common Stock,
$0.001 par value per share
5.1 Form of Opinion and consent of Kirkland & Ellis
**10.1 (a) Third Amended and Restated Loan Agreement, among the Com-
pany, the various lending institutions named therein and
Fleet Bank, N.A., as Agent+
10.1 (b) Amendment No.1 to Third Amended and Restated Loan Agree-
ment, among the Company, the various lending institutions
named therein and Fleet Bank, N.A., as Agent+
10.2 Agreement between the Company and LINC Finance Corpora-
tion ("LFC") regarding distribution of LFC shares and re-
lated matters+
10.3 Employment Agreement for Mr. Zimmerman
10.4 Form of Employment Agreements for Messrs. Palles, Laing
and Erbes and Dr. Farren
10.5 Non-Employee Director Option Plan
10.6 Executive Incentive Compensation Plan
**10.7 1994 Stock Option Plan
10.8 1997 Stock Incentive Plan
10.9 Consulting Agreement for Mr. Quinn
10.10 Form of Indemnification Agreement for Non-Employee Direc-
tors
11.1 Statement re computation of per share earnings
**21.1 Subsidiaries of the Company
*23.1 Consent of KPMG Peat Marwick LLP
23.2 Form of Consent of Kirkland & Ellis (included in Exhibit
5.1)
**24.1 Powers of Attorney (included in signature page of origi-
nal filing)
**27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
+ The Company agrees to furnish supplementally to the Commission a copy of any
omitted schedule or exhibit to such agreement upon request by Commission.
**Previously filed
II-2
<PAGE>
(b) FINANCIAL STATEMENT SCHEDULES
Financial statement schedules included in this Registration Statement:
Schedule II--Valuation and qualifying accounts for the periods from
January 1, 1994 through June 30, 1997.
All other schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions,
are inapplicable or not material, or the information called for thereby is
otherwise included in the financial statements and therefore has been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters
at closing and as specified in the Underwriting Agreement, certificates in
such denominations and registered in such names as requested by the
Underwriters to permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
CHICAGO, STATE OF ILLINOIS, ON OCTOBER 29, 1997.
The LINC Group, Inc.
(to be merged into LINC Capital,
Inc. )
/s/ Martin E. Zimmerman
By: _________________________________
Martin E. Zimmerman
Chairman and Chief Executive
Officer
* * * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED ON
OCTOBER 29, 1997, BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
/s/ Martin E. Zimmerman Chairman of the Board and Chief Executive
___________________________________________ Officer (principal executive officer)
Martin E. Zimmerman
/s/ Allen P. Palles Chief Financial Officer and Director
___________________________________________ (principal financial and accounting
Allen P. Palles officer)
Robert E. Laing* Director
___________________________________________
Robert E. Laing
Charles J. Aschauer* Director
___________________________________________
Charles J. Aschauer
Stanley Green* Director
___________________________________________
Stanley Green
Terrence J. Quinn* Director
___________________________________________
Terrence J. Quinn
</TABLE>
/s/ Allen P. Palles
*By: ___________________________
Allen P. Palles
Attorney-in-fact
II-4
<PAGE>
WHEN THE TRANSACTION REFERRED TO IN THE LAST PARAGRAPH OF NOTE (1)(A) OF
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS HAS BEEN CONSUMMATED, WE WILL BE IN
A POSITION TO RENDER THE FOLLOWING REPORT:
/s/ KPMG Peat Marwick LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors
LINC Capital, Inc.:
Under date of August 26, 1997, except as to the last paragraph of note
(1)(a), which is as of October , 1997, we reported on the consolidated
balance sheets of LINC Capital, Inc. and subsidiaries as of December 31, 1995
and 1996 and June 30, 1997, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1996 and the six months ended June 30,
1997, which are included in the prospectus. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule in the registration
statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
Chicago, Illinois
August 26, 1997, except as to thelast paragraph of note (1)(a),which is as of
October , 1997
S-1
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996 AND
THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND RECOVERIES CHARGE- END
DESCRIPTION OF PERIOD EXPENSES AND OTHER OFFS OF PERIOD
- ----------- ---------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1994...................... -- 247 127 (125) 249
Year ended December 31,
1995...................... 249 1,060 247 (452) 1,104
Year ended December 31,
1996...................... 1,104 749 130 (689) 1,294
Six months ended June 30,
1997...................... 1,294 479 176 (105) 1,844
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S>
1.1 Form of Underwriting Agreement+
**3.1 Form of Restated Certificate of Incorporation of the Company
**3.2 Form of Restated Bylaws of the Company
4.1 Form of certificate representing shares of Common Stock, $0.001 par
value per share
5.1 Form of Opinion and consent of Kirkland & Ellis
**10.1(a) Third Amended and Restated Loan Agreement, among the Company, the
various lending institutions named therein and Fleet Bank, N.A., as
Agent+
10.1(b) Amendment No.1 to Third Amended and Restated Loan Agreement, among
the Company, the various lending institutions named therein and
Fleet Bank, N.A., as Agent+
10.2 Agreement between the Company and LINC Finance Corporation ("LFC")
regarding distribution of LFC shares and related matters+
10.3 Employment Agreement for Mr. Zimmerman
10.4 Form of Employment Agreements for Messrs. Palles, Laing, Erbes and
Dr. Farren
10.5 Non-Employee Director Option Plan
10.6 Executive Incentive Compensation Plan
**10.7 1994 Stock Option Plan
10.8 1997 Stock Incentive Plan
10.9 Consulting Agreement for Mr. Quinn
10.10 Form of Indemnification Agreement for Non-Employee Directors
11.1 Statement re computation of per share earnings
**21.1 Subsidiaries of the Company
*23.1 Consent of KPMG Peat Marwick LLP
23.2 Form of Consent of Kirkland & Ellis (included in Exhibit 5.1)
**24.1 Powers of Attorney (included in signature page of original filing)
**27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
+ The Company agrees to furnish supplementally to the Commission a copy of
any omitted schedule or exhibit to such agreement upon request by
Commission.
**Previously filed
<PAGE>
Exhibit 1.1
2,000,000 Shares
LINC CAPITAL, INC.
(a Delaware corporation)
Common Shares
($0.001 Par Value)
UNDERWRITING AGREEMENT
----------------------
[________], 1997
FURMAN SELZ LLC
EVEREN SECURITIES, INC.
As representatives of the
several Underwriters
c/o Furman Selz LLC
230 Park Avenue
New York, New York 10169
Dear Ladies and Gentlemen:
SECTION 1. Introduction.
LINC Capital, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to the several Underwriters named in Schedule I hereto (the
"Underwriters"), acting severally and not jointly, for which Furman Selz LLC and
EVEREN Securities, Inc. are acting as representatives (the "Representatives"),
an aggregate of 2,000,000 shares of the Company's Common Stock, $0.001 par value
(the "Common Shares"). The 2,000,000 Common Shares to be purchased by the
Underwriters are referred to herein as the "Initial Shares." The Company also
proposes to issue and sell to the several Underwriters, acting severally and not
jointly, an aggregate of not more than 300,000 additional Common Shares (the
"Additional Shares"), if requested by the Underwriters in accordance with
Section 4 ("Over-Allotment") hereof. The Initial Shares and the Additional
Shares are collectively referred to herein as the "Shares." The words "you" and
"your" refer to the Representatives of the Underwriters.
The Company hereby agrees with the several Underwriters as follows:
SECTION 2. Representations and Warranties.
(a) The Company represents, warrants and agrees with each of the
Underwriters that, assuming with respect to each of the following (other than
subsection (xxiii)) that the transactions described under the caption "Certain
Transactions" in the Prospectus (as hereinafter defined) and in Exhibit 10.2 of
the
<PAGE>
Registration Statement (as hereinafter defined) to be completed upon or prior to
the consummation of the Offering (as defined in the Prospectus) have been
completed and giving effect thereto:
(i) Compliance with Registration Requirements. A registration
-----------------------------------------
statement on Form S-1 (File No. 333-34729 under the Securities Act of 1933,
as amended (the "1933 Act"), with respect to the Shares, including a form
of prospectus subject to completion, has been prepared by the Company in
conformity with the requirements of the 1933 Act and the rules and
regulations of the Securities and Exchange Commission (the "Commission")
thereunder (the "1933 Act Regulations"). Such registration statement has
been filed with the Commission under the 1933 Act, and one or more
amendments to such registration statement may also have been so filed.
Promptly after execution and delivery of this Agreement, the Company will
either (i) prepare and file a prospectus in accordance with the provisions
of Rule 430A ("Rule 430A") of the 1933 Act Regulations and paragraph (b) of
Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the Company
has elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations,
prepare and file a term sheet (a "Term Sheet") in accordance with the
provisions of Rule 434 and Rule 424(b). The information included in such
prospectus or in such Term Sheet, as the case may be, that was omitted from
such registration statement at the time it became effective but that is
deemed to be part of such registration statement at the time it became
effective (a) pursuant to paragraph (b) of Rule 430A is referred to as
"Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted,
as applicable, the Rule 430A Information or the Rule 434 Information, that
was used after such effectiveness and prior to the execution and delivery
of this Agreement, is herein called a "Preliminary Prospectus." Such
registration statement, including the exhibits and any schedules, at the
time it became effective and including the Rule 430A Information and the
Rule 434 Information, as applicable, is herein called the "Registration
Statement." Any registration statement filed pursuant to Rule 462(b) of the
1933 Act Regulations is herein referred to as the "Rule 462(b) Registration
Statement," and after such filing the term "Registration Statement" shall
include the Rule 462(b) Registration Statement. The final prospectus in the
form first furnished to the Underwriters for use in connection with the
offering of the Shares is herein called the "Prospectus." If Rule 434 is
relied on, the term "Prospectus" shall refer to the Preliminary Prospectus
dated [_____] 1997 together with the Term Sheet and all references in this
Agreement to the date of the Prospectus shall mean the date of the Term
Sheet. For purposes of this Agreement, all references to the Registration
Statement, any Preliminary Prospectus, the
-2-
<PAGE>
Prospectus or any Term Sheet or any amendment or supplement to any of the
foregoing shall be deemed to include the copy filed with the Commission
pursuant to its Electronic Data Gathering, Analysis and Retrieval system
("EDGAR").
(ii) No Suspension Orders. The Commission has not issued any order
--------------------
preventing or suspending the use of any Preliminary Prospectus and has not
instituted or, to the best of the Company's knowledge, threatened to
institute any proceedings with respect to such order. When any Preliminary
Prospectus was filed with the Commission it (A) contained in all material
respects all statements required to be stated therein in accordance with,
and complied in all material respects with the requirements of, the 1933
Act and the 1933 Act Regulations and (B) did not include any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein not misleading, in the light of the
circumstances under which they were made. When the Registration Statement,
any Rule 462(b) Registration Statement or any amendment thereto was or is
declared effective, it (A) contained or will contain in all material
respects all statements required to be stated therein in accordance with,
and complied or will comply in all material respects with the requirements
of, the 1933 Act and the 1933 Act Regulations and (B) did not or will not
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading. When
the Prospectus or any amendment or supplement thereto is filed with the
Commission pursuant to Rule 424(b) (or, if the Prospectus or such amendment
or supplement is not required to be so filed, when the Registration
Statement or any amendment thereto containing such amendment or supplement
to the Prospectus was or is declared effective) and on the Closing Date (as
defined in Section 3 hereof: "Purchase, Sale and Delivery of the Shares")
and the Option Closing Date (as defined in Section 4 hereof: "Over-
Allotment"), the Prospectus, as amended or supplemented at any such time,
(A) contained or will contain in all material respects all statements
required to be stated therein in accordance with, and complied or will
comply in all material respects with the requirements of, the 1933 Act and
the 1933 Act Regulations and (B) did not or will not include any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. If Rule 434 is used, the
Company will comply with the requirements of Rule 434 and the Prospectus
shall not be "materially different," as such term is used in Rule 434, from
the Prospectus included in the Registration Statement at the time it became
effective. The foregoing provisions of this paragraph (ii) shall not apply
to statements or omissions made in any Preliminary Prospectus, the
Registration Statement or any
-3-
<PAGE>
amendment thereto or the Prospectus or any amendment or supplement thereto
in reliance upon, and in conformity with, information furnished in writing
to the Company by or on behalf of the Underwriters through the
Representatives expressly for use therein.
(iii) Good Standing of the Company and Subsidiaries. Each of the
---------------------------------------------
Company and its subsidiaries (the "Subsidiaries") (A) is a duly
incorporated and validly existing corporation in good standing under the
laws of its jurisdiction of incorporation, with full power and authority
(corporate and other) to own or lease its properties and to conduct its
business as described in the Registration Statement and the Prospectus; and
(B) is duly qualified to do business as a foreign corporation in each
jurisdiction (x) in which the conduct of its business requires such
qualification and (y) in which it owns or leases property (except, in each
case (x) and (y) for those jurisdictions in which the failure so to qualify
has not had and will not have a Material Adverse Effect. "Material Adverse
Effect" means, when used in connection with the Company or its
Subsidiaries, any development, change or effect that is materially adverse
to the business, properties, assets, net worth, condition (financial or
other), results of operations or prospects of the Company and its
Subsidiaries taken as a whole.
(iv) Capitalization. As of June 30, 1997, the Company had the duly
--------------
authorized and validly outstanding capitalization set forth under the
caption "Capitalization" in the Prospectus based on the assumptions set
forth therein. The securities of the Company conform to the descriptions
thereof contained in the Prospectus. The outstanding Common Shares have
been duly authorized and validly issued by the Company and are fully paid
and nonassessable. Except as created hereby or referred to in the
Prospectus, there are no outstanding options, warrants, rights or other
arrangements requiring the Company or any Subsidiary, if not wholly-owned
at any time, to issue any capital stock. No holders of outstanding shares
of capital stock of the Company are entitled as such to any preemptive or
other rights to subscribe for any of the Shares and neither the filing of
the Registration Statement or the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than those
which have been waived or satisfied, for or relating to, the registration
of any securities of the Company. The Shares have been duly authorized; and
on the Closing Date or the Option Closing Date (as the case may be), after
payment therefor in accordance with the terms of this Agreement, the
Initial Shares and the Additional Shares to be sold by the Company
hereunder will be validly issued, fully paid and nonassessable, and good
and marketable title to such Shares will pass to the Underwriters on the
Closing Date or the
-4-
<PAGE>
Option Closing Date (as the case may be) free and clear of any lien,
encumbrance, security interest, claim or other restriction whatsoever. All
the outstanding shares of capital stock of each Subsidiary have been duly
authorized and validly issued, are fully paid and nonassessable. Upon
application of the proceeds of the Offering in the manner contemplated by
the Prospectus, and except as set forth in the Registration Statement and
the Prospectus, all of the outstanding shares of capital stock of each
Subsidiary will be owned directly by the Company or one of its wholly-owned
Subsidiaries, free and clear of any lien, encumbrance, security interest,
claim or other restriction whatsoever. The Company has received, subject
to notice of issuance, approval to have the Shares quoted on the National
Market System of the National Association of Securities Dealers' Automated
Quotation System ("Nasdaq NMS") and the Company knows of no reason or set
of facts which is likely to adversely affect such approval.
(v) Financial Statements. The financial statements and the related
--------------------
notes and schedules thereto included in the Registration Statement and the
Prospectus fairly present the financial condition, results of operations,
shareholders' equity and cash flows of the Company and its Subsidiaries at
the dates and for the periods specified therein. Such financial statements
and the related notes and schedules thereto have been prepared in
accordance with generally accepted accounting principles consistently
applied throughout the periods involved (except as otherwise noted therein)
and have been examined by KPMG Peat Marwick LLP, who are independent public
accountants within the meaning of the 1933 Act and the 1933 Act
Regulations, as indicated in their reports filed therewith. The selected
financial information and statistical data set forth under the caption
"Selected Financial Data" in the Prospectus are prepared on a basis
consistent with the financial statements of the Company and its
Subsidiaries.
(vi) Tax Compliance. The Company and each of its Subsidiaries have
--------------
filed all federal, state and local income and franchise tax returns
required to have been filed and have paid all taxes shown as due
thereunder, except for such taxes that the payment of which is being
contested in good faith, and the Company has no knowledge of any tax
deficiency which is reasonably likely to be assessed against the Company
and which, if so assessed, is reasonably likely to have a Material Adverse
Effect.
(vii) Insurance. The Company and each of its Subsidiaries maintains
---------
insurance of the types and in amounts which they reasonably believe to be
adequate for their business, all of which insurance is in full force and
effect.
-5-
<PAGE>
(viii) Absence of Proceedings. Except as disclosed in the Prospectus,
----------------------
there is no pending or, to the best of the Company's knowledge, threatened
action, suit, proceeding or investigation before or by any court,
regulatory body or administrative agency or any other governmental agency
or body, domestic or foreign, which (A) questions the validity of the
capital stock of the Company or this Agreement or of any action taken or to
be taken by the Company pursuant to or in connection with this Agreement,
(B) is required to be disclosed in the Registration Statement which is not
so disclosed (and such proceedings, if any, as are summarized in the
Registration Statement are accurately summarized in all material respects),
or (C) is reasonably likely to have a Material Adverse Effect.
(ix) Authorization of Agreement. The Company has full legal right,
--------------------------
power and authority to enter into this Agreement and to consummate the
transactions provided for herein. This Agreement has been duly authorized,
executed and delivered by the Company and, assuming it is a binding
agreement of yours, constitutes a legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditors' rights and the
application of equitable principles relating to the availability of
remedies and except as rights to indemnity or contribution may be limited
by federal or state securities laws and the public policy underlying such
laws), and none of the Company's execution or delivery of this Agreement,
its performance hereunder, its consummation of the transactions
contemplated herein, or the conduct of its business as described in the
Prospectus, materially conflicts or will conflict with or results or will
result in any material breach or violation of any of the terms or
provisions of, or constitutes or will constitute a material default under,
or result in the creation or imposition of any material lien, charge or
encumbrance upon, any property or assets of the Company or any of its
Subsidiaries pursuant to the terms of (A) the certificate of incorporation
or by-laws of the Company or any of its Subsidiaries, (B) any indenture,
shareholders' agreement, note agreement or other agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which any of
them are or may be bound or to which any of their respective property is or
may be subject or (C) any statute, judgment, decree, order, rule or
regulation applicable to the Company or any of its Subsidiaries of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body, domestic or foreign, having jurisdiction over
the Company, any of its Subsidiaries or any of their respective activities
or properties.
-6-
<PAGE>
(x) Accuracy and Validity of Exhibits. The descriptions in the
---------------------------------
Registration Statement of contracts and other documents are accurate in all
material respects and fairly present the information required to be shown
with respect thereto by Form S-1 and there are no contracts or other
documents which are required by the 1933 Act or such Form to be described
in the Registration Statement or filed as exhibits to the Registration
Statement which are not described or filed as required, and the exhibits
which have been filed are complete and correct copies in all material
respects of the documents of which they purport to be copies.
(xi) No Material Adverse Change in Business. Subsequent to the most
--------------------------------------
recent respective dates as of which information is given in the Prospectus,
and except as expressly contemplated therein, neither the Company nor any
of its Subsidiaries has incurred, other than in the ordinary course of its
business, any material liabilities or obligations, direct or contingent,
purchased any of its outstanding common shares (except as described in
Exhibit 10.2 to the Registration Statement), paid or declared any dividends
or other distributions on its common shares (except as described in Exhibit
10.2 to the Registration Statement) or entered into any material
transactions not in the ordinary course of business, and there has been no
material change in capital stock or debt or any material adverse change in
the condition (financial or other), net worth or results of operations of
the Company and its Subsidiaries taken as a whole. Neither the Company nor
any of its Subsidiaries is in breach or violation of, or in default under,
any term or provision of (A) its certificate of incorporation or by-laws,
(B) any indenture, mortgage, deed of trust, voting trust agreement,
stockholders' agreement, note agreement or other agreement or instrument to
which it is a party or by which it is or may be bound or to which any of
its property is or may be subject, or any indebtedness, the effect of which
breach or default is reasonably likely to have a Material Adverse Effect,
or (C) any statute, judgment, decree, order, rule or regulation applicable
to the Company or any of its Subsidiaries or of any arbitrator, court,
regulatory body, administrative agency or any other governmental agency or
body, domestic or foreign, having jurisdiction over the Company or any of
its Subsidiaries or any of their respective activities or properties and
the effect of which breach or default is reasonably likely to have a
Material Adverse Effect.
(xii) Absence of Labor Dispute. No labor disturbance by the employees
------------------------
of the Company or any of its Subsidiaries exists or, to the best of the
Company's knowledge, is imminent which is reasonably likely to have a
Material Adverse Effect.
-7-
<PAGE>
(xiii) No Material Liabilities under the 1933 Act. Since its
------------------------------------------
inception, the Company has not incurred any material liability arising
under or as a result of the application of the provisions of the 1933 Act.
(xiv) Possession of Intellectual Property. Each of the Company and
-----------------------------------
its Subsidiaries owns, or is licensed or otherwise has sufficient right to
use, the proprietary knowledge, inventions, patents, trademarks, service
marks, trade names, logo marks and copyrights used in or necessary for the
conduct of its business (collectively "Rights") as described in the
Prospectus, except for such Rights as to which the failure to obtain would
not have a Material Adverse Effect. No material claims have been asserted
against the Company or any of its Subsidiaries by any person with respect
to the use of such Rights or challenging or questioning the validity or
effectiveness of any such Rights. The use, in connection with the business
and the operations of the Company of such Rights does not, to the Company's
best knowledge, infringe on the rights of any person.
(xv) No Violation of Laws. Neither the Company nor any Subsidiary
--------------------
(nor the manner in which any of them conducts its business or proposes to
conduct its business) is in violation of any laws, ordinances or
governmental rules or regulations to which it is subject, except for such
violations as would not have a Material Adverse Effect.
(xvi) No Consents Required. No consent, approval, authorization or
--------------------
order of any court, regulatory body, administrative agency or any other
governmental agency or body, domestic or foreign, is required for the
performance of this Agreement or the consummation of the transactions
contemplated hereby, except such as have been or may be obtained under the
1933 Act or may be required under state securities or Blue Sky laws or the
rules and regulations of the National Association of Securities Dealers,
Inc. (the "NASD") in connection with the Underwriters' purchase and
distribution of the Shares.
(xvii) Registration Rights. There are no contracts, agreements or
-------------------
understandings between the Company and any person granting such person the
right to require the Company to file a registration statement under the
1933 Act with respect to any securities of the Company owned or to be owned
by such person or to require the Company to include such securities under
the Registration Statement (other than those that have been disclosed in
the Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), that have not been waived with respect to the
Registration Statement.
-8-
<PAGE>
(xviii) No Price Stabilization or Manipulation. Neither the Company
--------------------------------------
nor any of its officers, directors or affiliates (within the meaning of the
Rules and Regulations) has taken, directly or indirectly, any action
designed to stabilize or manipulate the price of any security of the
Company, or which has constituted or which might in the future reasonably
be expected to cause or result in stabilization or manipulation of the
price of any security of the Company, to facilitate the sale or resale of
the Shares or otherwise.
(xix) Title to Property. Each of the Company and its Subsidiaries
-----------------
has good and marketable title to, or valid and enforceable leasehold
interests in, all properties and assets owned or leased by it free and
clear of all liens, encumbrances, security interests, restrictions,
equities, claims and defects, except (A) such as are described in the
Prospectus, or such as do not materially adversely affect the value of any
of such properties or assets taken as a whole and do not interfere with the
use made and proposed to be made of any of such properties or assets, (B)
liens for taxes not yet due and payable as to which appropriate reserves
have been established and reflected on the financial statements included in
the Registration Statement and (C) except as would not have a Material
Adverse Effect. The Company owns or leases all such properties as are
necessary to its operations as now conducted, and as proposed to be
conducted as set forth in the Registration Statement and the Prospectus;
and the properties and business of the Company and its Subsidiaries conform
in all material respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. All the material leases and
subleases of the Company and its Subsidiaries, and under which the Company
or any Subsidiary holds properties or assets as lessee or sublessee,
constitute valid leasehold interests of the Company or such Subsidiary free
and clear of any lien, encumbrance, security interest, restriction, equity,
claim or defect, are in full force and effect, and neither the Company nor
any Subsidiary is in default in respect of any of the material terms or
provisions of any such material leases or subleases, and neither the
Company nor any Subsidiary has notice of any claim which has been asserted
by anyone adverse to the Company's or any of its Subsidiary's rights as
lessee or sublessee under either the material lease or sublease, or
affecting or questioning the Company's or any Subsidiary's right to the
continued possession of the leased or subleased premises under any such
material lease or sublease, which is reasonably likely to have a Material
Adverse Effect.
(xx) Compliance with Environmental, Safety and Health Laws, and
----------------------------------------------------------
ERISA. Neither the Company nor any Subsidiary has violated any applicable
-----
environmental, safety, health or similar law applicable to the business of
the Company, nor
-9-
<PAGE>
any federal or state law relating to discrimination in the hiring,
promotion, or pay of employees, nor any applicable federal or state wages
and hours law, nor any provisions of ERISA or the rules and regulations
promulgated thereunder, the consequences of which violation reasonably
likely to have a Material Adverse Effect.
(xxi) Licenses and Permits. Each of the Company and its Subsidiaries
--------------------
holds all franchises, licenses, permits, certificates and other
authorizations from federal, state and other regulatory authorities
necessary to the ownership, leasing and operation of its properties or
required for the present conduct of its business, and such franchises,
licenses, permits and other governmental authorizations are in full force
and effect and the Company is in compliance therewith in all material
respects except where the failure so to obtain, maintain or comply with
would not have a Material Adverse Effect.
(xxii) Subsidiary Dividends. No Subsidiary of the Company is
--------------------
currently prohibited, directly or indirectly, from paying any dividends to
the Company, from making any other distribution on such Subsidiary's
capital stock, from repaying to the Company any loans or advances to such
Subsidiary from the Company or from transferring any of such Subsidiary's
property or assets to the Company or any other Subsidiary of the Company,
except as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(xxiii) Certain Transactions. Each of transactions described under the
--------------------
caption "Certain Transactions" in the Prospectus (as hereinafter defined)
and in Exhibit 10.2 of the Registration Statement (as hereinafter defined)
to be completed upon or prior to the consummation of the Offering, will be
completed upon or prior to the consummation of the Offering.
(b) Officer's Certificates. Any certificate signed by any officer of the
----------------------
Company or of any Subsidiary and delivered to the Representatives or to counsel
for the Underwriters shall be deemed a representation and warranty by the
Company to each Underwriter as to the matters covered thereby.
SECTION 3. Purchase, Sale and Delivery of the Initial Shares.
On the basis of the representations, warranties, covenants and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company agrees to sell to each Underwriter and each Underwriter, severally and
not jointly, agrees to purchase from the Company at a purchase price of $_______
per Share, the number of Initial Shares set forth opposite the name of such
Underwriter in Schedule I hereto.
-10-
<PAGE>
Delivery of certificates, and payment of the purchase price, for the
Initial Shares shall be made at the offices of Kirkland & Ellis, 200 E. Randolph
Drive, Chicago, Illinois, 60601 or such other location as such be agreed upon by
the Company and the Representatives. Such delivery and payment shall be made at
10:00 a.m., New York City time, on the third (fourth, if the pricing occurs
after 4:30 PM New York City Time on any given day) business day after the date
hereof (unless postponed in accordance with the provisions of Section 12
("Substitution of Underwriters")), or at such other time and date not more than
ten business days thereafter as shall be agreed upon by the Representatives and
the Company. The time and date of such delivery and payment are herein called
the "Closing Date." Delivery of the certificates for the Initial Shares shall
be made to the Representatives for the respective accounts of several
Underwriters against payment by the several Underwriters through the
Representatives of the purchase price for the Initial Shares by certified or
official bank checks in New York Clearing House (next day) funds drawn to the
order of the Company. The certificates for the Shares to be so delivered will
be in definitive, fully registered form, will bear no restrictive legends and
will be in denominations and registered in such names as the Representatives
shall request, not less than two full business days prior to the Closing Date.
The certificates for the Initial Shares will be made available to the
Representatives at such office or such other place as the Representatives may
designate for inspection, checking and packaging not later than 9:30 a.m., New
York City time, on the business day prior to the Closing Date.
SECTION 4. Over-Allotment.
At any time during a period of 30 days from the date of the Prospectus, the
Underwriters, by no less than three business days' prior notice to the Company
may designate a closing (which may be concurrent with, and part of, the closing
on the Closing Date with respect to the Common Shares or may be a second closing
held on a date subsequent to the Closing Date, either case such date shall be
referred to herein as the "Option Closing Date") at which the Underwriters may
purchase all or less than all of the Additional Shares in accordance with the
provisions of this Section 4 ("Over-Allotment") at the purchase price per share
to be paid for the Initial Shares. In no event shall the Option Closing Date be
later than 10 business days after written notice of election to purchase
Additional Shares is given.
The Company agrees to sell to the several Underwriters on the Option
Closing Date the number of Additional Shares specified in such notice and the
Underwriters agree, severally and not jointly, to purchase such Additional
Shares on the Option Closing Date. Such Additional Shares shall be purchased for
the account of each Underwriter in the same proportion as the number of Initial
Shares set forth opposite such Underwriter's name bears to the total number of
Initial Shares (subject to adjustment by
-11-
<PAGE>
you to eliminate fractions) and may be purchased by the Underwriters only for
the purpose of covering over-allotments made in connection with the sale of the
Initial Shares.
No Additional Shares shall be sold or delivered unless the Initial Shares
previously have been, or simultaneously are, sold and delivered. The right to
purchase the Additional Shares or any portion thereof may be surrendered and
terminated at any time upon notice by you to the Company.
Delivery of the certificates, and payment of the purchase price, for the
Additional Shares shall be made on the Option Closing Date at the office of
Kirkland & Ellis, 200 E. Randolph Drive, Chicago, Illinois 60605, or such other
location as shall be agreed upon by the Company and the Representatives.
Delivery of the certificates for the Additional Shares shall be made to the
Representatives for the accounts of the several Underwriters against payment of
the purchase price therefor by certified or official bank check or checks in New
York Clearing House (next day) funds drawn to the order of the Company at the
office of Furman Selz LLC at 230 Park Avenue, New York, New York 10169. The
certificates for the Additional Shares to be so delivered will be in definitive,
fully registered form, will bear no restrictive legends and will be in such
denominations and registered in such names as you request, not less than two
full business days prior to the Option Closing Date. The certificates for the
Additional Shares will be made available to the Representatives at such office
or such other place as the Representatives may designate for inspection,
checking and packaging not later than 9:30 a.m., New York City time, on the
business day prior to the Option Closing Date. Except to the extent waived by
the Underwriters, all the provisions of this Agreement applicable with respect
to the transactions contemplated on the Closing Date shall apply to such Option
Closing Date, mutatis mutandis, and the Additional Shares purchased at such
closing hereunder shall be deemed Shares for all purposes of this Agreement.
SECTION 5. Public Offering of the Shares.
As soon after the Registration Statement becomes effective as the
Representatives deem advisable, the Underwriters propose to make a public
offering of the Shares (other than to residents of or in any jurisdiction in
which qualification of the Shares is required and has not become effective) at
the price and upon the other terms set forth in the Prospectus.
SECTION 6. Covenants of the Company
The Company covenants and agrees with each of the Underwriters that:
-12-
<PAGE>
(a) Compliance with Securities Regulations and Commission Requests. The
--------------------------------------------------------------
Company, subject to Section 6(b) hereof ("Filing of Amendments"), will
comply with the requirements of Rule 430A and will notify the
Representatives immediately, and confirm the notice in writing, (i) when
any post-effective amendment to the Registration Statement shall become
effective, or any supplement to the Prospectus or any amended Prospectus
shall have been filed, (ii) of the receipt of any comments from the
Commission, (iii) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or
for additional information, and (iv) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement
or of any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Shares for
offering or sale in any jurisdiction, or of the initiation or, to the best
of the Company's knowledge, threatening of any proceedings for any of such
purposes. The Company will promptly effect the filings necessary pursuant
to Rule 424(b) and will take such steps as it deems necessary to ascertain
promptly whether the form of prospectus transmitted for filing under Rule
424(b) was received for filing by the Commission and, in the event that it
was not, it will promptly file such prospectus. The Company will make
every reasonable effort to prevent the issuance of any stop order and, if
any stop order is issued, to obtain the lifting thereof at the earliest
possible moment.
(b) Filing of Amendments. The Company will give the Representatives
--------------------
notice of its intention to file or prepare any amendment to the
Registration Statement (including any filing under Rule 462(b)), any Term
Sheet or any amendment, supplement or revision to either the prospectus
included in the Registration Statement at the time it became effective or
to the Prospectus, will furnish the Representatives with copies of any such
documents and a reasonable amount of time prior to such proposed filing or
use, as the case may be, and will not file or use any such document to
which the Representatives or counsel for the Underwriters shall reasonably
object unless, in the opinion of counsel for the Company, it is necessary.
(c) Delivery of Registration Statements. The Company has furnished or
-----------------------------------
will deliver to the Representatives and counsel for the Underwriters,
without charge, signed copies of the Registration Statement as originally
filed and of each amendment thereto (including exhibits filed therewith or
incorporated by reference therein) and signed copies of all consents and
certificates of experts filed therewith, and will also deliver to the
Representatives, without charge, a conformed copy of the Registration
Statement as originally filed and of each amendment thereto (without
exhibits) for each of the Underwriters. If applicable, the
-13-
<PAGE>
copies of the Registration Statement and each amendment thereto furnished
to the Underwriters will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each
------------------------
Underwriter, without charge, as many copies of each preliminary prospectus
as such Underwriter reasonably requested, and the Company hereby consents
to the use of such copies for purposes permitted by the 1933 Act. The
Company will furnish to each Underwriter, without charge, during the period
when the Prospectus is required to be delivered under the 1933 Act or the
Securities Exchange Act of 1934 (the "1934 Act"), such number of copies of
the Prospectus (as amended or supplemented) as such Underwriter may
reasonably request. If applicable, the Prospectus and any amendments or
supplements thereto furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will comply
-----------------------------------------
with the 1933 Act and the 1933 Act Regulations so as to permit the
completion of the distribution of the Shares as contemplated in this
Agreement and in the Prospectus. If at any time when a prospectus is
required by the 1933 Act to be delivered in connection with sales of the
Shares, any event shall occur or condition shall exist as a result of which
it is necessary, in the opinion of counsel for the Underwriters or for the
Company, to amend the Registration Statement or amend or supplement the
Prospectus in order that the Prospectus will not include any untrue
statements of a material fact or omit to state a material fact necessary in
order to make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the opinion of such counsel, at any such time to
amend the Registration Statement or amend or supplement the Prospectus in
order to comply with the requirements of the 1933 Act or the 1933 Act
Regulations, the Company will promptly prepare and file with the
Commission, subject to Section 6(b) hereof ("Filing of Amendments"), such
amendment or supplement as may be necessary to correct such statement or
omission or to make the Registration Statement or the Prospectus comply
with such requirements, and the Company will furnish to the Underwriters
such number of copies of such amendment or supplement as the Underwriters
may reasonably request.
(f) Blue Sky Qualifications. The Company will use its commercially
-----------------------
reasonable efforts, in cooperation with the Underwriters, to qualify the
Shares for offering and sale under the applicable securities laws of such
states and
-14-
<PAGE>
other jurisdictions (domestic or foreign) as the Representatives may
reasonably designate and to maintain such qualifications in effect for a
period of not less than one year from the later of the effective date of
the Registration Statement and any Rule 462(b) Registration Statement;
provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign
corporation or as a dealer in securities in any jurisdiction in which it is
not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject.
(g) Rule 158. The Company will timely file such reports pursuant to
--------
the 1934 Act as are necessary in order to make generally available to its
security holders as soon as practicable, but in any event not later than 45
days after the end of the 12-month period beginning on the day after the
end of the fiscal quarter of the Company during which the effective date of
the Registration Statement occurs (90 days in the event that the end of
such fiscal quarter is the end of the Company's fiscal year), an earnings
statement for the purposes of, and to provide the benefits contemplated by,
the last paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds received by
---------------
it from the sale of the Shares in the manner specified in the Prospectus
under "Use of Proceeds."
(i) Listing. The Company will use its best efforts to effect and
-------
maintain the quotation of the Shares on the Nasdaq NMS and will file with
the Nasdaq NMS all documents and notices required by the Nasdaq NMS of
companies that have securities that are traded in the over-the-counter
market and quotations for which are reported by the Nasdaq NMS.
(j) Restriction on Sale of Shares. During a period of 180 days from
-----------------------------
the date of the Prospectus, the Company will not, without the prior written
consent of Furman Selz LLC, (i) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any
Common Shares or any securities convertible into or exercisable or
exchangeable for Common Shares or file any registration statement under the
1933 Act with respect to any of the foregoing or (ii) enter into any swap
or any other agreement or any transactions that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of the
Common Shares, whether any such swap or transaction described in clause (i)
or (ii) above is to be settled by delivery of Common Shares or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to
(A) the Shares to be sold hereunder, (B) any Common Shares issued by the
Company upon
-15-
<PAGE>
the exercise of an option or warrant or the conversion of security
outstanding on the date hereof and referred to in the Prospectus, (C) any
Common Shares issued or options to purchase Common Shares granted pursuant
to existing employee benefit plans of the Company referred to in the
Prospectus or (D) any Common Shares issued pursuant to any non-employee
director stock plan.
(k) Reporting Requirements. The Company, during the period when the
----------------------
Prospectus is required to be delivered under the 1933 Act or the 1934 Act,
will file all documents required to be filed with the Commission pursuant
to the 1934 Act within the time periods required by the 1934 Act and the
rules and regulations of the Commission under the 1934 Act.
(l) Form SR. The Company will file with the Commission such reports on
-------
Form SR as may be required pursuant to Rule 463 of the 1933 Act
Regulations.
(m) During a period of five years after the date hereof, the Company
will furnish to its shareholders and the Representatives annual reports
(including financial statements audited by independent public accountants)
and unaudited quarterly reports of earnings, and will deliver to the
Representatives:
(i) as soon as they are available, copies of all reports
(financial or other) mailed to shareholders;
(ii) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD
or any securities exchange;
(iii) every material press release, news item and article of
interest to the financial community in respect of the Company or its
affairs which was released or prepared by the Company; and
(iv) any additional information of a public nature concerning the
Company or its business which the Representatives may reasonably
request.
During such five-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the
extent that the accounts of the Company and its subsidiaries are
consolidated, and will be accompanied by similar financial statements for
any significant subsidiary which is not so consolidated.
(n) Transfer Agent. The Company will maintain a Transfer Agent and, if
--------------
necessary under the jurisdiction of incorporation of the Company, a
Registrar (which may be the same entity as the Transfer Agent) for its
Common Shares.
-16-
<PAGE>
(o) No Price Stabilization. The Company shall not take, and shall use
----------------------
reasonable best efforts to prevent any of its officers and directors, and
affiliates of any of them (within the meaning of the Rules and
Regulations), directly or indirectly, from taking any action designed to,
or which might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any securities of the Company
during any period in which the distribution of any Common Shares (including
any Additional Shares) is continuing.
SECTION 7. Expenses.
(a) Regardless of whether the transactions contemplated in this Agreement
are consummated, and regardless of whether for any reason this Agreement is
terminated, the Company will pay, and hereby agrees to indemnify each
Underwriter against, all fees and expenses incident to the performance of the
obligations of the Company under this Agreement, including, but not limited to,
(i) fees and expenses of accountants and counsel for the Company, (ii) all costs
and expenses incurred in connection with the preparation, printing, duplication,
filing, delivery and shipping of copies of the Registration Statement and any
pre-effective or post-effective amendments thereto, any Preliminary Prospectus
and the Prospectus and any amendments or supplements thereto (including postage
costs related to the delivery by the Underwriters of any Preliminary Prospectus
or Prospectus, or any amendment or supplements thereto), this Agreement, the
Agreement Among Underwriters, any Selected Dealer Agreement, Underwriters'
Questionnaire, Underwriters' Power of Attorney, and all other documents in
connection with the transactions contemplated herein, including the cost of all
copies thereof, (iii) fees and expenses relating to qualification of the Shares
under state securities or Blue Sky laws, including the cost of preparing and
mailing the preliminary and final Blue Sky memoranda and filing fees and
disbursements and fees and disbursements of counsel to the Underwriters and
other related expenses, if any, in connection therewith, (iv) filing fees of the
Commission and of the NASD relating to the Shares, including the fees and
disbursements of counsel to the Underwriters, (v) any fees and expenses in
connection with the quotation of the Shares on the Nasdaq NMS, and (vi) costs
and expenses incident to the preparation, issuance and delivery to the
Underwriters of any certificates evidencing the Shares, including transfer
agent's and registrar's fees and any applicable transfer taxes incurred in
connection with the delivery to the Underwriters of the Shares to be sold by the
Company pursuant to this Agreement; provided that, the Company's obligation
--------
pursuant to this Section 7 with respect to (A) the fees (but not disbursements)
of counsel to the Underwriters described in clause (iii) of this Section 7 and
(B) the fees (but not disbursements) of such counsel relating to filing with the
NASD shall be limited to a maximum aggregate of $10,000.
-17-
<PAGE>
(b) If the purchase of the Shares as herein contemplated is not
consummated for any reason other than the Underwriters' default under this
Agreement, the Company shall reimburse the several Underwriters for their
reasonable out-of-pocket expenses (including reasonable counsel fees and
disbursements) in connection with any investigation made by them, and any
preparation made by them in respect of marketing of the Shares or in
contemplation of the performance by them of their obligations hereunder.
SECTION 8. Conditions of the Underwriters' Obligations.
The obligation of each Underwriter to purchase and pay for the Shares
set forth opposite the name of such Underwriter in Schedule I is subject to the
continuing accuracy of the representations and warranties of the Company herein
as of the date hereof and as of the Closing Date as if they had been made on and
as of the Closing Date; the accuracy on and as of the Closing Date of the
statements of officers of the Company made pursuant to the provisions hereof;
the performance by the Company on and as of the Closing Date of its covenants
and agreements hereunder; and the following additional conditions:
(a) Effectiveness of Registration Statement. If the Registration
---------------------------------------
Statement, including any Rule 462(b) Registration Statement, or any amendment
thereto filed prior to the Closing Date, has not been declared effective as of
the time of execution hereof, the Registration Statement or such amendment shall
have been declared effective not later than 11:00 A.M., New York City time, on
the date on which the amendment to the registration statement originally filed
with respect to the Shares or the Registration Statement (containing the
information omitted therefrom pursuant to Rule 430A under the 1933 Act included
in the Prospectus), as the case may be, containing information regarding the
initial public offering price of the Shares has been filed with the Commission,
or such later time and date as shall have been consented to by the
Representatives; if required, the Prospectus and any amendment or supplement
thereto shall have been filed with the Commission in the manner and within the
time period required by Rule 424(b) under the 1933 Act; no stop order suspending
the effectiveness of the Registration Statement or any amendment thereto shall
have been issued, and no proceedings for that purpose shall have been instituted
or, to the knowledge of the Company or the Representatives, shall be
contemplated by the Commission; and the Company shall have complied with any
request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise).
(b) No Material Misstatements Or Omissions. The Representatives shall
--------------------------------------
not have advised the Company that, in the opinion of counsel to the
Underwriters, the Registration Statement, or any amendment thereto, contains an
untrue statement of fact which is material or omits to state a fact which is
material and is required to be stated therein or is necessary to
-18-
<PAGE>
make the statements therein not misleading, or that the Prospectus, or any
supplement thereto, contains an untrue statement of fact which is material or
omits to state a fact which is material and is required to be stated therein or
is necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(c) Opinion of Counsel to the Underwriters. On or prior to the Closing
--------------------------------------
Date, the Representatives shall have received from Willkie Farr & Gallagher,
counsel to the Underwriters, such opinion or opinions with respect to the
issuance and sale of the Initial Shares, the Registration Statement and the
Prospectus and such other related matters as the Representatives reasonably may
request, and such counsel shall have received such documents and other
information as they may reasonably request to enable them to pass upon such
matters.
(d) Opinions of Counsel to the Company. On the Closing Date, the
----------------------------------
Underwriters shall have received the opinion, dated the Closing Date, of
Kirkland & Ellis, counsel to the Company, and the opinion, dated the Closing
Date and of James Froberg, Esq. in-house counsel to the Company in substantially
the forms attached hereto as Exhibits C and D, respectively.
(e) Accuracy and Completeness of the Representations and Warranties of
------------------------------------------------------------------
the Company. On or prior to the Closing Date, counsel to the Underwriters shall
- -----------
have been furnished such documents, certificates and opinions as they may
reasonably require in order to evidence the accuracy, completeness or
satisfaction of any of the representations or warranties of the Company, or
conditions herein contained.
(f) Accountants' Comfort Letter. At the time that this Agreement is
---------------------------
executed by the Company the Underwriters shall have received from KPMG Peat
Marwick LLP a letter as of the date this Agreement is executed by the Company in
form and substance satisfactory to you (the "Original Letter"), and on the
Closing Date the Underwriters shall have received from such firm a letter dated
the Closing Date stating that, as of a specified date not earlier than three (3)
days prior to the Closing Date, nothing has come to the attention of such firm
to suggest that the statements made in the Original Letter are not true and
correct.
(g) Officer's Certificate. On the Closing Date, the Underwriters shall
---------------------
have received a certificate, dated the Closing Date, of the principal executive
officer and the principal financial or accounting officer of the Company, on
behalf of the Company, to the effect that each of such persons has carefully
examined the Registration Statement and the Prospectus and any amendments or
supplements thereto and this Agreement, and that, to the best knowledge of such
person:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as
-19-
<PAGE>
of the Closing Date, and the Company has complied with all agreements and
covenants and satisfied all conditions contained in this Agreement on its
part to be performed or satisfied at or prior to the Closing Date;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for that purpose have been
instituted or are pending or, to the best knowledge of each of such
persons, are contemplated or threatened under the 1933 Act and any and all
filings required by Rule 424 and Rule 430A have been timely made;
(iii) The Registration Statement and Prospectus and, if any, each
amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement nor any amendment thereto includes any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and
neither the Prospectus (or any supplement thereto) or any Preliminary
Prospectus included any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus up to and including
the Closing Date (and except as disclosed in or contemplated by the
Prospectus), neither the Company nor any of the Subsidiaries has incurred,
other than in the ordinary course of its business, any material liabilities
or obligations, direct or contingent; neither the Company nor any of its
Subsidiaries has purchased any of its outstanding capital stock or paid or
declared any dividends or other distributions on its capital stock (except
as described in Exhibit 10.2 to the Registration Statement); neither the
Company nor any of the Subsidiaries has entered into any transactions not
in the ordinary course of business; and there has not been any change in
the capital stock or consolidated long-term debt or any increase in the
consolidated short-term borrowings (other than any increase in short-term
borrowings in the ordinary course of business) of the Company or any
material adverse change to the business, properties, assets, net worth,
condition (financial or other), results of operations or prospects of the
Company and its Subsidiaries taken as a whole; neither the Company nor any
of the Subsidiaries has sustained any material loss or damage to its
property or assets, whether or not insured; there is no litigation which is
pending or threatened against the Company or any of its Subsidiaries which
is required to be set forth in an amended or supplemented Prospectus which
has not been set forth; and
-20-
<PAGE>
there has not occurred any event required to be set forth in an amended or
supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this
paragraph (g) are to such documents as amended and supplemented at the date of
the certificate.
(h) No Changes in Business. Subsequent to the respective dates as of which
----------------------
information is given in the Registration Statement and the Prospectus up to and
including the Closing Date there has not been (i) any change or decrease
specified in the letter or letters referred to in paragraph (f) of this Section
8 ("Conditions of the Underwriters' Obligations") or (ii) any change, or any
development involving a prospective change, in the business or properties of the
Company or its Subsidiaries (in either case, other than those changes or
developments disclosed in or contemplated by the Prospectus) which change or
decrease in the case of clause (i) or change or development in the case of
clause (ii) which makes it impractical or inadvisable in the Representatives'
judgment to proceed with the public offering or the delivery of the Shares as
contemplated by the Prospectus.
(i) No Suspension Orders. No order suspending the sale of the Shares
--------------------
prior to the Closing Date in any jurisdiction designated by you pursuant to
Section 6(f) hereof ("Covenants of the Company--Blue Sky Qualifications") hereof
has been issued on or prior to the Closing Date and no proceedings for that
purpose have been instituted or, to your knowledge or that of the Company, have
been or are contemplated.
(j) Additional Documents. The Company shall have furnished the
--------------------
Underwriters with such further opinions, letters, certificates or documents as
you or counsel for the Underwriters may reasonably request. All opinions,
certificates, letters and documents to be furnished by the Company will comply
with the provisions hereof only if they are reasonably satisfactory in all
material respects to the Underwriters and to counsel for the Underwriters. The
Company shall furnish the Underwriters with conformed copies of such opinions,
certificates, letters and documents in such quantities as you reasonably
request. The certificates delivered under this Section 8 ("Conditions of the
Underwriters' Obligations") shall constitute representations, warranties and
agreements of the Company as to all matters set forth therein as fully and
effectively as if such matters had been set forth in Section 2 ("Representations
and Warranties") of this Agreement.
(k) Approval of Listing. At the Closing Time the Securities shall have
-------------------
been approved for inclusion in the Nasdaq NMS, subject only to official notice
of issuance.
(l) Lock-up Agreements. At the date of this Agreement, the
------------------
Representatives shall have received an agreement substantially in
-21-
<PAGE>
the form of Exhibit B hereto signed by the persons listed on Schedule II
hereto.
(m) Conditions to Purchase of Additional Shares. In the event that the
-------------------------------------------
Underwriters exercise their option provided in Section 4 hereof ("Over-
Allotment") to purchase all or any portion of the Additional Shares, the
representations and warranties of the Company contained herein and the
statements in any certificates furnished by the Company hereunder shall be true
and correct as of the Option Closing Date and, at the Option Closing Date, the
Representatives shall have received:
(i) Officer's Certificate. A certificate, dated the Option Closing
---------------------
Date, of the chief executive officer of the Company and of the chief
financial or chief accounting officer of the Company confirming that the
certificate delivered at the Closing Date pursuant to Section 8(g) hereof
("Officer's Certificate") remains true and correct as of the Option Closing
Date.
(ii) Opinions of Counsel to the Company. The opinion of Kirkland &
----------------------------------
Ellis, counsel to the Company, and of James Froberg, Esq., in-house counsel
to the Company, in substantially the form of Exhibits C and D hereto,
respectively, with such changes as are necessary to reflect that such
opinions are being delivered at the Option Closing Date with respect to the
Additional Shares dated the Option Closing Date, relating to the Additional
Shares to be purchased on such Option Closing Date.
(iii) Opinion of Counsel to the Underwriters. The favorable
--------------------------------------
opinion of Willkie Farr & Gallagher, counsel to the Underwriters, dated the
Option Closing Date, relating to the Additional Shares to be purchased on
the Option Closing Date and otherwise to the same effect as the opinion
required by Section 8(c) hereof.
(iv) Bring-down Comfort Letter. A letter from KPMG Peat Marwick LLP,
-------------------------
in form and substance satisfactory to the Representatives and dated the
Option Closing Date, substantially in the same form and substance as the
letter furnished to the Representatives pursuant to Section 8(f) hereof,
except that the "specified date" on the letter furnished pursuant to this
paragraph shall be a date not more than five days prior to the Option
Closing Date.
(n) Termination of Agreement. If any condition specified in this Section
------------------------
shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of Additional Shares
on the Option Closing Date which is after the Closing Date, the obligations of
the several Underwriters to purchase the relevant Additional Shares, may be
terminated by the Representatives by notice to the Company at any time at or
prior to Closing Date or the Option Closing Date, as the case may be, and such
termination shall be without liability of any party to any other party except as
provided in Section 7 hereof ("Expenses") and except that Section
-22-
<PAGE>
2 ("Representations and Warranties"), Section 9 ("Indemnification") and
specifically Section 9(d) ("Contribution") shall survive any such termination
and remain in full force and effect.
SECTION 9. Indemnification.
(a) Indemnification of the Underwriters. The Company agrees to indemnify
-----------------------------------
and hold harmless each Underwriter and each person, if any, who controls such
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act, against any and all losses, claims, damages, expenses or
liabilities, joint or several (and actions in respect thereof), to which such
Underwriter or such controlling person may become subject, under the 1933 Act or
other federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages, expenses, liabilities or actions arise
out of or are based upon any untrue statement or alleged untrue statement or any
material fact contained in the Registration Statement or the Prospectus or any
Preliminary Prospectus, or any amendment or supplement thereto, or any Blue Sky
application or other document executed by the Company specifically for the
purpose of qualifying, or based upon written information furnished by the
Company filed in any state or other jurisdiction in order to qualify, any or all
of the Shares under the securities or Blue Sky laws thereof (any such
application, document or information being hereinafter called a "Blue Sky
Application"), or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements, in light of the circumstances under which they
were made, not misleading and will reimburse, as incurred, such Underwriter or
such controlling persons for any reasonable legal or other expenses incurred by
such Underwriter or such controlling persons in connection with investigating,
defending or appearing as a third party witness in connection with any such
loss, claim, damage, liability or action; provided, however, that the Company
-------- -------
will not be liable in any such case to the extent that any such loss, claim,
damage, liability or action arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in any of such
documents in reliance upon and in conformity with written information furnished
to the Company by such Underwriter through the Representatives expressly for use
therein, and provided, further, that such indemnity with respect to any
-------- -------
Preliminary Prospectus shall not inure to the benefit of any Underwriter (or to
the benefit of any person controlling such Underwriter) from whom the person
asserting any such loss, claim, damage or liability purchased Shares which are
the subject thereof if such Underwriter failed to send or give a copy of the
Prospectus (as amended or supplemented) to such person at or prior to the
confirmation of the sale of such Shares to such person in any case where such
delivery is required by the 1933 Act and the untrue statement or omission of a
material fact contained in such Preliminary Prospectus was corrected in the
-23-
<PAGE>
Prospectus (as amended and supplemented), unless such failure resulted from non-
compliance by the Company with Section 6(d) hereof ("Delivery of Prospectuses").
The indemnity agreement in this paragraph (a) shall be in addition to any
liability which the Company may have at common law or otherwise.
(b) Indemnification of the Company. Each of the Underwriters agrees
------------------------------
severally, but not jointly, to indemnify and hold harmless the Company, each of
its directors, each of its officers who has signed the Registration Statement,
each person, if any, who controls the Company within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act against any and all losses,
claims, damages, expenses or liabilities (and actions in respect thereof) to
which the Company or any director, officer, or controlling person may become
subject, under the 1933 Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages,
expenses, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or the Prospectus or any Preliminary Prospectus, or any
amendment or supplement thereto or in any Blue Sky Application, or arise out of
or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
in light of the circumstances under which they were made, not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished by that Underwriter
through the Representatives expressly for use therein; and will reimburse, as
incurred, all legal or other expenses reasonably incurred by the Company or any
director, officer, controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action. The Company
acknowledges that the statements with respect to the public offering of the
Shares set forth under the heading "Underwriting" and the stabilization legend
in the Prospectus have been furnished by the Underwriters through the
Representatives expressly for use therein and constitute the only information
furnished in writing by or on behalf of the Underwriters for inclusion in the
Prospectus. The indemnity agreement contained in this subsection (b) shall be in
addition to any liability which the Underwriters may have at common law or
otherwise.
(c) Actions against Parties; Notification. Promptly after receipt by an
-------------------------------------
indemnified party under this Section 9 of notice of the commencement of any
action, such indemnified party will, if a claim in respect thereof is to be made
against one or more indemnifying parties under this Section 9, notify such
indemnifying party or parties of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party
-24-
<PAGE>
otherwise than under subsection (a) or (b) of this Section 9 or to the extent
that the indemnifying party was not adversely affected by such omission. In case
any such action is brought against an indemnified party and it notifies an
indemnifying party or parties of the commencement thereof, the indemnifying
party or parties against which a claim is to be made will be entitled to
participate therein and, to the extent that it or they may wish, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
- -------- -------
indemnified party and the indemnifying party and the indemnified party has
reasonably concluded that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel (only one separate counsel plus necessary
local counsel for all indemnified parties) to assume such legal defenses and
otherwise to participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying party
to such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 9 for any legal
or other expenses (other than the reasonable costs of investigation)
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party has employed such counsel in connection
with the assumption of such different or additional legal defenses in accordance
with the proviso to the immediately preceding sentence, (ii) the indemnifying
party has not employed counsel reasonably satisfactory to the indemnified party
to represent the indemnified party within a reasonable time after notice of
commencement of the action, or (iii) the indemnifying party has authorized in
writing the employment of counsel for the indemnified party at the expense of
the indemnifying party. The indemnified party shall not agree to settle any
action or claim for which it intends to seek indemnification or contribution
hereunder without the prior written consent of the indemnifying party which
consent shall not be unreasonably withheld.
(d) Contribution. If the indemnification provided for in this Section 9
------------
is unavailable to hold harmless an indemnified party under paragraph (a) or (b)
above in respect of any losses, claims, damages, expenses or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid as a result of such losses, claims, damages,
expenses or liabilities (or actions in respect thereof) (i) in such proportion
as is appropriate to reflect the relative benefits received by each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand, from the offering of the Shares or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative
-25-
<PAGE>
fault of each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages, expenses or liabilities, as well
as any other relevant equitable considerations. In any case where the Company is
contributing party and the Underwriters are the indemnified party, the relative
benefits received by the Company on the one hand, and the Underwriters, on the
other, shall be deemed to be in the same proportion as the total net proceeds
from the offering of the Shares (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the Cover Page of the Prospectus. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subdivision (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this paragraph (d), the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Shares purchased by the Underwriters hereunder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this paragraph (d), (i) each person, if any,
who controls an Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
Underwriter and each director of the Company, each officer of the Company who
has signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Company, subject in
each case to this subparagraph (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subparagraph (d), notify
such party or parties from whom contribution may be sought, but the omission so
to notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any other obligation it or they may have
hereunder or otherwise than under this subparagraph (d), or to the extent that
such party or parties were not adversely affected by such omission. The
contribution agreement
-26-
<PAGE>
set forth above shall be in addition to any liabilities which any indemnifying
party may have at common law or otherwise.
SECTION 10. Representations, etc. to Survive Delivery.
The respective representations, warranties, agreements, covenants,
indemnities and statements of, and on behalf of, the Company and its officers
and the Underwriters, respectively, set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Underwriters, and will survive delivery of and
payment for the Shares. Any successors to any indemnified party shall be
entitled to the indemnity, contribution and reimbursement agreements contained
in this Agreement.
SECTION 11. Termination.
(a) This Agreement, except for the provisions of Sections 7 ("Expenses")
and 9 ("Indemnification") hereof, may be terminated by the Representatives by
notice to the Company in the event that the Company has failed to comply in any
material respect with any of the provisions of this Agreement to be performed at
or prior to the Closing Date or the Option Closing Date, or if any of the
representations or warranties are not accurate in any material respect or the
covenants, agreements or conditions of, or applicable to the Company herein
contained have not been complied with in any material respect or satisfied
within the time specified at or prior to the Closing Date or the Option Closing
Date, respectively, or if prior to the Closing Date or the Option Closing Date:
(i) the Company or any of its Subsidiaries shall have sustained a
loss by strike, fire, flood, accident or other calamity of such a character
as to interfere materially with the conduct of the business and operations
of the Company and its Subsidiaries taken as a whole regardless of whether
or not such loss was insured;
(ii) trading in the Common Stock shall have been suspended by the
Commission or the Nasdaq NMS, or the Nasdaq NMS shall have been suspended
or minimum or maximum prices shall have been established on such market
system;
(iii) a banking moratorium shall have been declared by New York or
United States authorities;
(iv) there shall have been an outbreak or escalation of hostilities
between the United States and any foreign power or an outbreak or
escalation of any other insurrection or armed conflict involving the United
States; or
(v) there shall have been a material adverse change in (A) general
economic, political or financial conditions or (B) the present or
prospective business or condition
-27-
<PAGE>
(financial or other) of the Company and its Subsidiaries taken as a whole
that in the Representatives' judgment makes it impracticable or inadvisable
to make or consummate a public offering of the Company's Stock.
(b) Termination of this Agreement under this Section 11 or Section 12
("Substitution of Underwriters") after the Initial Shares have been purchased by
the Underwriters hereunder shall be applicable only to the Additional Shares.
Termination of this Agreement shall be without liability of any party to any
other party other than as provided in Section 7 ("Expenses") and Section 9
("Indemnification") hereof.
SECTION 12. Substitution of Underwriters.
If one or more of the Underwriters shall fail or refuse (otherwise than for
a reason sufficient to justify the termination of this Agreement under the
provisions of Section 8 ("Conditions of the Underwriters' Obligations") or
Section 11 ("Termination") hereof) to purchase and pay for (a) in the case of
the Closing Date, the number of Initial Shares agreed to be purchased by such
Underwriter or Underwriters upon tender to you of such Initial Shares in
accordance with the terms hereof or (b) in the case of the Option Closing Date,
the number of Additional Shares agreed to be purchased by such Underwriter or
Underwriters upon tender to you of such Additional Shares in accordance with the
terms hereof, and the number of such Shares shall not exceed 10% of the Initial
Shares or Additional Shares required to be purchased on the Closing Date or the
Option Closing Date, as the case may be, then, each of the non-defaulting
Underwriters shall purchase and pay for (in addition to the number of such
Shares which it has severally agreed to purchase hereunder) that proportion of
the number of Shares which the defaulting Underwriter or Underwriters shall have
so failed or refused to purchase on such Closing Date or Option Closing Date, as
the case may be, which the number of Shares agreed to be purchased by such non-
defaulting Underwriter bears to the aggregate number of Shares so agreed to be
purchased by all such non-defaulting Underwriters on such Closing Date or Option
Closing Date, as the case may be. In such case, you shall have the right to
postpone the Closing Date specified in Section 3 ("Purchase, Sale and Delivery
of the Shares") and Section 4 ("Over-Allotment") hereof to a date not exceeding
seven full business days after the date originally fixed as such Closing Date
pursuant to said Sections 3 and 4 in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or arrangements
may be made.
If one or more of the Underwriters shall fail or refuse (otherwise than for
a reason sufficient to justify the termination of this Agreement under the
provisions of Section 8--"Conditions of the Underwriters' Obligations" or
Section 11--"Termination" hereof) to purchase and pay for (a) in the case of the
Closing Date, the number of Initial Shares agreed to be
-28-
<PAGE>
purchased by such Underwriter or Underwriters upon tender to you of such Initial
Shares in accordance with the terms hereof or (b) in the case of the Option
Closing Date, the number of Additional Shares agreed to be purchased by such
Underwriter or Underwriters upon tender to you of such Additional Shares in
accordance with the terms hereof, and the number of such Shares shall exceed 10%
of the Initial Shares or Additional Shares required to be purchased by all the
Underwriters on the Closing Date or the Option Closing Date, as the case may be,
then (unless within 48 hours after such default arrangements to your
satisfaction shall have been made for the purchase of the defaulted Shares by an
Underwriter or Underwriters) and subject to the provisions of Section 11(b)
("Termination") hereof, this Agreement will terminate without liability on the
part of any non-defaulting Underwriter or on the part of the Company except as
otherwise provided in Section 7 ("Expenses") and Section 9 ("Indemnification")
hereof. As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this paragraph. Nothing in this Section
12, and no action taken hereunder, shall relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this Agreement.
SECTION 13. Notices.
All communications hereunder shall be in writing and if sent to the
Representatives shall be mailed or delivered or faxed and confirmed to c/o
Furman Selz LLC at 230 Park Avenue, New York, New York 10169, Attention:
Syndicate Department, with a copy to William J. Grant, Jr., Esq., Willkie Farr &
Gallagher, 153 E. 53rd Street, New York, NY 10022, or, if sent to the Company,
shall be mailed or delivered or faxed and confirmed to Allen P. Palles, Esq.,
Executive Vice President and Chief Financial Officer, LINC Capital, Inc., 303
East Wacker Drive, Suite 1000, Chicago, IL 60601, with a copy to Carter W.
Emerson, Esq., Kirkland & Ellis, 200 East Randolph, Suites 5500 - 6000, Chicago,
IL 60601.
SECTION 14. Successors.
This Agreement shall inure to the benefit of and be binding upon the
Company and each Underwriter and the Company's and each Underwriter's respective
successors and legal representatives, and nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement, or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person, except that the
representations, warranties, indemnities and contribution agreements of the
Company contained in this Agreements shall also be for the benefit of any person
or persons, if any, who control any Underwriter within the meaning of Section 15
of the 1933 Act or
-29-
<PAGE>
Section 20 of the 1934 Act, and except that the Underwriters' indemnity and
contribution agreements shall also be for the benefit of the directors of the
Company, the officers of the Company who have signed the Registration Statement,
and any person or persons, if any, who control the Company within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act. No purchaser of
Shares from the Underwriters will be deemed a successor because of such
purchase.
SECTION 15. Applicable Law; Jurisdiction.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to the choice of law or
conflict of law principles thereof. Each party hereto consents to the
jurisdiction of each court in which any action is commenced seeking indemnity or
contribution pursuant to Section 9 above and agrees to accept, either directly
or through an agent, service of process of each such court.
SECTION 16. Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, and all of which together shall be deemed to
be one and the same instrument.
-30-
<PAGE>
If the foregoing correctly sets forth our understanding, please
indicate the Underwriters' acceptance thereof in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
LINC CAPITAL, INC.
By:
----------------------------------------
Name:
Title:
Accepted as of the date first
above written:
FURMAN SELZ LLC
EVEREN SECURITIES, INC.
By: FURMAN SELZ LLC
By:
----------------------------
Name:
Title:
For themselves and as Representatives
of the other Underwriters named in
Schedule I hereto
-31-
<PAGE>
Exhibit 4.1
NUMBER SHARES
[LINC LOGO]
CUSIP 501942 10 6
Incorporated under the laws See Reverse for certain
of the state of Delaware definitions
Common Stock, Par Value $.001 Per Share
This Certifies that
is the owner of
Fully Paid and Non-assessable Shares of the Common Stock of LINC
Capital, Inc. (the "Corporation"), transferable only on the books of the
Corporation by the holder hereof in person or by Attorney upon surrender of this
Certificate properly endorsed.
The Corporation will furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating options, or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
IN WITNESS WHEREOF, LINC Capital, Inc. has caused this Certificate to
be signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed.
Dated:
Secretary [LINC CAPITAL, INC. CORPORATION SEAL 1997 DELAWARE] President
Countersigned and Registered:
LASALLE NATIONAL BANK
Transfer Agent and Registrar,
By: ____________________________________
Authorized Officer
<PAGE>
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM- as tenants in common UNIV GIFT MIN ACT-___Custodian_____
TEN ENT- as tenants by the entireties (Cust) (Minor)
JT TEN- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ___________________________
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received, ___________________________________hereby sell, assign and
transfer unto
Please insert social security or other
identifying number of assignee
/ /
______________________________________________________________________________
(Please print or typewrite name and address, including zip code, of assignee)
______________________________________________________________________________
_______________________________________________________________________shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________________________Attorney
to transfer the said stock on the books of the within named Company with full
power of substitution in the premises.
Dated:_________________________
____________________________________
Notice: The signature to this Assignment
must correspond with the name as written
upon the face of the Certificate in every
particular, without alteration or
enlargement, or any change whatever.
<PAGE>
Exhibit 5.1
October _____, 1997
LINC Capital, Inc.
303 East Wacker Drive
Suite 1000
Chicago, IL 60601
Re: Registration Statement on Form S-1 for LINC Capital, Inc., filed
on August 29, 1997 (File No. 333-34729)
-----------------------------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to LINC Capital, Inc., a Delaware
corporation (the "Company"), in connection with the proposed registration by the
Company of up to 2,300,000 shares of the Company's Common Stock, par value
$0.001 per share (the "Shares"), pursuant to a Registration Statement on Form S-
1 (File No. 333-34729) filed on August 29, 1997 with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act") (such Registration Statement, as amended or supplemented and together
with any registration statement referred to in the next sentence, is hereinafter
referred to as the "Registration Statement"). This also relates to any
registration statement in connection with this offering that is to be effective
upon filing pursuant to Rule 462(b) under the Act, and the term "Shares" as used
herein includes any additional shares of the Company's Common Stock registered
pursuant to such subsequently filed registration statement.
In that connection, we have examined originals, or copies, certified
or otherwise identified to our satisfaction, of such documents, corporate
records and other instruments as we have deemed necessary for the purposes of
this letter, including (i) the Amended and Restated Certificate of Incorporation
and By-Laws of the Company, (ii) minutes and records of the corporate
proceedings of the Company with respect to the Shares, (iii) the Registration
Statement and exhibits thereto, (iv) the form of underwriting agreement (the
"Underwriting Agreement") to be entered into among the Company and Furman Selz
LLC, EVEREN Securities, Inc. as representatives of the underwriters and (v) such
other documents and instruments as we have deemed necessary for the expression
of the opinions contained herein.
<PAGE>
For purposes of this letter, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the genuineness of
the signatures of persons signing all documents in connection with which this
letter is rendered, the authority of such persons signing on behalf of the
parties thereto and the due authorization, execution and delivery of all
documents by the parties thereto other than the Company. In preparing this
letter we have relied without independent verification upon: (i) information
contained in certificates obtained from governmental authorities; (ii) factual
information provided to us by the Company or its representatives; and (iii)
factual information we have obtained from such other sources as we have deemed
reasonable. We have assumed that there has been no relevant change or
development between the dates as of which the information cited in the preceding
sentence was given and the date of this letter and that the information upon
which we have relied is accurate and does not omit disclosures necessary to
prevent such information from being misleading.
Our advice on every legal issue addressed in this letter is based
exclusively on the General Corporation Law of the State of Delaware and the
federal law of the United States, and represents our opinion as to how that
issue would be resolved were it to be considered by the highest court in the
jurisdiction which enacted such law.
Based upon and subject to the foregoing qualifications, assumptions
and limitations and the further limitations set forth below, we are of the
opinion that the issuance of the Shares has been duly authorized and that (i)
upon effectiveness under the Act of the Registration Statement, and (ii) when
appropriate certificates representing the Shares are duly countersigned by the
Company's transfer agent/registrar and delivered against payment of the agreed
consideration therefor in accordance with the Underwriting Agreement, the Shares
will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this letter with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
our firm under the heading "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.
This letter is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. This
letter speaks as of the time of its delivery on the date it bears. We do not
assume any obligation to provide you with any subsequent
<PAGE>
opinion or advice by reason of any fact about which we did not have knowledge at
that time, by reason of any change subsequent to that time in any law other
governmental requirement or interpretation thereof covered by any of our
opinions or advice, or for any other reason.
This is furnished to you in connection with the filing of the
Registration Statement and is not to be used, circulated, quoted or otherwise
relied upon for any other purpose.
Very truly yours,
KIRKLAND & ELLIS
<PAGE>
Exhibit 10.1(b)
AMENDMENT NO. 1
TO
THIRD AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------------
THIS AMENDMENT, dated as of October __, 1997 ("Amendment No. 1"), is
by and among LINC CAPITAL, INC. (formerly known as Scientific Leasing Inc.), a
Delaware corporation ("LCI"), and LINC QUANTUM ANALYTICS, INC., a Delaware
corporation ("Quantum"; each of LCI and Quantum are sometimes individually
referred to herein as a "Borrower" and together as the "Borrowers"), FLEET BANK,
N.A. (formerly known as NatWest Bank, N.A. and successor to National Westminster
Bank USA), CORESTATES BANK, N.A., LASALLE NATIONAL BANK, THE FIRST NATIONAL BANK
OF CHICAGO, and EUROPEAN AMERICAN BANK (each a "Bank" and collectively the
"Banks") and FLEET BANK, N.A. as agent for the Banks (in such capacity, together
with its successors in such capacity, the "Agent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrowers, the Banks and the Agent, are parties to a
Third Amended and Restated Loan Agreement dated as of July 22, 1997 (as amended
hereby and from time to time hereafter, the "Loan Agreement");
WHEREAS, the Borrowers, the Agent and the Banks desire to amend the
Loan Agreement (a) to increase the Banks' Commitments thereunder to an aggregate
of One Hundred Million ($100,000,000) Dollars and to increase the Temporary
Commitment, (b) to reduce the interest rates applicable to the Loans, and (c) to
permit the merger of The LINC Group Inc. with and into LCI, with LCI being the
surviving corporation, and to permit the consummation of certain other corporate
transactions and reorganizations contemplated to occur in connection with a
proposed public offering of the common stock of LCI in which net proceeds of at
least $24,500,000 shall be received by LCI (assuming receipt of such minimum
proceeds, the "Offering"); and
WHEREAS, capitalized terms used and not defined herein shall have the
meanings specified in the Loan Agreement.
NOW, THEREFORE, in consideration of the premises, the Borrowers, the
Banks and the Agent agree as follows:
<PAGE>
Article I. Amendments to Loan Agreement.
----------------------------
This Amendment No. 1 to Loan Agreement shall be deemed to be an
amendment to the Loan Agreement, and shall not be construed in any way as a
replacement therefor. All of the terms and provisions of this Amendment No. 1,
including, without limitation, the representations and warranties set forth
herein, are hereby incorporated by reference into the Loan Agreement as if such
terms and provisions were set forth in full therein. The Loan Agreement is
hereby amended, effective as of the Proceeds Receipt Date (as defined in Section
5.2 hereof) upon the satisfaction of the conditions precedent set forth in
Article V hereof, in the following respects:
1.1 The definition of "Adjusted Tangible Net Worth" is amended and
restated to read in its entirety, as follows:
"Adjusted Tangible Net Worth" - at any time, the difference
between (a) the sum of (i) the non-current portion of Subordinated
Debt (ii) the total of shareholders' equity calculated in accordance
with GAAP, and (iii) deferred income tax credits, minus (b) the sum of
-----
(i) deferred charges (after tax), and (ii) the total amount of any
intangible assets which shall include, without limitation, (A)
unamortized debt discount after taxes, (B) prepaid expenses after tax,
(C) goodwill, and (D) the net amount of all accounts receivable owing
to LCI or any subsidiary of LCI from LINC Group.
1.2 The definition of "Applicable Margin" is amended and restated to
read, in its entirety, as follows:
"Applicable Margin" - (a) From the date of execution and
delivery of the Loan Agreement until the first Applicable Margin
Determination Date following the Offering Closing Date, as at any date
of determination thereof, the applicable percentage to be added to the
Prime Rate or Eurodollar Rate set forth in the definition of
"Applicable Margin" as in effect prior to the effectiveness of the
amendments in Amendment No. 1, which corresponds to the Leverage Ratio
set forth in the table in subsection (a) of the definition of
"Applicable Margin" as in effect prior to the effectiveness of the
amendments in Amendment No. 1.
(b) For the periods from each Applicable Margin Determination
Date following the Offering Closing Date until the next Applicable
Margin Determination Date, or if earlier, the Commitment Termination
Date, that percentage to be added to the Prime Rate or Eurodollar
Rate, as appropriate, pursuant to Section 2.11 for purposes of
determining the per annum rate of interest applicable from time to
time to Prime Rate Loans or Eurodollar Loans, which in each case shall
be the percentage set forth in the table below in this subsection (b),
for the Prime Rate and the Eurodollar Rate, respectively, that as of
the Applicable Margin Determination Date, corresponds to the Leverage
Ratio set forth in such table:
-2-
<PAGE>
<TABLE>
<CAPTION>
Applicable Margin Applicable Margin
for for
Leverage Ratio Prime Rate Loans Eurodollar Loans
- -------------- ----------------- ------------------
<S> <C> <C>
Less than 2.5:1 0% 1.25%
2.5:1 or more but less .10% 1.375%
than 3.0:1
3.0:1 or more but less .15% 1.50%
than 3.5:1
3.5:1 or greater .25% 1.75%
</TABLE>
For purposes of the preceding subsections (a) and (b), the Leverage
Ratio shall be determined five business days after the date on which
the Agent receives a certificate pursuant to subsection 5.11(c) hereof
showing the calculation of the Leverage Ratio for the immediately
preceding full calendar month, provided that if the Borrowers shall
--------
not have submitted to the Agent such certificate as and when required
under subsection 5.11(c) hereof, the Applicable Margin shall be as
determined by the Agent for so long as such certificate has not been
received by the Agent. The Applicable Margin shall become effective
on each Applicable Margin Determination Date and shall remain in
effect until the next succeeding Applicable Margin Determination Date
(except that notwithstanding the foregoing, if an Event of Default
shall have occurred and be continuing at the time of delivery of such
certified calculations or at any time following the same, until the
next succeeding date of determination the Applicable Margin for any
such Loan shall not as a consequence of this provision be reduced for
the period from the occurrence of such Event of Default for and so
long as the same shall be continuing).
In confirmation of the foregoing (and subject to the terms of the
exception set forth in parentheticals above in respect of any
decreases in the Applicable Margin), if, at the last day of any
calendar month, the Leverage Ratio shall increase from that in effect
at the end of the preceding month, then the Applicable Margin shall
increase from the first day of the month following delivery of such
certificate until the next succeeding redetermination date. In the
event that quarterly or annual financial statements of the Borrowers
shall reflect that the Leverage Ratio for any particular period was
higher than as calculated for any month and theretofore delivered to
the Agent, then the Borrowers shall be obligated to pay to the Agent,
for the ratable benefit of the Banks, additional interest in the
amount that would have been payable in respect of any respective
-3-
<PAGE>
period if the calculation of the Leverage Ratio for the applicable
period had been correct.
(c) As at any date of determination thereof which determination
shall be made on each successive Applicable Margin Determination Date, the
applicable percentage set forth below shall apply if such date of
determination is on or after the Commitment Termination Date: the
Applicable Margin for Prime Rate Loans: 1.75% (175 basis points); and the
Applicable Margin for Eurodollar Loans: 3% (300 basis points).
1.3 The definition of "Cash Operating Expenses" is amended to delete
the parenthetical "(but excluding LFC and its Subsidiaries)".
1.4 The definition of "Cash Receipts" is amended to delete the
parenthetical "(but excluding LFC and its Subsidiaries)" wherever it appears.
1.5 The definition of "Commitment Termination Date" is amended to
replace the date "July 15, 1998", with the following:
"the earlier to occur of (a) 364 days following the date of receipt by
LCI of the Net Offering Proceeds, and (b) October 31, 1998, or such later date
to which the Commitment Termination Date shall have been extended in accordance
with subsection 2.1(b) hereof."
1.6 The definition of "Servicing Agreement" is amended to delete the
period at the conclusion thereof and to insert in lieu thereof the following:
, or from and after the date of execution and delivery of the
Distribution Agreement, the servicing agreement provisions set forth
in Section 2.8 of the Distribution Agreement.
1.7 The definition of "Subordination Agreements" is amended to delete
the words "the LFC Intercreditor Agreement".
1.8 The definition of "Temporary Commitment" is amended to change
"Five Million ($5,000,000) Dollars" to read "Ten Million ($10,000,000) Dollars".
1.9 The definition of "Transaction Documents" is amended to: (a)
delete the words "LFC Subordinated Debt Documents"; (b) to replace the words
"Servicing Agreement" with the words "Distribution Agreement"; and (c) delete
the period at the conclusion thereof and insert in lieu thereof the following:
", and the Merger Agreement."
1.10 New definitions are added in appropriate alphabetical order in
Section 1.1 to read as follows:
-4-
<PAGE>
"Amendment No. 1" - Amendment No. 1 dated October __, 1997 to this
Agreement.
"Offering" - the initial public offering of 2,000,000 shares of common
stock of LCI described in the Prospectus dated October 6, 1997,
subject to completion.
"Offering Closing Date" - the date on which LCI shall actually have
received the Net Offering Proceeds.
"Net Offering Proceeds" - the amount received by LCI as "Proceeds to
Company" as listed on the first page of the Prospectus of LCI relating
to the Offering, less the actual expenses payable by LCI (including
printing, legal fees and filing and registration fees) (which expenses
shall not have varied materially from the estimate thereof set forth
on such first page of the Prospectus), all as determined to the
satisfaction of the Agent.
"Merger Agreement" - as defined in Amendment No. 1.
"Distribution Agreement" - the Distribution Agreement dated in
October, 1997 ( and in substantially the form of the draft dated
October ___, 1997) by and among the Borrower, LINC Finance
Corporation, Martin E. Zimmerman and Allen P. Palles, as it may from
time to time be amended, modified or supplemented to the extent
permitted by this Agreement.
1.11 The following definitions are deleted from the Loan Agreement:
"LFC Subordinated Debt", "LFC Subordinated Debt Documents", and "LFC
Intercreditor Agreement".
1.12 Section 2.21, "Guaranties and Collateral", is amended (a) to
delete from the end of subsection (a)(i) the words ", other than the issued and
outstanding shares of the capital stock of LFC now or hereafter owned by LCI
except to the extent described below", (b) to delete the letter "(A)" from
subsection (a)(iii); (c) to delete the entire final clause "(B)" from
subsection (a)(iii); and (d) to delete the text of subsection (b) and insert in
lieu thereof the words "[intentionally deleted]."
1.13 Section 2.22, "Subordination", is amended to delete subsection
(b) thereof.
1.14 Section 5.6, "Copies of Documents", is amended to delete
subsection (e) thereof and to insert in lieu thereof the following:
(e)(i) proxy statements, in each case delivered by LCI or any of
its Subsidiaries to any holder of Indebtedness of the Borrowers other
than the Banks; (ii) registration statements and any amendments and
supplements thereto, and any regular and periodic reports, if any,
filed by LCI or any of its Subsidiaries with any securities exchange
or with the SEC (or any governmental authority
-5-
<PAGE>
succeeding to any or all of the functions of the SEC); and (iii)
letters of comment or correspondence sent to LCI or its Subsidiaries
by any such securities exchange or the SEC in relation to LCI or any
of its Subsidiaries and any of their affairs, except to the extent
sent in the ordinary course of business with respect to routine
filings.
1.15 Section 5.11, "Accounts Receivable Aging Report, Other
Information," is amended to change the period at the end of subsection (b) to ";
and" and to add a new subsection (c) to read in its entirety as follows:
(c) Monthly, deliver to the Agent a certificate demonstrating the
Leverage Ratio for the immediately preceding full calendar month,
certified as true and correct by the chief financial officer of the
Borrowers, and setting forth adequate detail as may be required by
the Agent.
1.16 Section 6.9, "Financial Covenants", is amended to delete (a)
from subsection (b) the words, "including LFC and its Subsidiaries", (b) from
subsections (c) and (d) the words "excluding LFC and its Subsidiaries", and (c)
to restate subsection 6.9(a) to read, in its entirety, as follows:
(a) With respect to LCI and its Subsidiaries, on a consolidated
basis, at the end of each calendar quarter commencing with the
quarter ending December 31, 1997, have minimum Adjusted Tangible Net
Worth in an amount not less than (i) Ten Million Five Hundred
Thousand ($10,500,000) Dollars, plus (ii) the Net Offering Proceeds
received by LCI minus Three Million ($3,000,000) Dollars, plus (iii)
seventy-five (75%) percent of consolidated net income (with no
deduction for losses) commencing from the calendar quarter ending
December 31, 1997 and subsequent quarters thereto;
1.17 The preamble to Article 7, "Negative Covenants", is amended to
replace the semicolon immediately preceding the words "provided, however" with a
colon and to delete the entire proviso thereof.
1.18 Section 7.5, "Redemptions, Distributions", is amended (a) to
restate subsection (a)(iii) to read, in its entirety, as follows:
(iii) the aggregate sum of all such payments while any of the
Obligations is outstanding shall not exceed Eight Hundred Fifty Thousand
($850,000) Dollars; or
(b) to delete the texts of subsections (b)(iv) and (v) thereof and insert in
lieu thereof the words "[intentionally deleted]", and (c) to amend and restate
subsection (b)(iii) thereof to read, in its entirety, as follows:
-6-
<PAGE>
(iii) subject to the terms of subsection 7.9(b) hereof, in the event
that the Adjusted Tangible Net Worth of LCI and its Subsidiaries, on a
consolidated basis, based upon audited financial statements, exceeds the
minimum Adjusted Tangible Net Worth required to be maintained hereunder as
in effect on any date of determination hereunder then LCI may declare or
pay a dividend in an amount not greater than the amount of such excess on
the date(s) of such payment or declaration, provided that in any event no
-------- ----
Default or Event of Default exists or would exist after giving effect
thereto as confirmed in writing by the Borrowers to the Agent;
1.19 Subsection (b)(i) of Section 7.9, "Investments", is amended to
delete the words "or LFC".
1.20 Section 7.12, "Amendment of Documents", is amended to delete the
words "the Quantum Shareholders' Agreement" and to delete the text of clause (a)
of the proviso therein and to insert in lieu thereof the words "[intentionally
deleted]".
1.21 Section 7.19, "Business of LFC", is amended to delete the text
thereof and insert in lieu thereof the words ["intentionally deleted"].
1.22 Section 7.22, "Certain Inactive Subsidiaries", is amended to
delete the words "LFC and" from the first parenthetical therein.
1.23 The Preamble of Article 8, "Events of Default", is amended to
delete the final sentence.
1.24 Subsection 8.4(a), "Other Defaults", is amended to delete the
first parenthetical appearing therein.
1.25 Each of Section 8.6, "Bankruptcy", and Section 8.7, "Judgments",
is amended to delete the words "other than LFC and its Subsidiaries" each time
they appear.
1.26 Section 8.9, "Ownership of Stock of the Borrowers", is amended
and restated to read, in its entirety, as follows:
(a) If any of the following shall occur:
(i) the sale, lease, or transfer, in one or a series of related
transactions, of all or substantially all of the Borrower's assets to
any Person or group (as such term is defined in Section 13(d)(3) of
the Securities Act, as amended); or
(ii) Martin Zimmerman and Allen Palles in the aggregate cease to
beneficially own and control at least twenty percent (20%) of the
voting power of the voting stock (having ordinary voting rights for
the election of directors) of LCI, or Martin Zimmerman individually
ceases beneficially to own and control at least
-7-
<PAGE>
fifteen percent (15%) of the voting power of the voting stock (having
ordinary voting rights for the election of directors of LCI); except
that, upon at least ten (10) days' prior written notice to the Agent,
Martin E. Zimmerman or Allen Palles may transfer shares of LCI that
are otherwise subject to the minimum ownership and control
restrictions set forth in this subsection (ii) to his children or
spouse or trusts for the benefit of any of them so long as (A) Martin
E. Zimmerman continues at all times to have voting control with
respect to such stock of LCI; (B) prior to any such transfer to
children, spouse, or trusts, any such aforementioned transferee of
Martin E. Zimmerman and Allen Palles agrees in writing not to make any
further transfers and to be bound by the provisions and prohibitions
set forth in this Section 8.9(b)(ii) and to assume the obligations of
the transferor thereunder, and (C) a legend is placed on any stock
certificates transferred to any children, spouse or trusts to such
effect; or
(b) LCI shall at any time own, beneficially and of record, less
than 100% of all the issued and outstanding shares of capital stock of
Quantum, in each case having ordinary voting rights for the election
of directors, or permit any Lien thereon other than the Agent's Lien,
except as permitted by Section 7.2 hereof; or
1.27 Exhibits D, L and P shall be deemed amended and restated in order
to give effect to the provisions of this Amendment as of the Merger Effective
Date and as of the Proceeds Receipt Date.
Article II. Increases in Commitments.
-------------------------
2.1 Commencing as of the Proceeds Receipt Date (as hereinafter
defined), the Commitment of each of the Banks shall be increased from the
amounts set forth, with respect to each Bank, on the signature pages of the Loan
Agreement to the respective amounts set forth opposite the name of each of the
Banks on Schedule A annexed hereto and the Temporary Commitment shall be
increased from Five Million ($5,000,000) Dollars to Ten Million ($10,000,000)
Dollars.
2.2 In order to evidence the Loans made by each of the Banks under
the Commitments as amended hereby, the Borrowers shall execute and deliver to
each of the Banks a new note substantially in the form attached to the Loan
Agreement as Exhibit B-1, reflecting the Commitment of each Bank respectively as
amended hereby, dated the Proceeds Receipt Date and otherwise duly completed
(collectively, all of the above-described promissory notes are defined as the
"New Bank Notes"). In order to evidence the Temporary Loans by the Temporary
Lender under the Temporary Commitment as amended hereby, the Borrowers shall
execute and deliver to the Temporary Lender a new note substantially in the form
attached to the Loan Agreement as Exhibit B-2 reflecting the Temporary
Commitment amount as amended hereby, dated the Proceeds Receipt Date and
otherwise duly completed (hereinafter, the "New Temporary Note" and together
with the New Bank Notes, collectively, the "New Notes"). Upon execution and
delivery by the Borrowers of the New Notes, the Agent shall cause each of the
Notes being replaced by a New Note to be marked "Replaced by New Note", and
returned to the Borrowers.
-8-
<PAGE>
2.3 All references in the Loan Agreement, Loan Documents and all
other instruments, documents and agreements executed and delivered pursuant to
any of the foregoing, to "the ratable benefit of the Banks", "pro rata", or
terms of similar effect shall be deemed to refer to the ratable interests of the
Banks, as their respective pro rata interests shall be adjusted to reflect the
--- ----
increase in the Commitments of each of the Banks as set forth on Schedule A
annexed hereto.
2.4 In order to reflect the foregoing, if necessary, the Banks shall,
as of the Proceeds Receipt Date, make appropriate adjustments among themselves
in order that the amount of Loans outstanding to the Borrowers from each Bank
under the Loan Agreement are in principal amounts, as of the Proceeds Receipt
Date, which are in the same proportion to the outstanding principal amount of
all Loans that each Bank's Commitment, respectively, bears to the aggregate
Commitments of all the Banks, after giving effect to the increased amount of the
Commitments; provided, however, that the foregoing adjustments shall not be made
-------- -------
as of the Proceeds Receipt Date in respect of Loans bearing interest at a rate
subject to an Interest Period outstanding immediately prior to the Proceeds
Receipt Date but such adjustments shall be made on the first day on which the
foregoing adjustments can be made without incurring "breakage costs" in respect
of each respective Interest Period, so that the foregoing adjustment shall be
made as of the Proceeds Receipt Date only in respect of borrowings from and
after the Proceeds Receipt Date or borrowings that are not subject to an
Interest Period. The Borrowers agree and consent to the terms of this Article
II.
-9-
<PAGE>
Article III. Waivers and Consents; Release of Liens.
--------------------------------------
3.1 (a) Consent to Merger.
-----------------
The Banks hereby consent to the merger of LINC Group with and into LCI,
with LCI being the surviving entity (the "Merger") and to the amendment and
restatement of the certificate of incorporation and by-laws of LCI in
substantially the form of Schedule B annexed hereto; subject, however, to the
-------
conditions that the Merger shall have been consummated in accordance with the
terms of the Merger Agreement (as defined in Section 4.7 hereof) and
satisfaction of the other conditions precedent set forth in Section 5.1 hereof
to the Merger Effective Date (as defined in Article V).
(b) Merger Effective Date Actions.
-----------------------------
On the Merger Effective Date the Agent shall receive a first priority
pledge of all of the shares of capital stock of LCI owned by Martin Zimmerman
and Allen Palles upon terms and conditions, and by execution and delivery of
agreements in form and substance, satisfactory to the Agent.
3.2 (a) Consent to Distribution and Offering.
------------------------------------
The Banks hereby (i) consent to each of the transactions described in
Schedule C annexed hereto to be consummated concurrently with effectiveness of
the closing of (i.e. receipt of proceeds by LCI from) the Offering on the
----
Proceeds Receipt Date (as defined in Section 5.2 hereof), notwithstanding the
prohibition on the taking of such actions under the Loan Agreement, and (ii)
agree to release their Liens on the assets described in subsection 3.2(b) hereof
and authorize the Agent to release such Liens on the Proceeds Receipt Date and
to take such other actions (at the cost and expense of the Borrowers) as may be
necessary to effectuate the transactions described on Schedule C hereto;
subject, however, to the conditions that (A) each of such transactions shall be
- ------- -------
consummated in substantially the manner set forth in the transaction description
annexed hereto as Schedule C (the "Transaction Schedule" and all of such
transactions described thereon and consummated on the terms and conditions set
forth therein, the "Distribution Transactions"; the Distribution Transactions,
together with the Merger and the Offering, are referred to collectively as the
"New Transactions") and on substantially the terms and conditions set forth in
the Distribution Agreement (as defined in Section 1.10 hereof) and the other
relevant New Transaction Documents (as defined in Section 4.8 hereof), and (B)
the other conditions precedent set forth in Section 5.2 shall have been
satisfied.
(b) Proceeds Receipt Date Actions. On the Proceeds Receipt
-----------------------------
Date, the Agent shall release, which release is hereby approved by each of the
Banks as evidenced by the signature of such Bank on the signature pages hereof,
all of its Liens on and security interests in the following collateral: the
Contributed Subsidiaries (as defined in Schedule C annexed hereto) and their
respective subsidiaries; the Transferred Assets (as defined in Schedule C
annexed hereto); all of the issued and outstanding preferred stock of Quantum
held by the Agent; all of the issued and
-10-
<PAGE>
outstanding capital stock of LFC, and all of the issued and outstanding capital
stock of LCI pledged to the Agent.
Article IV. Representation and Warranties.
------------------------------
Each of the Borrowers represents and warrants as follows:
4.1 Each Borrower is duly organized and validly existing under the
laws of its state of organization and has the power to own its assets and to
transact the business in which it is presently engaged and in which it proposes
to be engaged.
4.2 Each Borrower is in good standing in its state of incorporation
and in each state in which it is qualified to do business. There are no
jurisdictions in which the character of the properties owned by any Borrower or
in which the transaction of the business of any Borrower as now conducted
requires or will require any Borrower to qualify to do business, except
jurisdictions in which the failure to so qualify would not have a material
adverse effect on the Collateral in the Borrowing Base or on the business,
operations, financial condition, or properties of any Borrower.
4.3 Each Borrower has the power to execute and deliver this Amendment
No. 1 and to perform the Loan Agreement, as amended hereby, and to make and
deliver the New Notes and to perform its obligations under the New Notes, and to
execute and deliver each of the New Transaction Documents to which it is a party
and to perform its obligations thereunder, and each Borrower has taken all
necessary action, corporate or otherwise, to authorize the execution and
delivery of this Amendment No. 1, the making and delivery of the New Notes, the
performance of the Loan Agreement, as amended hereby, the New Notes and the
consummation of the New Transactions. No consent or approval of any Person
(including, without limitation, any stockholder of any Borrower), no consent or
approval of any landlord or mortgagee, no waiver of any Lien or right of
distraint or other similar right and no consent, license, approval,
authorization or declaration of any governmental authority, bureau or agency, is
or will be required in connection with the execution or delivery by any Borrower
of this Amendment No. 1 or of any New Transaction Document to which such
Borrower is a party and the making and delivery of the New Notes or the
performance by any Borrower, or the validity, enforcement or priority, of the
Loan Agreement as amended hereby and the New Notes or the performance, validity
or enforcement of any New Transaction Documents by any Borrower party thereto.
4.4 The execution and delivery by each Borrower of this Amendment No.
1 and of each New Transaction Document to which any Borrower is a party and the
making and delivery of the New Notes and performance by it hereunder, thereunder
and under the Loan Agreement as amended hereby, each New Transaction Document to
which such Borrower is a party and under the New Notes, does not and will not
violate any provision of law (including, without limitation, the Williams Act,
Sections 13 and 14 of the Securities and Exchange Act of 1934, and the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, and Regulations U, G and X of
the Board of Governors of the Federal Reserve System and the rules and
regulations promulgated thereunder) and does not and will not conflict with or
result in a breach of any order, writ, injunction, ordinance, resolution,
-11-
<PAGE>
decree, or other similar document or instrument of any court or governmental
authority, bureau or agency, domestic or foreign, or any certificate of
incorporation or by-laws of any Borrower or create (with or without the giving
of notice or lapse of time, or both) a default under or breach of any agreement,
instrument, documents, bond, note or indenture to which any Borrower is a party,
or by which it is bound or any of its properties or assets is affected, or
result in the imposition of any Lien of any nature whatsoever upon any of the
properties or assets owned by or used in connection with the business of any
Borrower or any other Loan Party, except for the Liens created and granted
pursuant to the Security Documents or otherwise permitted under the Loan
Agreement.
4.5 This Amendment No. 1, the New Notes, the Loan Agreement as
amended hereby, and each of the New Transaction Documents to which any Borrower
is a party have been duly executed and delivered by the Borrower party thereto
and each constitutes the valid and legally binding obligation of such Borrower,
enforceable in accordance with its terms, except that the remedy of specific
performance and other equitable remedies are subject to judicial discretion and
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other similar laws, now or hereafter in effect,
relating to or affecting the enforcement of creditors' rights generally.
4.6 The Liens granted pursuant to the Security Documents secure,
without limitation, the Obligations under the Loan Agreement as amended by this
Amendment No. 1 and under the New Notes, whether or not so stated in the
Security Documents. The terms "Obligations" as used in the Security Documents
(or any other term used therein to refer to the Indebtedness, liabilities and
obligations of the Borrowers to the Banks) include, without limitation,
Indebtedness, liabilities and obligations to the Banks under the Loan Agreement
as amended by this Amendment No. 1 and under the New Notes made and delivered in
connection with this Amendment No. 1.
4.7 (a) The copies of the Merger Certificate dated in October, 1997
between LCI and LINC Group (the "Merger Agreement") and all agreements,
----------------
instruments, and documents executed and delivered in connection therewith, and
all exhibits, annexes and schedules annexed thereto, and all amendments and
modifications to any of the foregoing (collectively, all of the foregoing,
including the Merger Agreement, are referred to as the "Merger Documents")
----------------
heretofore delivered by LCI to the Agent are true, complete and accurate copies
thereof. None of the parties to the Merger Documents waived compliance by any
of the other parties thereto with any term, covenant or condition thereof, and
no party thereto has breached any covenant set forth therein or failed to
perform any of its obligations thereunder.
(b) Effective on or before the Proceeds Receipt Date the merger
of LINC Group with and into LCI, with LCI being the surviving entity, (i.e., the
---
Merger) shall have been consummated pursuant to the Merger Documents and
applicable law. Simultaneously with the consummation of the Merger, the
surviving entity in the Merger shall have adopted the amended and restated
Certificate of Incorporation and by-laws in the form delivered to the Agent,
certified as true and complete prior to the effectiveness thereof, and
substantially in the same form as annexed hereto. Upon such consummation all of
the assets and properties of LINC Group shall have been vested in LCI, subject
to the liabilities of LINC Group. Neither the execution and delivery of the
-12-
<PAGE>
Merger Documents, nor the performance by LINC Group or LCI of any obligations
thereunder, or of any obligations of LINC Group incurred by LCI by virtue of the
Merger, violate any provision of law or will conflict with or result in a breach
of or create (with or without the giving of notice or lapse of time, or both) a
default under any agreement to which LINC Group or LCI is a party or by which it
is bound or any of its properties is affected.
(c) Prior to the Merger, LINC Group had no assets or liabilities
and conducted no business except as set forth on Schedule D attached hereto.
4.8 (a) The copies of the Distribution Agreement and all agreements,
instruments, and documents executed and delivered in connection therewith, and
all exhibits, annexes and schedules annexed thereto, and all amendments and
modifications to any of the foregoing (collectively, all of the foregoing,
including the Distribution Agreement, are referred to as the "Distribution
------------
Documents" and together with the Merger Agreement and the Prospectus,
- ---------
collectively, the "New Transaction Documents") heretofore delivered by LCI to
-------------------------
the Agent are true, complete and accurate copies thereof. Schedule E sets forth
a true and complete list of all of the Distribution Documents. None of the
parties to the Distribution Documents waived compliance by any of the other
parties thereto with any term, covenant or condition thereof, and no party
thereto has breached any covenant set forth therein or failed to perform any of
its obligations thereunder.
4.9 Upon consummation thereof, the New Transactions shall have been
consummated in all material respects in accordance with the terms and conditions
of the Transaction Schedule, the Merger Agreement, the Distribution Agreement
and the Prospectus.
-13-
<PAGE>
Article V. Conditions Precedent.
--------------------
5.1 Merger Effective Date Conditions. The Banks' consent set forth
--------------------------------
in Section 3.1 hereof (i.e., relating to the Merger) shall be subject to the
----
fulfillment by the Borrowers, in a manner satisfactory to the Agent and the
Banks, of all of the conditions precedent set forth in this Section 5.1, and the
date on which all such conditions shall have been fulfilled to the satisfaction
of the Agent and the Banks shall be herein called the "Merger Effective Date"
(provided that the Banks' consent under Section 3.1 shall be deemed withdrawn if
the Merger Effective Date shall not have occurred on or before December 31,
1997):
(a) The Borrowers, the Banks and the Agent shall have executed and
delivered this Amendment.
(b) (i) The representations and warranties contained herein and in
each other agreement, instrument, certificate or other writing delivered to the
Agent or any Bank pursuant hereto or to the Loan Agreement shall be correct on
and as of the date hereof after giving effect to the consents in Section 3.1 of
this Amendment No. 1 as though made on and as of such date except to the extent
modified hereby and (ii) no Default or Event of Default shall have occurred and
be continuing on the Merger Effective Date or would result from the taking
effect of this Amendment No. 1.
(c) The Agent shall have received a copy of the Merger Documents as
of the Merger Effective Date, certified as true and complete by an officer of
LCI, and the Merger shall have been consummated in accordance with the terms
and conditions set forth in the Merger Agreement.
(d) LCI shall have delivered to the Agent a copy of its amended and
restated charter and by-laws, each certified as being true and complete as of
the Merger Effective Date;
(e) The Agent shall have received, on or before the Merger
Effective Date, the following, each in form and substance satisfactory to the
Agent:
(i) a long-form good standing certificate as of a date not
more than twenty days prior to the date hereof with regard to LCI and LINC Group
from the Secretary of State of each of Delaware and Illinois;
(ii) copies of the resolutions adopted by each of LCI's and
LINC Group's Board of Directors, certified by an authorized officer thereof,
authorizing the execution, delivery and performance by LCI and LINC Group of the
Merger Agreement and consummation of the Merger, the Distribution Transactions,
and the Offering in accordance with the terms thereof;
(iii) a favorable written opinion of Allen P. Palles, Esq. and
Kirkland & Ellis, counsel to LCI and LINC Group, as to such matters relating to
the Merger or as the Banks may reasonably request.
-14-
<PAGE>
(f) All legal matters incident to the Merger shall be reasonably
satisfactory to the Agent and counsel to the Agent.
5.2 Proceeds Receipt Date Conditions. The effectiveness of the
--------------------------------
consents set forth in Section 3.2 of this Amendment No. 1 and the effectiveness
of the amendments set forth in Articles 1 and 2 hereof shall be subject to the
fulfillment by the Borrowers, in a manner satisfactory to the Agent and the
Banks, of all of the preceding conditions precedent set forth in this Article V
and all of the conditions precedent set forth in this Section 5.2, and the date
on which the last of all such conditions shall have been fulfilled to the
satisfaction of the Agent and the Banks, shall be herein called the "Proceeds
Receipt Date" (provided that the Banks' consent under Section 3.2 shall be
deemed withdrawn if the Proceeds Receipt Date shall not have occurred on or
before December 31, 1997):
(a)(i) The representations and warranties contained herein and in
each other agreement, instrument, certificate or other writing delivered to the
Agent or any Bank pursuant hereto or to the Loan Agreement, including the New
Transaction Documents, shall be correct on and as of the Proceeds Receipt Date
after giving effect to the New Transactions and this Amendment No. 1 as though
made on and as of such date except to the extent modified hereby and (ii) no
Default or Event of Default shall have occurred and be continuing on the
Proceeds Receipt Date or would result from the taking effect of this Amendment
No. 1.
(b) Each of the Borrowers shall have:
(i) executed and delivered to each of the Banks its
respective New Bank Note, and to the Temporary Lender its New Temporary Note;
(ii) paid to the Agent for the benefit of each of the
Banks, a fee equal to (A) 1/8% multiplied by (B) an amount equal to the
difference between such Bank's Commitment under the Loan Agreement (1) after the
Proceeds Receipt Date and (2) prior to the Proceeds Receipt Date;
(iii) paid all fees and expenses of counsel to the Agent and
to Fleet Bank N.A. incurred in connection herewith; and
(iv) otherwise complied in all respects with the terms
hereof and of any other agreement, document, instrument or other writing to be
delivered by the Borrowers in connection herewith.
(c) LCI shall have received not less than Twenty Four Million
Five Hundred Thousand ($24,500,000) Dollars in Net Offering Proceeds (as defined
in Section 1.10 hereof).
(d) The Agent shall have received, on or before the date hereof,
the following, each in form and substance satisfactory to the Agent:
-15-
<PAGE>
(i) copies of the resolutions adopted by each Borrower's
Board of Directors, certified by an authorized officer thereof, authorizing the
execution, delivery and performance by each such Borrower of this Amendment No.
1, the New Notes and each New Transaction Document to which such Borrower is a
party;
(ii) a certificate of an authorized officer of each
Borrower, certifying the names and true signatures of the officer authorized to
sign this Amendment No. 1 and the New Notes, together with evidence of the
incumbency of such authorized officer; and a Compliance Certificate dated the
Proceeds Receipt Date certifying that the conditions set forth in this Section
5.2 shall have been satisfied; and
(iii) opinions of counsel of Allen Palles and of Kirkland &
Ellis relating to the Distribution Transactions and the Offering, in form and
substance as the Banks may reasonably request.
(d) The Agent shall have received copies of each of the documents
set forth on Schedule E annexed hereto together with all exhibits and schedules
related thereto and all amendments, modifications and supplements thereof in
effect as of the Proceeds Receipt Date, certified as true and correct by an
officer of each of the Borrowers, and the New Transactions and the Offering
shall be consummated substantially all in accordance with the terms and
conditions set forth in the New Transaction Documents as determined by the Banks
in their sole discretion.
(e) The obligations of LFC to Newcourt under the Note Purchase
Agreement dated September 28, 1994 between LFC and Newcourt shall have been
repaid in full and any and all liens held by Newcourt on the capital stock of
LCI shall have been released as evidenced by a writing in form and substance
satisfactory to the Agent.
(f) All legal matters incident to this Amendment and the Loan
Agreement shall be reasonably satisfactory to the Agent and counsel to the
Agent.
Article VI. Miscellaneous.
-------------
6.1 The Loan Agreement and the other agreements to which the
Borrowers are a party delivered in connection herewith or with the Loan
Agreement are, and shall continue to be, in full force and effect, and are
hereby ratified and confirmed in all respects, except that on and after the
Proceeds Receipts Effective Date (a) all references in the Loan Agreement to
"this Agreement", "hereto", "hereof", "hereunder" or words of like import
referring to the Loan Agreement shall mean the Loan Agreement as amended hereby,
(b) all references in the Loan Agreement, the Security Documents or any other
agreement, instrument or document executed and delivered in connection therewith
to (i) the "Loan Agreement", "thereto", "thereof", "thereunder" or words of like
import referring to the Loan Agreement shall mean the Loan Agreement as amended
hereby, (ii) a "Note" payable to any Bank shall be deemed to refer to the New
Note payable to such Bank and (iii) the "Loans" (or any other term or terms used
in any of such documents to describe or refer to Loans
-16-
<PAGE>
made by the Banks to the Borrowers under the Loan Agreement) shall be deemed to
refer to Loans made by the Banks to the Borrowers pursuant to the Loan Agreement
as amended hereby.
6.2 The Loan Agreement, the Security Documents and all agreements,
instruments and documents executed and delivered in connection with any of the
foregoing shall each be deemed amended hereby to the extent necessary, if any,
to give effect to the provisions of this Amendment No. 1. Except as so amended
hereby, the Loan Agreement and the other Loan Documents shall remain in full
force and effect in accordance with their respective terms. The execution and
delivery of this Amendment No. 1 by the Borrowers, the Banks and the Agent shall
not waive or be deemed to waive any default which has occurred or which may be
occurring in respect of the Loan Agreement. All of the terms and provisions of
this Amendment No. 1 are hereby incorporated by reference into the Loan
Agreement as if such terms and provisions were set forth in full therein.
6.3 The miscellaneous provisions under Article 10 of the Loan
Agreement, together with the definitions of all terms used therein, and all
other Sections of the Loan Agreement to which such Sections refer are hereby
incorporated by reference as if the provisions thereof were set forth in full
herein.
6.4 This Amendment No. 1 may be executed in counterparts by the
parties hereto, and each such counterpart shall be considered an original, and
all such counterparts shall constitute one and the same instrument.
6.5 THIS AMENDMENT NO. 1 SHALL BE CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS), AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL
BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
-17-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment No. 1 to the Third Amended and Restated Loan Agreement to be duly
executed as of the date first above written.
LINC CAPITAL, INC. (formerly known
as SCIENTIFIC LEASING, INC.),
as Borrower
By
---------------------------------
Name:
Title:
LINC QUANTUM ANALYTICS, INC.,
as Borrower
By
---------------------------------
Name:
Title:
FLEET BANK, N.A. (formerly NatWest
Bank N.A.) as Agent and as a Bank
By
---------------------------------
Name:
Title:
CORESTATES BANK, N.A.
By
---------------------------------
Name:
Title:
-18-
<PAGE>
LASALLE NATIONAL BANK
By
---------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF
CHICAGO
By
---------------------------------
Name:
Title:
EUROPEAN AMERICAN BANK
By
---------------------------------
Name:
Title:
-19-
<PAGE>
Exhibit 10.2
DISTRIBUTION AGREEMENT
----------------------
AGREEMENT dated as of November __, 1997 by and among LINC Capital,
Inc., a Delaware corporation (the "Parent"), LINC Finance Corporation, a
Delaware corporation ("LFC"), Martin E. Zimmerman ("Zimmerman") and Allen P.
Palles ("Palles" and, together with Zimmerman, the "Stockholders").
The Parent intends to cause certain assets, including the shares of
subsidiaries, to be transferred by it and its subsidiaries to LFC, subject to
certain liabilities, and following such transfers to cause all of the capital
stock of LFC to be distributed to the Stockholders in exchange for certain
shares of common stock of the Parent held by them. It is intended that such
transaction not be taxable under applicable federal and state income tax laws.
The parties are entering into this Agreement to provide for such transaction and
record other agreements relating thereto.
NOW, THEREFORE, in consideration of the premises and the mutual
promises made herein, the parties hereby agree as follows:
ARTICLE I
---------
Definitions
-----------
The following terms shall have the meanings set forth below whenever
they are used in this Agreement.
"Adverse Consequences" means all charges, complaints, actions, suits,
--------------------
proceedings, hearings, investigations, claims, demands, judgments, orders,
decrees, stipulations, injunctions, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including all attorneys' fees and court costs.
"Affiliate" means, with respect to any Person, any Person controlling,
---------
controlled by or under common control with such Person.
"Affiliated Group" means any affiliated group within the meaning of
----------------
Code Section 1504.
"Assumed Liabilities" means the liabilities described in Exhibit A.
-------------------
<PAGE>
"Code" means the United States Internal Revenue Code of 1986, as
----
amended.
"Control Group Liability" means any joint and several liability
-----------------------
imposed by law on entities that are Affiliates of each other.
"Corporate Records" means books, ledgers, files, correspondence,
-----------------
lists, Tax Returns, declarations of estimated Tax, contracts, commitments and
records (whether stored in written form, on computer disks, on microfiche or
other medium).
"Debentures" means the 8 1/4% Subordinated Debentures due 2003 of
----------
Parent.
"Defined Contribution Plan" means the meaning set forth in Section
-------------------------
3(34) of ERISA.
"Distribution" means the consummation of the transactions required to
------------
be consummated hereunder at or prior to the Effective Time.
"Effective Time" means the opening of business on the date of closing
--------------
(i.e. receipt of proceeds by Parent from the Offering) of the Parent's initial
public offering of Parent Stock.
"Employee Pension Benefit Plan" has the meaning set forth in Section
-----------------------------
3(2) of ERISA.
"Employee Welfare Benefit Plan" has the meaning set forth in Section
-----------------------------
3(1) of ERISA.
"Environmental Liability" means any Liability arising out of the
-----------------------
United States Comprehensive Environmental Response, Compensation and Liability
Act of 1980, the United States Resource Conversation and Recovery Act of 1976,
or the United States Occupational Safety and Health Act of 1970, each as
amended, or any other laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
United States (federal, state or local) or non-United States governments (or any
agencies of any such governments) concerning pollution or protection of the
environment, public health and safety, or employee health and safety, including
laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants or chemical, industrial, hazardous or toxic materials
or wastes into ambient air, surface water, ground water or lands or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants or chemical,
industrial, hazardous or toxic materials or wastes.
-2-
<PAGE>
"ERISA" means the United States Employee Retirement Income Security
-----
Act of 1974, as amended.
"Governmental Actions" means all authorizations, consents, approvals,
--------------------
waivers, exceptions, variances, franchises, permissions, permits and licenses
of, and filings and declarations with, by or in respect of, any Governmental
Authority.
"Governmental Authority" means any United States (federal, state or
----------------------
local) or non-United States governmental Person, authority or agency, court or
regulatory commission or stock exchange or other self-regulatory body, whether
governmental or private.
"Intellectual Property" means all (i) patents, patent applications,
---------------------
patent disclosures, and improvements thereto (ii) trademarks, service marks,
trade dress, logos, trade names, and corporate names and registrations and
applications for registration thereof, (iii) copyrights and registrations and
applications for registration thereof, (iv) mask works and registrations and
applications for registration thereof, (v) computer software, data and
documentation, (vi) trade secrets and confidential business information
(including ideas, formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development information,
software products in development, drawings, specifications, designs, plans,
proposals, technical data, copyrightable works, financial, marketing, and
business data, pricing and cost information, business and marketing plans, and
customer and supplier lists and information), (vii) other proprietary rights,
and (viii) copies and tangible embodiments of any of the foregoing (in whatever
form or medium).
"LFC Group" means LFC and the Post-Distribution LFC Subsidiaries.
---------
"LFC Stock" means common stock, $0.10 par value per share, of LFC.
---------
"Liability" means any liability (whether known or unknown, absolute of
---------
contingent, liquidated or not, and whether due or to become due).
"Parent Stock" means shares of the Parent's common stock, $0.001 par
------------
value per share.
"Person" means an individual, a partnership, a corporation, an
------
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity.
"Post-Distribution LFC Subsidiaries" means the Subsidiaries of LFC as
----------------------------------
they will be immediately after the Distribution and will include any
Subsidiaries of LFC after the Distribution.
-3-
<PAGE>
"Post-Distribution Parent Subsidiaries" means the Subsidiaries of
-------------------------------------
Parent as they will be immediately after the consummation of the Distribution
and will include any Subsidiaries of the Parent after the Distribution.
"Subsidiary" means, with respect to any particular parent business
----------
entity, any business entity of which such parent business entity and/or one or
more business entities which are themselves Subsidiaries of such parent business
entity, (i) in the case of a corporation, have the power to vote or direct the
voting of sufficient securities to elect a majority of the directors of such
corporation and (ii) in the case of all other Persons, own an interest in such
Person which permits the owner thereof to control the management of such Person.
"Subsidiary Preferred Stock" means 45,000 shares of 8% Series A
--------------------------
Cumulative Senior Preferred Stock, par value $1.00 per share, of LINC Quantum
Analytics, Inc., a Delaware corporation.
"Tax" or "Taxes" means (i) any income, gross receipts, license,
--- -----
payroll, employment, excise, severance, stamp, occupation, premium, windfall
profits, environmental (including taxes under Code Section 59A), customs duties,
capital stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax, assessment or governmental charge of any kind whatsoever imposed
by any Governmental Authority, including any interest, penalty, or addition
thereto, whether disputed or not, (ii) liability for the payment of any amounts
of the type described in (i) above arising as a result of being (or having been)
a member of any Affiliated Group or being (or having been) included or required
to be included in any Tax Return related thereto; and (iii) liability for the
payment of any amounts of the type described in (i) above as a result of any
express or implied obligation to indemnify or otherwise assume or succeed to the
liability of any other Person.
"Tax Return" means any return, declaration, report, claim for refund,
----------
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Transferred Assets" means the assets described in Exhibit B.
"Transferred Employees" means, subject to Section 2.10(a), the
---------------------
employees listed on Exhibit C.
-4-
<PAGE>
ARTICLE II
----------
Agreements
----------
2.01 Transfer of Assets and Liabilities. Immediately prior to the
----------------------------------
Effective Time, the Parent shall transfer or cause to be transferred to LFC all
of the Parent's or its Subsidiaries' rights and interests in the Transferred
Assets and LFC shall assume the Assumed Liabilities.
2.02 Distribution and Redemption. At the Effective Time, Parent
---------------------------
shall deliver to the Stockholders certificates registered in their names for the
following numbers of shares of LFC Stock, which will represent collectively 100%
of the issued and outstanding capital stock of LFC, and in exchange therefore
the Stockholders will deliver to the Parent certificates representing the
numbers of shares of Parent Stock set forth below:
<TABLE>
<CAPTION>
LFC Stock Delivered Parent Stock Delivered
------------------- ----------------------
<S> <C> <C>
Zimmerman 925 446,583
Palles 75 36,209
</TABLE>
2.03 Payments with Respect to Debentures. Because the Debentures
-----------------------------------
were assumed by the Parent in connection with the acquisition of a business
owned by LFC, LFC agrees to pay to the Parent $2,508,000 until the maturity of
the Debentures as provided in Exhibit D.
2.04 Forgiveness of Debt of Parent Group to LFC Group. At the
------------------------------------------------
Effective Time, LFC will forgive all debt owed to it and the Post-Distribution
LFC Subsidiaries by Parent and the Post-Distribution Parent Subsidiaries.
2.05 Redemption of Subsidiary Preferred Stock. At the Effective
----------------------------------------
Time, the Parent will cause all of the Subsidiary Preferred Stock to be redeemed
for an amount equal to $4,500,000 plus all accrued and unpaid dividends.
2.06 LFC Name Change. At or prior to the Effective Time, the
---------------
corporate names of LFC and each Post-Distribution LFC Subsidiary will be changed
to names which do not use the word "LINC" or any name which is so similar to
LINC so as to cause confusion and after the Effective Time they will cease using
such prior names or any name which is so similar to LINC so as to cause
confusion, except that LFC may continue to invoice existing customers using the
name LINC Finance Corporation.
-5-
<PAGE>
2.07 Sublease. Commencing at the Effective Time, LFC will sublease
--------
from the Parent approximately 2,500 square feet of space (as shown on Exhibit E)
in the Parent's offices on the tenth floor of 303 East Wacker Drive, Chicago,
Illinois for a rental equal to the Parent's rent and other charges, including
pass throughs, for such space. All other terms of such sublease shall be the
same as the terms contained in the Parent's sublease of such space from Newcourt
Financial (USA), Inc., except that Parent shall be the sublessor and LFC shall
be the sublessee. In the event Parent renews its sublease for such space, it
will permit LFC to renew its sublease on the same terms as the Parent's renewed
sublease.
2.08 Servicing. After the Effective Time, the Parent will provide
---------
limited servicing, including billing, collection, invoicing and cash application
until December 31, 1999 for the portfolio of leases presently owned by LFC and
the Post-Distribution LFC Subsidiaries and LFC shall pay the Parent therefor, in
arrears, $27,750 per month (prorated on a daily basis for partial months) from
the Effective Time until December 31, 1997, $22,521 in 1998 and $17,688 in 1999.
At the Effective Time, all other servicing agreements between Parent or any of
the Parent Post-Distribution Subsidiaries on the one hand and LFC or any of the
LFC Post-Distribution Subsidiaries shall be canceled.
2.09 Noncompetition Covenant; Referral of Lease Origination
------------------------------------------------------
Opportunities. LFC agrees that, for a period ending on the later of the third
- -------------
anniversary of the Effective Time or the first anniversary of the date on which
neither Zimmerman nor Palles are employed by the Parent, LFC will not and it
will cause the Post-Distribution LFC Subsidiaries not to engage in any business
conducted by the Parent or the Post-Distribution Parent Subsidiaries (other than
the businesses specified in Exhibit F) in any geographic area in which the
Parent or any of its Subsidiaries are engaged in such business. If, at the time
of enforcement of the foregoing covenant, a court holds that the restrictions
stated therein are unreasonable, the Parent and LFC agree that the maximum
period, scope or geographical area which is reasonable will be substituted for
the stated period, scope or area. In the event of LFC's breach of such covenant,
the Parent, in addition to any other rights or remedies it may have, shall be
entitled to injunctive relief in order to enforce or prevent the violation of
the terms thereof. During the term of the covenant set forth above, LFC shall
refer and cause the Post-Distribution LFC Subsidiaries to refer to the Parent
all lease origination opportunities and other financing opportunities which are
consistent with the business conducted by Parent and the Post-Distribution
Parent Subsidiaries that LFC and its subsidiaries encounter.
2.10 Employee Matters. (a) Transferred Employees. As of the
---------------- ---------------------
Effective Time, LFC shall offer employment to the Transferred Employees. If any
Transferred Employee fails to accept such offer, he or she will no longer be
considered a Transferred Employee.
(b) Employee Benefit Liabilities. As of the Effective Time, LFC
----------------------------
shall assume, as part of the Assumed Liabilities, all Liabilities (whether or
not they arose prior to or after the Effective Time) relating to employee
benefits with respect to the Transferred
-6-
<PAGE>
Employees (and their spouses and eligible dependents), including but not limited
to, Liability for continuation medical benefits coverage pursuant to Code
Section 4980B, Part 6, Subtitle B of Title I of ERISA or applicable state law
and all other post-employment medical benefits coverage.
(c) LFC Employee Welfare Benefit Plans. Parent will use its
----------------------------------
reasonable efforts to provide benefits to the Transferred Employees under the
Parent Employee Welfare Benefit Plans, including group insurance coverage
relating thereto, after the Effective Time until such time as Parent, as to any
or all of such benefits, may give 30 days' notice of termination of such
benefits to LFC. LFC shall pay Parent all Liabilities, including insurance
premiums, incurred by Parent (at Parent's request, prior to the due dates of
such Liabilities) in providing such benefits. Except insofar as such
Liabilities are borne by Parent's insurance carriers with no further or
incidental Liabilities on the part of Parent, LFC shall bear Employee Welfare
Benefit Plan Liabilities with respect to the Transferred Employees as follows:
(i) Health, Dental and Short-Term Disability Expense Claims.
-------------------------------------------------------
With respect to Transferred Employees, their spouses and eligible
dependents, LFC shall assume, bear and discharge all Liabilities with
respect to all health, dental and short-term disability expense
claims, whether incurred on, prior to or after the Effective Time and
whether reported on, prior to, or after such date.
(ii) Other Welfare Benefit Claims. LFC shall be responsible,
----------------------------
under Employee Welfare Benefit Plans of LFC that provide life,
accidental death and dismemberment, business travel accident, and/or
long-term disability insurance, for all Liabilities that arise on or
after the Effective Time for Incidents with respect to the Transferred
Employees and their spouses and eligible dependents (and Parent shall
not have any Liability whatsoever for any of such Liabilities) and
Parent shall retain all Liabilities (and LFC shall not assume any
Liability) under Parent's Employee Welfare Benefit Plans that provide
life, accidental death and dismemberment, business travel accident,
and long-term disability insurance for Incidents occurring prior to
the Effective Time with respect to such individuals. For purposes of
the preceding sentence, "Incident" includes, without limitation,
injury, disability, death and accident.
(iii) Life Insurance Premium and Other Adjustments. When known
--------------------------------------------
subsequent to the Effective Time, LFC shall, upon Parent's written
request (supported by documentation, if any, supplied by the
applicable insurer), promptly remit to Parent payment for each
retroactive insurance premium adjustment for additional premium
payment, if any, with respect to life insurance benefits provided by
Parent's Employee Welfare Benefit Plans
-7-
<PAGE>
with respect to all Transferred Employees, their spouses and, to the
extent applicable, eligible dependents. If any retroactive life
insurance premium adjustment is for a decrease in premium payment with
respect to any period ending on or prior to the Effective Time, such
that the applicable insurer returns to Parent an excess amount of
premium previously paid, Parent shall promptly remit to Transferred
Employees the portion, if any, of such excess amount that is
attributable to Transferred Employees, their spouses and, to the
extent applicable, eligible dependents. Parent and LFC agree to
cooperate and use their best efforts to arrive at a mutually
acceptable reconciliation after the Effective Time of any allocation
pursuant to this Agreement of Employee Welfare Benefit Plan claims and
Liabilities.
(d) Disputed Employee Benefit Claims. With respect to any disputed
--------------------------------
employee benefit plan claim of any Transferred Employees (or the spouse or
eligible dependents of any such employee or former employee) with respect to any
period ending on or prior to the Effective Time, LFC shall have the right to
prepare any response or defense thereto (or approve or deny approval of any
response or defense prepared by Parent) to the extent such claim is in
connection with a Liability assumed by LFC pursuant to this Agreement.
2.11 Litigation. As of the Effective Time, LFC shall assume, as part
----------
of the Assumed Liabilities, all Liabilities arising out of the matters alleged
by the plaintiff in the lawsuit captioned H.E. Warren, III v. The LINC Group,
-----------------------------------
Inc., et al., Civil Action File No. 1-95-CV 2353 FMH, pending in the United
- ------------
States District Court for the Northern District of Georgia, Atlanta Division.
2.12 Other Necessary Action; Further Assurance. Subject to the terms
-----------------------------------------
and conditions herein provided, the parties agree to use all reasonable efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement,
including using reasonable efforts to obtain all necessary waivers, consents and
approvals.
Each of the parties agrees that at any time and from time to time
after the Effective Time such party will execute and deliver to any other party
such further instruments or documents, and will take all such other action, as
may be reasonably required to give effect to the transactions contemplated
hereunder.
Prior to the Effective Time, LFC agrees to cause the release of Parent
and each of the Post-Distribution Parent Subsidiaries from each guarantee under
which Parent or the Post-Distribution Parent Subsidiaries (other than
Subsidiaries being transferred hereunder to LFC) is obligated with respect to
any Assumed Liability.
-8-
<PAGE>
2.13 Certain Tax Matters.
-------------------
(a) (i) LFC agrees not to take (directly or indirectly), and not to
permit any of the Post-Distribution LFC Subsidiaries to take (directly or
indirectly), any action which would cause the Distribution to not be tax free to
Parent, the Post-Distribution Parent Subsidiaries and the stockholders of Parent
under the provisions of Sections 1032, 355 and 351 and/or 368(a)(1)(D) of the
Code.
(ii) After the Effective Time, LFC will not take (directly or
indirectly), or permit any Post-Distribution LFC Subsidiary to take (directly or
indirectly), any action that would increase the Tax Liability of any of the
companies included in the Parent Affiliated Group for any period ending at or
prior to or including the Effective Time.
(b) At the Effective Time, all tax sharing agreements between Parent
or any of the Post-Distribution Parent Subsidiaries, on the one hand, and LFC or
any of the Post-Distribution LFC Subsidiaries, on the other hand, will be
canceled.
(c) Parent has no present plan or intention to take any action that
would result in one or more persons acquiring directly or indirectly stock
representing a 50% or greater interest in Parent within the meaning of Section
355(e)(2)(A)(ii) of the Code and create a presumption that Section 355(e) of the
Code applies to the Distribution.
(d) Parent has no present plan or intention to redeem any Parent Stock
that will be outstanding immediately after the Distribution.
(e) Parent is not aware of any plan or intention on the part of the
persons who will own Parent Stock immediately after the Distribution to sell or
otherwise dispose of any of such stock.
2.14 Insurance. Parent will use its reasonable efforts to provide
---------
coverage for LFC and the Post-Distribution LFC Subsidiaries after the Effective
Time and until July 31, 1998 under Parent's comprehensive general liability
policy and related umbrella policy and LFC will pay Parent all Liabilities
incurred by Parent (at Parent's request, prior to the due date of such
Liabilities) in providing such coverage. In determining whether any claims
under such policies are subject to the deductibles or coverage limits therein,
such deductibles and coverage limits will be shared by Parent and the Post-
Distribution Parent Subsidiaries, on the one hand, and LFC and the Post-
Distribution LFC Subsidiaries, on the other hand, based upon the percentage the
claims of each during the coverage period with respect to the total claims of
both for such period. Except as otherwise provided in this Agreement, Parent
shall have no responsibility to provide any form of insurance for LFC and the
Post-Closing LFC Subsidiaries after the Effective Time, including without
limitation workers compensation, automobile and casualty insurance.
-9-
<PAGE>
2.15 Indemnification and Hold Harmless Agreements.
--------------------------------------------
(a) Parent Indemnification Provisions for Benefit of LFC. Parent
----------------------------------------------------
agrees to indemnify, defend and hold harmless LFC, the Post-Distribution LFC
Subsidiaries and its and their directors, officers, employees and agents from
and against the entirety of any Adverse Consequences asserted against or imposed
upon or incurred by any of them resulting from, relating to, or by reason of
(i) any Tax Liabilities of the Parent Affiliated Group for
periods ended at the time of or prior to the Effective Time which are
not attributable to the LFC Group and any Control Group Liability
arising out of any event occurring or circumstance existing prior to
the Effective Time which is not attributable to the LFC Group,
(ii) any Liabilities of Parent or its Subsidiaries other than
the Assumed Liabilities, and
(iii) any breach by Parent of any covenant of Parent in this
Agreement.
Notwithstanding the foregoing or any other provision of this Agreement, in
no event shall Parent be obligated to indemnify, defend and hold harmless
under this Section or otherwise be obligated with respect to any Adverse
Consequences arising out of the condition or sufficiency of the Transferred
Assets, it being expressly understood that Parent is making no
representations or warranties directly or indirectly with respect to the
Transferred Assets.
(b) LFC Indemnification Provisions for Benefit of Parent. LFC agrees
----------------------------------------------------
to indemnify, defend and hold harmless Parent, the Post-Distribution Parent
Subsidiaries, its and their directors, officers, employees and agents, and any
Person who or which because of a relationship to Parent or one of its
Subsidiaries at the time of or prior to the consummation of the Distribution
would be liable (jointly and severally or otherwise) with respect to Liabilities
of Parent or any Subsidiary of Parent, from and against the entirety of any
Adverse Consequences asserted against or imposed upon or incurred by any of them
resulting from, relating to, or by reason of
(i) any Assumed Liability,
(ii) any Liability of LFC or any Post-Distribution LFC
Subsidiary (including without limitation any such Liability arising out of
events occurring or circumstances existing prior to the Effective Time),
-10-
<PAGE>
(iii) any Liability arising out of the operations, acts,
omissions or status after the Effective Time of LFC or any Post-
Distribution LFC Subsidiary, and
(iv) any breach by LFC of any covenant of LFC in this Agreement.
2.16 Agreement to Not Liquidate. LFC agrees that it will not
--------------------------
liquidate or dissolve prior to the third anniversary following satisfaction of
all liabilities to Parent pursuant to Section 2.03 hereof.
ARTICLE III
-----------
General
-------
3.01 Notices. All notices and other communications hereunder shall
-------
be given to all of the parties in all cases, shall be in writing and shall be
sufficiently given if made by hand delivery, by reputable express courier
service (charges prepaid), by telecopier, or by registered or certified mail
(postage prepaid and return receipt requested) to the parties at the addresses
of the parties on the records of Parent. All such notices and other
communications shall be deemed to have been duly given: when delivered by hand,
if personally delivered; three business days after being deposited with a
reputable express courier service (charges prepaid); five business days after
being deposited in the mail, postage prepaid, if delivered by mail; when
answered back, if telexed; and when receipt acknowledged (by a telecopy machine
or otherwise), if telecopied.
3.02 Interpretation. The headings contained in this Agreement are
--------------
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. References to Sections and Articles refer to
sections and articles of this Agreement unless otherwise stated. Words such as
"herein", "hereinafter", "hereof", "hereto", "hereby" and "hereunder", and words
of like import, unless the context requires otherwise, refer to this Agreement
(including the exhibits and attachments hereto). As used in this Agreement, the
masculine, feminine and neuter genders shall be deemed to include the others if
the context requires and the singular shall include the plural and the plural
the singular if the context requires.
3.03 Severability. If any term, provision, covenant or restriction
------------
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated and the parties shall negotiate
in good faith to modify this Agreement to preserve each party's anticipated
benefits under this Agreement.
-11-
<PAGE>
3.04 Disputes.
--------
(a) In the event any dispute between or among any parties shall
arise relating to this Agreement or the transactions contemplated hereby, such
parties shall use their reasonable good faith efforts to resolve such dispute.
At the request of any such party, the other party or parties to the dispute
shall provide such party with written notice describing in reasonable detail the
nature of such dispute and such other party's or parties' proposed resolution of
such dispute. If and to the extent that such dispute is not resolved to the
mutual satisfaction of all parties thereto within 45 days of the delivery of
such notice, the parties thereto agree to resolve such dispute pursuant to
Section 3.04.
(b) Any party may submit to arbitration any disputed matter which
may arise relating to this Agreement or the transactions contemplated hereby
which remains unresolved after the parties to such dispute have fulfilled their
obligations under Section 3.04(a). The arbitration procedure set forth in this
Section shall be the sole and exclusive method for resolving any such remaining
disputed matter and no party to such dispute shall commence any litigation on
the basis of any such remaining disputed matter except litigation to enforce a
decision made by the arbitrators selected in accordance with this Section. In
each case in which it shall become necessary to resort to arbitration, the party
or parties desiring arbitration of a disputed matter (the "Claimant(s)") shall
----------
give written notice to that effect to the other party or parties to such dispute
(the "Respondent(s)"), specifying in such notice the name and address of the
------------
person designated to act as arbitrator on behalf of the Claimant(s), which
arbitrator shall be a competent and impartial person. Within ten (10) days after
its or their receipt of such notice, the Respondent(s) shall give written notice
to the Claimant(s) specifying the name and address of the person designated to
act as arbitrator on behalf of the Respondent(s), which arbitrator shall be a
competent and impartial person. If the Respondent(s) fail to notify the
Claimant(s) of the person designated to act as arbitrator on behalf of the
Respondent(s), as aforesaid, within the time above specified, then the
appointment of the second arbitrator shall be made in the same manner as
hereinafter provided for the appointment of a third arbitrator in a case where
the two arbitrators appointed hereunder are unable to agree upon such
appointment. The arbitrators so chosen shall meet within ten (10) days after the
second arbitrator is appointed and if, within thirty (30) days after the second
arbitrator is appointed, such two arbitrators shall not agree upon the
resolution of the matter in dispute, they shall themselves appoint a third
arbitrator, who shall be a competent and impartial person. In the event such two
arbitrators are unable to agree upon such appointment within ten (10) days after
the time aforesaid, then either the Claimant(s) or the Respondent(s), on behalf
of both the Claimant(s) and the Respondent(s), may request such appointment by
the American Arbitration Association in accordance with its rules then
prevailing or in the event of the failure for ten (10) days, refusal or
inability of the American Arbitration Association to appoint said third
arbitrator, then either the Claimant(s) or the Respondent(s) may apply to the
Chief Judge of the United States District Court for the Northern District of
Illinois, Eastern District, for the
-12-
<PAGE>
appointment of such third arbitrator, and the Respondent(s) or the Claimant(s),
as the case may be, shall not raise any question as to the Court's full power
and jurisdiction to entertain the application and make the appointment. The
decision of the arbitrators so chosen (or the majority decision of the
arbitrators so chosen if three arbitrators are so chosen) shall, if practicable,
be given within the period of thirty (30) days after the anointment of the final
arbitrator and such decision shall in all cases be binding and conclusive upon
the parties. Unless otherwise determined by the decision of the arbitrators (or
the majority decision of the arbitrators if three arbitrators are chosen): (i)
each party shall pay the fees and expenses of the one of the two original
arbitrators appointed by such party, or in whose stead as above provided such
arbitrator was appointed; and (ii) the fees and expenses of the third
arbitrator, if any, shall be borne equally by the Claimant(s) and the
Respondent(s). All arbitration hereunder shall, unless otherwise agreed to by
each of the Claimant(s) and Respondent(s), be conducted in Chicago, Illinois,
United States of America in accordance with the then-current rules of the
American Arbitration Association. Anything herein contained to the contrary
notwithstanding, the parties to a disputed matter shall have the right to waive
the provisions of this Section calling for the appointment of two or three
arbitrators, and by mutual agreement may select one arbitrator whose decision as
to the disputed matter shall be binding and conclusive upon such parties.
3.05 Jurisdiction and Service of Process. Any suit, action or
-----------------------------------
proceeding against any party to enforce a decision made by the arbitrators
selected in accordance with Section 10.7(b) or to enforce the obligations of any
party to resolve disputes pursuant to the arbitration procedure set forth in
Section 3.04 shall be brought in state court in the State of Illinois, United
States of America, or in the United States District Court for the Northern
District of Illinois, and each party hereby irrevocably waives, to the fullest
extent permitted by law, any objection that such party may have, whether now or
in the future, to the laying of venue in or to the jurisdiction of, any and each
of such courts for the purpose of any such suit, action or proceeding and
further waives any claim that any such suit, action or proceeding has been
brought in an inconvenient forum, and each party hereby submits to such
jurisdiction.
3.06. Miscellaneous. This Agreement (together with all other
-------------
documents and instruments referred to herein): (a) constitutes the entire
agreement, and supersedes all other prior agreements and undertakings, both
written and oral, among the parties, with respect to the subject matter hereof;
(b) is not intended to confer upon any other Person any rights or remedies
hereunder; (c) shall not be assigned by operation of law or otherwise except
that this Agreement may be assigned by operation of law to any corporation with
or into which Parent or LFC may be merged; and (d) shall be governed by and
construed in accordance with the domestic laws of the State of Illinois without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of Illinois or any other jurisdiction) that would cause the
application of the laws of any
-13-
<PAGE>
jurisdiction other than the State of Illinois. This Agreement may be executed
in two or more counterparts which together shall constitute a single agreement.
* * * * *
-14-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
LINC CAPITAL, INC.
By
-------------------------------------
Its
------------------------------------
LINC FINANCE CORPORATION
By
-------------------------------------
Its
------------------------------------
---------------------------------------
Martin E. Zimmerman
---------------------------------------
Allen P. Palles
-15-
<PAGE>
Exhibit 10.3
MARTIN E. ZIMMERMAN
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement"), made and entered into as of
__________, 1997, by and between LINC Capital, Inc., a Delaware corporation (the
"Employer"), and Martin E. Zimmerman (the "Executive"),
WITNESSETH: THAT
-----------------
WHEREAS, the Employer desires to employ the Executive as an officer of the
Employer for a specified term,
WHEREAS, the Executive is willing to accept such employment upon the terms
and conditions hereinafter set forth,
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter contained, it is covenanted and agreed by and between the
parties hereto as follows:
1. Position and Duties. The Employer hereby employs the Executive as the
President and Chief Executive Officer of the Employer. During the period of the
Executive's employment hereunder, the Executive shall devote his best efforts
and energy, skills and attention to the business and affairs of the Employer.
The Executive's duties and authority shall consist of and include all duties and
authority customarily performed and held by persons holding equivalent positions
with business organizations similar in nature and size to the Employer, as such
duties and authority are reasonably defined, modified and delegated from time to
time by the Board of Directors of the Employer (the "Board"). The Executive
shall have the powers necessary to perform the duties assigned to him and shall
be provided such supporting services, staff, secretarial and other assistance,
office space and accoutrements as shall be reasonably necessary and appropriate
in the light of such assigned duties. The Executive shall not, without the prior
written consent of the Employer, engage in any other business activities, except
that (i) subject to Section 5 below, the Executive may spend a reasonable amount
of time attending to charitable activities, trade association activities and
personal investments that do not require active involvement in the operation or
management of any business or venture, and (ii) the Executive shall be allowed
(x) to continue his ownership of an equity interest in, and continue to hold the
positions of Chairman, officer and director of, LINC Finance Corporation ("LINC
Finance") and its subsidiaries and (y) to devote reasonable time to such
activities with LINC Finance so long as such activities do not interfere in a
material manner with the performance of Executive's duties hereunder.
2. Compensation. As compensation for the services to be provided by the
Executive hereunder, the Executive shall receive the following compensation,
expense reimbursement and other benefits:
2.1. Base Compensation. The Employer shall pay to the Executive an
aggregate annual minimum base salary at the rate of Two Hundred Seventy Five
Thousand Dollars ($275,000)
<PAGE>
payable in installments in accordance with the regular payroll schedule of the
Employer. Such base salary shall be subject to review annually commencing in
1998 and shall be maintained or increased (but not decreased) during the term
hereof in accordance with the Employer's established management compensation
policies and plans.
2.2. Performance Bonus. The Employer shall pay to the Executive an annual
cash bonus, payable within sixty (60) days after the end of the fiscal year of
the Employer, which shall be based upon performance criteria determined by the
Board after consultation with the Executive.
2.3. Automobile Allowance. The Employer shall pay to the Executive an
automobile allowance equal to one thousand dollars ($1,000) per month. Such
allowance shall be subject to review annually commencing in 1998 and shall be
maintained or increased (but not decreased) during the term hereof in accordance
with the Employer's established management policies and plans, or Board
decision. In addition to the automobile allowance described above, the Employer
shall also include the Executive under its general corporate automobile
insurance program and pay all expenses thereof.
2.4. Club Membership. The Employer shall reimburse the Executive for
membership dues at the local country club of his choice and at his customary
luncheon clubs.
2.5. Certain Life Insurance Policy. The Employer shall pay the premiums
on, or reimburse Executive for the premiums on, a certain life insurance policy
No. 920150731 PR issued by the Metropolitan Life Insurance Company on the life
of Executive in the amount of $2,019,006.
2.6. Vacations; Sick and Personal Leave. The Executive shall be entitled
to 1.667 days per month (or 20 days per year) for paid vacation, paid sick leave
and paid personal days, all in accordance with the policies of the Employer,
which paid vacation and personal days shall be taken at a time or times mutually
agreeable to the Employer and the Executive; provided, however, that the
Executive shall not be entitled to accrue more than 25 such paid vacation, paid
sick leave and paid personal days in aggregate at any one time.
2.7. Reimbursement of Expenses. The Executive shall be reimbursed, upon
submission of appropriate vouchers and supporting documentation, for all travel,
entertainment and other out-of-pocket expenses reasonably and necessarily
incurred by the Executive in the performance of his duties hereunder and shall
be entitled to attend seminars, conferences and meetings relating to the
business of the Employer consistent with the Employer's established policies in
that regard.
2.8. Other Benefits. The Executive shall be entitled to all benefits
specifically established for him and, when and to the extent he is eligible
therefor, to participate in all plans and benefits generally accorded to senior
executives of the Employer, including, but not limited to, pension, profit-
sharing, supplemental retirement, incentive compensation, bonus, disability
income, split-dollar life insurance, group life, medical, dental and
hospitalization insurance, and similar or comparable plans, and also to
perquisites extended to similarly situated senior executives, provided, however,
that such plans, benefits and perquisites shall be no less favorable to
Executive than those made available to all other employees of the Employer
generally. Without
2
<PAGE>
limiting the generality of the foregoing, the Executive shall be entitled to
participate, on terms and conditions to be determined by the Board in its
reasonable discretion, in the LINC Capital, Inc. Executive Incentive
Compensation Plan (the "Incentive Plan") and the LINC Capital, Inc. 1997 Stock
Incentive Plan.
2.9. Withholding. The Employer shall be entitled to withhold from amounts
payable to the Executive hereunder, any federal, state or local withholding or
other taxes or charges which it is from time to time required to withhold. The
Employer shall be entitled to rely upon the opinion of its legal counsel with
regard to any question concerning the amount or requirement of any such
withholding.
3. Confidentiality and Loyalty. The Executive acknowledges that heretofore or
hereafter during the course of his employment he has produced and may hereafter
produce and have access to material, records, data, trade secrets and
information not generally available to the public (collectively, "Confidential
Information") regarding the Employer and its subsidiaries and affiliates.
Accordingly, during and subsequent to termination of this Agreement, the
Executive shall hold in confidence and not directly or indirectly disclose, use,
copy or make lists of any such Confidential Information, except to the extent
that such information is or thereafter becomes lawfully available from public
sources, or such disclosure is authorized in writing by the Employer, required
by law or any competent administrative agency or judicial authority, or
otherwise is reasonably necessary or appropriate in connection with the
performance by the Executive of his duties hereunder. All records, files,
documents and other materials or copies thereof relating to the Employer's
business which the Executive shall prepare or use, shall be and remain the sole
property of the Employer, shall not be removed from the Employer's premises
without its written consent, and shall be promptly returned to the Employer upon
termination of the Executive's employment hereunder. The Executive agrees to
abide by the Employer's reasonable policies, as in effect from time to time,
respecting avoidance of interests conflicting with those of the Employer.
Notwithstanding and in addition to the foregoing, (i) the Executive will not be
in breach of this Section 3 as a result of the use of any Confidential
Information regarding the Employer if such Confidential Information also relates
to and constitutes confidential information of LINC Finance and is used solely
in connection with the operations of LINC Finance, as such operations are
described on Exhibit A hereto, and such use does not adversely affect the
Employer, and (ii) the Executive will not be in breach of this Section 3 as a
result of the use of, and the Confidential Information shall not include, any
information that is generally available to persons in, and regarding and/or
pertaining to, the asset based financing and leasing industry.
4. Term and Termination.
--------------------
4.1. Basic Term. The Executive's employment hereunder shall be for a term
of three (3) years commencing as of the date hereof (the "Effective Date"), and
shall automatically extend for one (1) additional month on the first day of each
month following the Effective Date, unless otherwise terminated pursuant to any
of Sections 4.2 through 4.7 below.
4.2. Premature Termination.
3
<PAGE>
(a) The Employer may terminate this Agreement without Cause (as defined in
Section 4.4 below) by delivering written notice to the Executive at least ninety
(90) days prior to the effective date of such termination. In the event of such
termination, then notwithstanding any mitigation of damages by the Executive,
the Employer shall pay to the Executive the sum of (i) all salary, expenses and
other amounts accrued and payable to the Executive through the effective date of
such termination, plus (ii) an amount equal to three (3) times the sum of (x) an
amount equal to the Executive's then-current annual base salary, plus (y) the
sum of the amounts of the most recent annual bonus (pursuant to Section 2.2
above) and incentive payments (under the Incentive Plan) paid by the Employer to
the Executive, and plus (z) the amount of the most recent annual contributions
made or credited by the Employer under all employee retirement plans for the
benefit of the Executive. In addition, for a period of three (3) years following
the effective date of such termination, the Employer shall continue to provide
coverage for the Executive under the health, long term disability and life
insurance programs maintained by the Employer; provided, however, that the
continued payment of these amounts by the Employer shall not offset or diminish
any compensation or benefits accrued as of the date of termination. Upon such
termination, the Executive shall have no rights or obligations under this
Agreement other than as provided in this Section 4 and in Sections 3 and 5
hereof.
(b) The Executive may terminate this Agreement for any reason whatsoever
by delivering written notice to the Employer at least ninety (90) days prior to
the effective date of such termination. In the event of such termination, then
the Employer shall pay to the Executive the sum of (i) the pro rata portion (to
the extent not previously paid) of the Executive's then-current annual base
salary, expenses and other benefits that have accrued to the Executive as of the
date of such termination, based on the number of days in the fiscal year prior
to such termination as compared to the total number of days in such fiscal year,
plus (ii) a pro rata portion of the sum of the most recent annual bonus
(pursuant to Section 2.2 above) and incentive payments (under the Incentive
Plan) paid by the Employer to the Executive, based on the number of days in the
fiscal year prior to such termination as compared to the total number of days in
such fiscal year, plus (iii) all expenses payable to the Executive pursuant to
Section 2.7 through the date of termination, and plus (iv) a pro rata portion
(to the extent not previously paid) of the most recent annual contributions made
or credited by the Employer under all employee retirement plans for the benefit
of the Executive, based on the number of days in the fiscal year prior to such
termination as compared to the total number of days in such fiscal year.
(c) The Employer shall pay to the Executive the amounts set forth in
Section 4.2(a) or (b) in a lump sum within thirty (30) days after the effective
date of any such termination and such payment shall not be reduced in the event
the Executive obtains other employment following such termination.
4.3. Constructive Discharge. If at any time during the term of this
Agreement, except in connection with a termination pursuant to Sections 4.4,
4.5, 4.6 or 4.7, the Executive is Constructively Discharged (as hereinafter
defined) then the Executive shall have the right, by written notice to the
Employer within ninety (90) days of such Constructive Discharge, to terminate
his services hereunder, effective as of thirty (30) days after such notice, and
the Executive shall have no rights or obligations under this Agreement other
than as provided in this Section 4 and in
4
<PAGE>
Sections 3 and 5 hereof. In the event of any such termination of employment, the
Employer shall pay to the Executive in a lump sum payment within thirty (30)
days after the effective date of such termination an amount equal to that amount
that would otherwise be payable by the Employer to the Executive as if the
Employer had terminated this Agreement without cause pursuant to Section 4.2(a)
above.
For purposes of this Agreement, the Executive shall be "Constructively
Discharged" upon the occurrence of any one of the following events:
(a) The assignment to the Executive without the Executive's written
consent of any duties inconsistent with the Executive's position, duties,
responsibilities and status with the Employer immediately prior thereto, or a
change without the Executive's written consent in the Executive's reporting
responsibilities, titles or offices representing, in the Executive's reasonable
opinion, a reduction in position, status or responsibilities, or any removal of
the Executive from, or any failure to re-elect the Executive to, the positions
with the Employer set forth in Section 1 hereof, other than as a result of the
Executive's election or appointment to positions of equal or superior scope and
responsibility; or
(b) The failure of the Employer to vest the Executive with the powers,
authority and support services of any of said offices; or
(c) The taking of any action by the Employer that would directly adversely
affect the amount or payment (including the time of payment) of the Executive's
compensation or benefits provided in this Agreement or his participation in, or
a material reduction of, the Executive's current, future, actual or projected
benefits under, any compensation or benefit plans, programs or arrangements or
that would deprive the Executive of any material fringe benefit enjoyed by the
Executive, in each case immediately prior to such action. Notwithstanding the
foregoing, except as specifically set forth herein, the decisions of the Board
and the senior management of the Employer concerning the operations and
financing of the Employer shall not be the basis for a constructive discharge
under this Section 4.3(c); or
(d) A change in the primary employment location of the Executive to a
place that is more than twenty-five (25) miles from the primary employment
location as of the Effective Date of this Agreement without the Executive's
written consent; or
(e) The Employer otherwise commits a material breach of its obligations
under this Agreement.
4.4. Termination for Cause. This Agreement may be terminated by the
Employer for Cause (as hereinafter defined); provided that the Executive shall
be entitled to at least thirty (30) days' prior written notice of the Employer's
intention to terminate his employment for Cause specifying the grounds for such
termination, a reasonable opportunity to cure any conduct or act, if curable,
alleged as grounds for such termination, and a reasonable opportunity to present
to the Board his position regarding any dispute relating to the existence of
such Cause. For the purposes of this Agreement, "Cause" shall mean: (i) a
material violation by the Executive of any applicable material law or regulation
respecting the business of the Employer; (ii) the Executive being found
5
<PAGE>
guilty of a felony or an act of dishonesty in connection with the performance of
his duties as an officer of the Employer, or which disqualifies the Executive
from serving as an officer or director of the Employer; or (iii) the willful
failure of the Executive to perform his duties hereunder in any material
respect. Upon any such termination for Cause, the Employer shall pay to the
Executive the sum of (x) the pro rata portion (to the extent not previously
paid) of the Executive's then-current annual base salary, expenses and other
benefits that have accrued to the Executive as of the effective date of such
termination, based on the number of days in the fiscal year prior to such
effective date as compared to the total number of days in such fiscal year, plus
(y) all expenses payable to the Executive pursuant to Section 2.7 through the
effective date of termination. The Employer shall pay to the Executive the
amounts set forth in this Section 4.4 in a lump sum within thirty (30) days
after the effective date of any such termination and such payment shall not be
reduced in the event the Executive obtains other employment following such
termination.
4.5. Termination upon Death. Upon the death of the Executive, the Employer
shall pay to such beneficiary as the Executive may designate in writing, or
failing such designation, to the executor of his estate, in full settlement and
satisfaction of all claims and demands on behalf of the Executive, an amount
equal to the sum of (i) all salary, expenses and other amounts accrued and
payable to the Executive through the date of Executive's death; plus (ii) an
amount equal to the Executive's then-current annual base salary; and plus (iii)
the sum of the amounts of the most recent annual bonus (pursuant to Section 2.2
above) and incentive payments (under the Incentive Plan) paid by the Employer to
the Executive. Such payments shall be in addition to any other death benefits of
the Employer for the benefit of the Executive and in full settlement and
satisfaction of all payments provided for in this Agreement. The Employer shall
pay the amounts set forth in this Section 4.5 in a lump sum within thirty (30)
days after the Executive's death.
4.6. Termination upon Disability. The Employer may terminate this
Agreement by notice to the Executive in the event that the Executive is unable
fully to perform his duties and responsibilities hereunder by reason of illness,
injury or incapacity for a period of six months within any twelve-month period
(a "Disability"). Upon termination of this Agreement pursuant to this Section
4.6, the Employer shall pay to the Executive the sum of (i) all salary, expenses
and other amounts accrued and payable to the Executive through the effective
date of such termination, plus (ii) an amount equal to the Executive's then-
current annual base salary, plus (iii) the sum of the amounts of the most recent
annual bonus (pursuant to Section 2.2 above) and incentive payments (under the
Incentive Plan) paid by the Employer to the Executive, and plus (iv) the amount
of the most recent annual contributions made or credited by the Employer under
all employee retirement plans for the benefit of the Executive. In addition, in
the event of such termination, for a period of one (1) year thereafter, the
Employer shall continue to provide coverage for the Executive under the health,
long term disability and life insurance programs maintained by the Employer;
provided, however, that the continued payment of these amounts by the Employer
shall not offset or diminish any compensation or benefits accrued as of the date
of termination. The Executive shall be entitled to the compensation and benefits
provided for under this Agreement for any period during the term of this
Agreement and prior to the establishment of the Executive's Disability during
which the Executive is unable to work due to a physical or mental infirmity.
Notwithstanding anything contained in this Agreement to the contrary, until the
date specified in a notice of termination relating to the Executive's
Disability, the Executive shall be entitled to return to his positions with
6
<PAGE>
the Employer as set forth in this Agreement in which event no Disability of the
Executive will be deemed to have occurred. The Employer shall pay to the
Executive the amounts set forth in this Section 4.6 in a lump sum within thirty
(30) days after the effective date of any such termination.
4.7. Termination upon Change of Control.
(a) In the event of a Change in Control (as defined below) of the Employer
and the termination of the Executive's employment under either (i) or (ii)
below, the Employer shall pay to the Executive an amount equal to (1) all
salary, expenses and other amounts accrued and payable to the Executive through
the effective date of such termination, plus (2) an amount equal to three (3)
times the sum of (x) an amount equal to the Executive's then-current annual base
salary, plus (y) the sum of the amounts of the most recent annual bonus
(pursuant to Section 2.2 above) and incentive payments (under the Incentive
Plan) paid by the Employer to the Executive, and plus (z) the amount of the most
recent annual contributions made or credited by the Employer under all employee
retirement plans for the benefit of the Executive. In addition, for a period of
three (3) years following such termination, the Employer shall also continue to
provide coverage for the Executive under the health, long term disability and
life insurance programs maintained by Employer. The Employer shall pay to the
Executive the amounts set forth in this Section 4.7 in a lump sum within thirty
(30) days after the later to occur of (I) the effective date of any such
termination or (II) the announcement of such Change in Control, and such payment
shall not be reduced in the event the Executive obtains other employment
following such termination. The following shall constitute termination under
this paragraph.
(i) The Executive terminates his employment under this Agreement by a
written notice to that effect delivered to the Board within one (1) year
after the Change in Control.
(ii) This Agreement is terminated by the Employer or its successor for
any reason whatsoever within the six (6) months preceding or within one (1)
year after the Change in Control.
(b) If it is determined, in the opinion of the certified public
accountants then regularly retained by the Employer in consultation with legal
counsel acceptable to the Executive, that any amount payable to the Executive by
the Employer under this Agreement, or any other plan or agreement under which
the Executive participates or is a party, would constitute an "Excess Parachute
Payment" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code") and be subject to the excise tax imposed by
Section 4999 of the Code (the "Excise Tax"), the Employer shall pay to the
Executive the amount of such Excise Tax and all federal, state and local income
or other taxes with respect to the payment of the amount of such Excise Tax,
including all such taxes with respect to any such additional amount. If at a
later date, the Internal Revenue Service assesses a deficiency against the
Executive for the Excise Tax which is greater than that which was determined at
the time such amounts were paid, the Employer shall pay to the Executive the
amount of such Excise Tax plus any interest, penalties and professional fees or
expenses incurred by the Executive as a result of such assessment, including all
such taxes with respect to any such additional amount. The highest marginal tax
rate applicable to individuals at the time of payment of such amounts will be
used for purposes of determining the federal, state and
7
<PAGE>
local income and other taxes with respect thereto. The Employer shall withhold
from any amounts paid under this Agreement the amount of any Excise Tax or other
federal, state or local taxes then required to be withheld. Computations of the
amount of any supplemental compensation paid under this Section shall be made by
the independent public accountants then regularly retained by the Employer in
consultation with legal counsel acceptable to Executive. The Employer shall pay
all accountant and legal counsel fees and expenses.
(c) For purposes of this paragraph, the term "Change in Control" shall mean
the following:
(i) Any person or entity, including a "group" as contemplated by
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
acquires or gains ownership or control (including, without limitation, the
power to vote) after the date hereof of fifty percent (50%) or more of the
then outstanding voting securities of the Employer; or
(ii) The individuals who, as of the date hereof, are members of the
Board cease for any reason to constitute a majority of the Board, unless
the election, or nomination for election by the stockholders of the
Employer, of any new director was approved by a vote of at least three-
quarters of the members of the Board still in office, and such new director
shall, for purposes of this Agreement, be considered as a member of the
Board; or
(iii) The consummation of: (1) any merger, consolidation or other
reorganization in which the Employer would not be the surviving entity (or
would survive only as a subsidiary of an entity other than a previously
wholly owned subsidiary of the Employer); or (2) a complete liquidation or
dissolution or an agreement for the sale or other disposition of all or
substantially all of the assets of the Employer.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because fifty percent (50%) or more of the combined voting power of
the then outstanding securities of the Employer is acquired by (1) a trustee or
other fiduciary holding securities under one or more employee benefit plans
maintained for employees of the Employer; or (2) any corporation which,
immediately prior to such acquisition, is owned directly or indirectly by the
stockholders of the Employer in the same proportion as their ownership of stock
in the Employer immediately prior to such acquisition.
5. Non-Competition Covenant.
5.1. Restrictive Covenant. The Employer and the Executive have jointly
reviewed the operations of the Employer and have agreed that as an essential
ingredient of and in consideration of this Agreement and the payment of the
amounts described in Section 2, the Executive shall not, except with the express
prior written consent of the Employer, during the period (the "Restrictive
Period") (i) of his employment hereunder and (ii) except in the event of a
termination of Executive's employment hereunder pursuant to the provisions of
Section 4.7, for an additional period of one (1) year after the termination of
the Executive's employment with the Employer, directly or indirectly compete
with the business of the Employer, including, but not by way of limitation, by
directly or indirectly owning, managing, operating, controlling, financing, or
8
<PAGE>
by directly or indirectly serving as an employee, officer or director of or
consultant to, or by soliciting or inducing, or attempting to solicit or induce,
any employee or agent of Employer to terminate employment with Employer and
become employed by any person, firm, partnership, corporation, trust or other
entity which owns or operates a business competitive with that of the Employer
(the "Restrictive Covenant"). Notwithstanding the foregoing, the Executive will
not be deemed to have breached the Restrictive Covenant solely by virtue of
owning an equity interest in or having participated in the operations of LINC
Finance, as such operations are described on Exhibit A hereto. If the Executive
violates the Restrictive Covenant and the Employer brings legal action for
injunctive or other relief, the Employer shall not, as a result of the time
involved in obtaining such relief, be deprived of the benefit of the full period
of the Restrictive Covenant. Accordingly, the Restrictive Covenant shall be
deemed to have the duration specified in this Section 5.1 computed from the date
the relief is granted but reduced by the time between the period when the
Restrictive Period began to run and the date of the first violation of the
Restrictive Covenant by the Executive. In the event that a successor assumes
and agrees to perform this Agreement, this Restrictive Covenant shall continue
to apply only to the operations of the Employer as it existed immediately before
such assumption and shall not apply to any of the successor's other operations.
The foregoing Restrictive Covenant shall not prohibit the Executive from owning
directly or indirectly not more than a five percent (5%) equity interest in any
corporation or other entity.
5.2. Remedies for Breach of Restrictive Covenant. The Executive
acknowledges that the restrictions contained in Sections 3 and 5.1 of this
Agreement are reasonable and necessary for the protection of the legitimate
business interests of the Employer, that any violation of these restrictions
would cause substantial injury to the Employer and such interests, that the
Employer would not have entered into this Agreement with the Executive without
receiving the additional consideration offered by the Executive in binding
himself to these restrictions and that such restrictions were a material
inducement to the Employer to enter into this Agreement. In the event of any
violation or threatened violation of these restrictions, the Employer, in
addition to and not in limitation of, any other rights, remedies or damages
available to the Employer under this Agreement or otherwise at law or in equity,
shall be entitled to preliminary and permanent injunctive relief to prevent or
restrain any such violation by the Executive and any and all persons directly or
indirectly acting for or with him, as the case may be. No bond shall be
required for such equitable relief. The Employer and Executive agree that, if
either the length of time, the geographical area, scope or the other parameters
of the Restrictive Covenant set forth above are deemed to be too restrictive to
Employee in any judicial proceeding, the court having jurisdiction of such
matter may reduce such restrictions to ones which it deems reasonable under the
circumstances, and the Restrictive Covenant, with the foregoing restrictions
reduced in accordance with such determination by the court, shall remain in full
force and effect.
6. Indemnification.
6.1. Liability Insurance. The Employer shall provide the Executive
(including his heirs, personal representatives, executors and administrators)
for the term of this Agreement with coverage under a standard directors' and
officers' liability insurance policy at its expense, such
9
<PAGE>
coverage to be provided so long as the annual premium for such policy does not
exceed two hundred percent (200%) of the annual premium for such a policy as of
the Effective Date.
6.2. Indemnity. In addition to the insurance coverage provided for in
Section 6.1, the Employer shall hold harmless and indemnify the Executive (and
his heirs, executors and administrators) to the fullest extent permitted under
applicable law against all expenses and liabilities reasonably incurred by him
in connection with or arising out of any action, suit or proceeding in which he
may be involved by reason of his having been an officer of the Employer (whether
or not he continues to be an officer at the time of incurring such expenses or
liabilities), such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements.
6.3. Expenses. In the event the Executive becomes a party, or is
threatened to be made a party, to any action, suit or proceeding for which the
Employer has agreed to provide insurance coverage or indemnification under this
Section 6, the Employer shall, to the fullest extent permitted under applicable
law, advance all expenses (including reasonable attorneys' fees), judgments,
fines and amounts paid in settlement (collectively "Expenses") incurred by the
Executive in connection with the investigation, defense, settlement, or appeal
of any threatened, pending or completed action, suit or proceeding, subject to
receipt by the Employer of a written undertaking from the Executive (i) to
reimburse the Employer for all Expenses actually paid by the Employer to or on
behalf of the Executive in the event it shall be ultimately determined that the
Executive is not entitled to indemnification by the Employer for such Expenses
and (ii) to assign to the Employer all rights of the Executive to
indemnification, under any policy of directors' and officers' liability
insurance or otherwise, to the extent of the amount of Expenses actually paid by
the Employer to or on behalf of the Executive.
7. General Provisions.
7.1. Intercorporate Transfers. If the Executive shall be voluntarily
transferred to an affiliate of the Employer, such transfer shall not be deemed
to terminate or modify this Agreement and the employing corporation to which the
Executive shall have been transferred shall, for all purposes of this Agreement,
be construed as standing in the same place and stead as the Employer as of the
date of such transfer. For purposes hereof, an affiliate of the Employer shall
mean any corporation directly or indirectly controlling, controlled by, or under
common control with the Employer.
7.2. Interest in Assets. Neither the Executive nor his estate shall
acquire hereunder any rights in funds or assets of the Employer, otherwise than
by and through the actual payment of amounts payable hereunder.
7.3. Successors; Assignment. This Agreement shall be binding upon and
inure to the benefit of the Executive, the Employer and his and its respective
personal representatives, successors and assigns, and, except as otherwise
provided in Section 5.1, any successor or assign of the Employer shall be deemed
the "Employer" hereunder. The Employer shall require any successor to all or
substantially all of the business and/or assets of the Employer, whether
directly or indirectly, by purchase, merger, consolidation, acquisition of
stock, or otherwise, by an
10
<PAGE>
agreement in form and substance satisfactory to the Executive, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent as the Employer would be required to perform if no such succession had
taken place.
7.4. Entire Agreement; Modifications. This Agreement constitutes the
entire agreement between the parties respecting the subject matter hereof, and
supersedes all prior negotiations, undertakings, agreements and arrangements
with respect thereto, whether written or oral. Except as otherwise explicitly
provided herein, this Agreement may not be amended or modified except by written
agreement signed by the Executive and the Employer.
7.5. Enforcement and Governing Law. The provisions of this Agreement
shall be regarded as divisible and separate; if any of said provisions should be
declared invalid or unenforceable by a court of competent jurisdiction, the
validity and enforceability of the remaining provisions shall not be affected
thereby. This Agreement shall be construed and the legal relations of the
parties hereto shall be determined in accordance with the laws of the State of
Illinois without reference to the law regarding conflicts of law.
7.6. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators sitting in a location selected by
the Executive within twenty (20) miles from the location of the Employer, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrators' award in any court having
jurisdiction; provided, however, that the Executive shall be entitled to seek
specific performance of his right to be paid through the date of termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.
7.7. Legal Fees. All reasonable legal fees paid or incurred by the
Executive pursuant to any dispute or question of interpretation relating to this
Agreement shall be paid or reimbursed by the Employer if the Executive is
successful on the merits pursuant to a legal judgment, arbitration or
settlement.
7.8. Waiver. No waiver by either party at any time of any breach by the
other party of, or compliance with, any condition or provision of this Agreement
to be performed by the other party, shall be deemed a waiver of any similar or
dissimilar provisions or conditions at the same time or any prior or subsequent
time.
7.9. Notices. Notices pursuant to this Agreement shall be in writing and
shall be deemed given when received; and, if mailed, shall be mailed by United
States registered or certified mail, return receipt requested, postage prepaid;
and if to the Employer, addressed to the principal headquarters of the Employer,
attention: Chairman; or, if to the Executive, to the address set forth below the
Executive's signature on this Agreement, or to such other address as the party
to be notified shall have given to the other.
7.10. Miscellaneous. Time is of the essence of this Agreement and all of
the obligations of each party hereto. Wherever from the context that it appears
appropriate, each term stated in either the singular or plural shall include the
singular and the plural, and the pronouns stated in
11
<PAGE>
either the masculine, feminine or the neuter gender shall include the masculine,
feminine and the neuter genders. This Agreement may be executed in any number
of identical counterparts, any of which may contain the signatures of less than
all parties, and all of which together shall constitute a single agreement.
This Agreement shall be effective when signed by all of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
LINC Capital, Inc. Martin E. Zimmerman
By:_______________________________ _______________________________
Title:____________________________ _______________________________
(Address)
12
<PAGE>
Exhibit A
---------
Description of the Operations of LINC Finance Corporation
---------------------------------------------------------
. The direct or indirect management, operation and control of LINC Finance
Corporation and of those assets and liabilities of the Affiliate Group (as
defined in footnote 1 of the financial statements for the Employer as at June
30, 1997).
. Engaging, directly or indirectly, in the business of investing in, or
otherwise acquiring subordinated and other debt instruments in, and equity
instruments of all types in, any public or private company, provided that
(other than in LINC Finance Corporation), the Executive may not acquire more
than five percent (5%) of the equity interests in any corporation or other
entity which is competitive with the Employer (as provided in Section 5.1
above).
13
<PAGE>
Exhibit 10.4
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (This "Agreement"), made and entered into as of
__________, 1997 (the "Effective Date"), by and between LINC Capital, Inc., a
Delaware corporation (the "Employer"), and _______________ (the "Executive"),
WITNESSETH: THAT
-----------------
WHEREAS, the Employer desires to employ the Executive as an officer of the
Employer for a specified term, and
WHEREAS, the Executive is willing to accept such employment upon the terms
and conditions hereinafter set forth,
Now therefore, in consideration of the premises and of the covenants and
agreements hereinafter contained, it is covenanted and agreed by and between the
parties hereto as follows:
1. Position and Duties. The Employer hereby employs the Executive as the
____________________________________________________ of the Employer or in such
other senior executive capacity as shall be mutually agreed between the Employer
and the Executive. During the period of the Executive's employment hereunder,
the Executive shall devote his best efforts and energy, skills and attention to
the business and affairs of the Employer. The Executive's duties and authority
shall consist of and include all duties and authority customarily performed and
held by persons holding equivalent positions with business organizations similar
in nature and size to the Employer, as such duties and authority are reasonably
defined, modified and delegated from time to time by the Board of Directors of
the Employer (the "Board"). The Executive shall have the powers necessary to
perform the duties assigned to him and shall be provided such supporting
services, staff, secretarial and other assistance, office space and
accoutrements as shall be reasonably necessary and appropriate in the light of
such assigned duties. The Executive shall not, without the prior written consent
of the Employer, engage in any other business activities, except that (i)
subject to Section 5, the Executive may spend a reasonable amount of time
attending to charitable activities, trade association activities and personal
investments that do not require active involvement in the operation or
management of any business or venture, and (ii) the Executive shall be allowed
to continue his ownership of an equity interest in, continue to hold the
position of director of, and continue to provide business advice to, LINC
Finance Corporation ("LINC Finance"), and its subsidiaries.
2. Compensation. As compensation for the services to be provided by the
Executive hereunder, the Executive shall receive the following compensation,
expense reimbursement and other benefits:
2.1. Base Compensation. The Employer shall pay the Executive an aggregate
minimum base salary at the rate of ________________________________________
__________ per
<PAGE>
annum, payable in installments in accordance with the regular payroll schedule
of the Employer. Such base salary shall be subject to review annually commencing
in 1998 and shall be maintained or increased (but not decreased) during the term
hereof in accordance with the Employer's established management compensation
policies and plans.
2.2. Performance Bonus. The Employer shall pay the Executive an annual
cash bonus, payable within sixty (60) days after the end of the fiscal year of
the Employer, which shall be based upon performance criteria determined by the
Board after consultation with the Executive.
2.3. Automobile Allowance. The Employer shall pay to the Executive an
automobile allowance equal to __________________________ per month. Such
allowance shall be subject to review annually commencing in 1998 and shall be
maintained or increased (but not decreased) during the term hereof in accordance
with the Employer's established management policies and plans, or Board
decision. In addition to the automobile allowance described above, the Employer
shall also include the Executive under its general corporate automobile
insurance program and pay all expenses thereof.
2.4. Vacations; Sick and Personal Leave. The Executive shall be entitled
to 1.667 days per month (or 20 days per year) for paid vacation, paid sick leave
and paid personal days, all in accordance with the policies of the Employer,
which paid vacation and personal days shall be taken at a time or times mutually
agreeable to the Employer and the Executive; provided, however, that the
Executive shall not be entitled to accrue more than 25 such paid vacation, paid
sick leave and paid personal days in aggregate at any one time.
2.5. Reimbursement of Expenses. The Executive shall be reimbursed, upon
submission of appropriate vouchers and supporting documentation, for all travel,
entertainment and other out-of-pocket expenses reasonably and necessarily
incurred by the Executive in the performance of his duties hereunder and shall
be entitled to attend seminars, conferences and meetings relating to the
business of the Employer consistent with the Employer's established policies in
that regard.
2.6. Other Benefits. The Executive shall be entitled to all benefits
specifically established for him and, when and to the extent he is eligible
therefor, to participate in all plans and benefits generally accorded to senior
executives of the Employer, including, but not limited to, pension, profit-
sharing, supplemental retirement, incentive compensation, bonus, disability
income, split-dollar life insurance, group life, medical, dental and
hospitalization insurance, and similar or comparable plans, and also to
perquisites extended to similarly situated senior executives, provided, however,
that such plans, benefits and perquisites shall be no less favorable to
Executive than those made available to all other employees of the Employer
generally. Without limiting the generality of the foregoing, the Executive shall
be entitled to participate, on terms and conditions to be determined by the
Board in its reasonable discretion, in the LINC Capital, Inc. Executive
Incentive Compensation Plan (the "Incentive Plan") and the LINC Capital, Inc.
1997 Stock Incentive Plan.
2.7. Withholding. The Employer shall be entitled to withhold from amounts
payable to the Executive hereunder, any federal, state or local withholding or
other taxes or charges which it is from time to time required to withhold. The
Employer shall be entitled to rely upon the opinion of
2
<PAGE>
its legal counsel with regard to any question concerning the amount or
requirement of any such withholding.
3. Confidentiality and Loyalty. The Executive acknowledges that heretofore or
hereafter during the course of his employment he has produced and may hereafter
produce and have access to material, records, data, trade secrets and
information not generally available to the public (collectively, "Confidential
Information") regarding the Employer and its subsidiaries and affiliates.
Accordingly, during and subsequent to termination of this Agreement, the
Executive shall hold in confidence and not directly or indirectly disclose, use,
copy or make lists of any such Confidential Information, except to the extent
that such information is or thereafter becomes lawfully available from public
sources, or such disclosure is authorized in writing by the Employer, required
by law or any competent administrative agency or judicial authority, or
otherwise is reasonably necessary or appropriate in connection with the
performance by the Executive of his duties hereunder. All records, files,
documents and other materials or copies thereof relating to the Employer's
business which the Executive shall prepare or use, shall be and remain the sole
property of the Employer, shall not be removed from the Employer's premises
without its written consent, and shall be promptly returned to the Employer upon
termination of the Executive's employment hereunder. The Executive agrees to
abide by the Employer's reasonable policies, as in effect from time to time,
respecting avoidance of interests conflicting with those of the Employer.
Notwithstanding and in addition to the foregoing, (i) the Executive will not be
in breach of this Section 3 as a result of the use of any Confidential
Information regarding the Employer if such Confidential Information also relates
to and constitutes confidential information of LINC Finance and is used solely
in connection with the operations of LINC Finance, as such operations are
described on Exhibit A hereto, and such use does not adversely affect the
Employer, and (ii) the Executive will not be in breach of this Section 3 as a
result of the use of, and the Confidential Information shall not include, any
information that is generally available to persons in, and regarding and/or
pertaining to, the asset based financing and leasing industry.
4. Term and Termination.
4.1. Basic Term. The Executive's employment hereunder shall be for a term
of one (1) year commencing as of the date hereof (the "Effective Date"), and
shall automatically extend for one (1) additional month on the first day of each
month following the Effective Date, unless otherwise terminated pursuant to any
of Sections 4.2 through 4.6 below.
4.2. Premature Termination.
(a) The Employer may terminate this Agreement without Cause (as defined in
Section 4.3 below) by delivering written notice to the Executive at least sixty
(60) days prior to the effective date of such termination. In the event of such
termination, then notwithstanding any mitigation of damages by the Executive,
the Employer shall pay to the Executive the sum of (i) all salary, expenses and
other amounts accrued and payable to the Executive through the effective date of
such termination, plus (ii) an amount equal to the sum of (x) an amount equal to
the Executive's then-current annual base salary, plus (y) the sum of the amounts
of the most recent annual bonus (pursuant to Section 2.2 above) and incentive
payments (under the Incentive Plan) paid by the
3
<PAGE>
Employer to the Executive, and plus (z) the amount of the most recent annual
contributions made or credited by the Employer under all employee retirement
plans for the benefit of the Executive. In addition, for a period of one (1)
year following the effective date of such termination, the Employer shall
continue to provide coverage for the Executive under the health, long term
disability, and life insurance programs maintained by the Employer; provided,
however, that the continued payment of these amounts by the Employer shall not
offset or diminish any compensation or benefits accrued as of the date of
termination. Upon such termination, the Executive shall have no rights or
obligations under this Agreement other than as provided in this Section 4 and in
Sections 3 and 5 hereof.
(b) The Executive may terminate this Agreement for any reason whatsoever by
delivering written notice to the Employer at least sixty (60) days prior to the
effective date of such termination. In the event of such termination, then the
Employer shall pay to the Executive the sum of (i) the pro rata portion (to the
extent not previously paid) of the Executive's then-current annual base salary,
expenses and other benefits that have accrued to the Executive as of the date of
such termination, based on the number of days in the fiscal year prior to such
termination as compared to the total number of days in such fiscal year, plus
(ii) a pro rata portion of the sum of the most recent annual bonus (pursuant to
Section 2.2 above) and incentive payments (under the Incentive Plan) paid by the
Employer to the Executive, based on the number of days in the fiscal year prior
to such termination as compared to the total number of days in such fiscal year,
plus (iii) all expenses payable to the Executive pursuant to Section 2.5 through
the date of termination, and plus (iv) a pro rata portion (to the extent not
previously paid) of the most recent annual contributions made or credited by the
Employer under all employee retirement plans for the benefit of the Executive,
based on the number of days in the fiscal year prior to such termination as
compared to the total number of days in such fiscal year.
(c) The Employer shall pay to the Executive the amounts set forth in
Section 4.2(a) or (b) in a lump sum within thirty (30) days after the effective
date of any such termination and such payment shall not be reduced in the event
the Executive obtains other employment following such termination.
4
<PAGE>
4.3. Termination for Cause. This Agreement may be terminated by the
Employer for Cause (as hereinafter defined); provided that the Executive shall
be entitled to at least thirty (30) days' prior written notice of the Employer's
intention to terminate his employment for Cause specifying the grounds for such
termination, a reasonable opportunity to cure any conduct or act, if curable,
alleged as grounds for such termination, and a reasonable opportunity to present
to the Board his position regarding any dispute relating to the existence of
such Cause. For the purposes of this Agreement, "Cause" shall mean: (i) a
material violation by the Executive of any applicable material law or regulation
respecting the business of the Employer; (ii) the Executive being found guilty
of a felony or an act of dishonesty in connection with the performance of his
duties as an officer of the Employer, or which disqualifies the Executive from
serving as an officer or director of the Employer; or (iii) the willful failure
of the Executive to perform his duties hereunder in any material respect. Upon
any such termination for Cause, the Employer shall pay to the Executive the sum
of (x) the pro rata portion (to the extent not previously paid) of the
Executive's then-current annual base salary, expenses and other benefits that
have accrued to the Executive as of the effective date of such termination,
based on the number of days in the fiscal year prior to such effective date as
compared to the total number of days in such fiscal year, plus (y) all expenses
5
<PAGE>
payable to the Executive pursuant to Section 2.5 through the effective date of
termination. The Employer shall pay to the Executive the amounts set forth in
this Section 4.3 in a lump sum within thirty (30) days after the effective date
of any such termination and such payment shall not be reduced in the event the
Executive obtains other employment following such termination.
4.4. Termination upon Death. Upon the death of the Executive, the
Employer shall pay to such beneficiary as the Executive may designate in
writing, or failing such designation, to the executor of his estate, in full
settlement and satisfaction of all claims and demands on behalf of the
Executive, an amount equal to the sum of (i) all salary, expenses and other
amounts accrued and payable to the Executive through the date of Executive's
death, plus (ii) an amount equal to the Executive's then-current annual base
salary, and plus (iii) the sum of the amounts of the most recent annual bonus
(pursuant to Section 2.2 above) and incentive payments (under the Incentive
Plan) paid by the Employer to the Executive. Such payments shall be in addition
to any other death benefits of the Employer for the benefit of the Executive and
in full settlement and satisfaction of all payments provided for in this
Agreement. The Employer shall pay the amounts set forth in this Section 4.4 in a
lump sum within thirty (30) days after the Executive's death.
4.5. Termination upon Disability. The Employer may terminate this
Agreement by notice to the Executive in the event that the Executive is unable
fully to perform his duties and responsibilities hereunder by reason of illness,
injury or incapacity for a period of four months within any 12-month period (a
"Disability"). Upon termination of this Agreement pursuant to this Section 4.5,
the Employer shall pay to the Executive the sum of (i) all salary, expenses and
other amounts accrued and payable to the Executive through the effective date of
such termination, plus (ii) an amount equal to the Executive's then-current
annual base salary, plus (iii) the sum of the amounts of the most recent annual
bonus (pursuant to Section 2.2 above) and incentive payments (under the
Incentive Plan) paid by the Employer to the Executive, and plus (iv) the amount
of the most recent annual contributions made or credited by the Employer under
all employee retirement plans for the benefit of the Executive. In addition, in
the event of such termination, for a period of one (1) year thereafter, the
Employer shall continue to provide coverage for the Executive under the health,
long term disability, and life insurance programs maintained by the Employer;
provided, however, that the continued payment of these amounts by the Employer
shall not offset or diminish any compensation or benefits accrued as of the date
of termination. The Executive shall be entitled to the compensation and benefits
provided for under this Agreement for any period during the term of this
Agreement and prior to the establishment of the Executive's Disability during
which the Executive is unable to work due to a physical or mental infirmity.
Notwithstanding anything contained in this Agreement to the contrary, until the
date specified in a notice of termination relating to the Executive's
Disability, the Executive shall be entitled to return to his positions with the
Employer as set forth in this Agreement in which event no Disability of the
Executive will be deemed to have occurred. The Employer shall pay to the
Executive the amounts set forth in this Section 4.5 in a lump sum within thirty
(30) days after the effective date of any such termination.
4.6. Termination upon Change of Control.
(a) In the event of a Change in Control (as defined below) of the Employer
and the termination of the Executive's employment under either (i) or (ii)
below, the Employer shall pay to
6
<PAGE>
the executive an amount equal to (1) all salary, expenses and other amounts
accrued and payable to the Executive through the effective date of such
termination, plus (2) an amount equal to the sum of (x) an amount equal to the
Executive's then-current annual base salary, plus (y) the sum of the amounts of
the amount of the most recent annual bonus (pursuant to Section 2.2 above) and
incentive payments (under the Incentive Plan) paid by the Employer to the
Executive, and plus (z) the amount of the most recent annual contributions made
or credited by the Employer under all employee retirement plans for the benefit
of the Executive. In addition, for a period of one (1) year following such
termination, the Employer shall also continue to provide coverage for the
Executive under the health, long term disability, and life insurance programs
maintained by Employer. The Employer shall pay to the Executive the amounts set
forth in this Section 4.6 in a lump sum within thirty (30) days after the later
to occur of (I) the effective date of any such termination or (II) the
announcement of the Change in Control, and such payment shall not be reduced in
the event the Executive obtains other employment following such termination. The
following shall constitute termination under this paragraph.
(i) The Executive terminates his employment under this Agreement by a
written notice to that effect delivered to the Board within six (6) months
after the Change in Control.
(ii) This Agreement is terminated by the Employer or its successor for
any reason whatsoever within the six (6) months preceding or within six (6)
months after the Change in Control.
(b) If it is determined, in the opinion of the certified public accountants
then regularly retained by the Employer in consultation with legal counsel
acceptable to the Executive, that any amount payable to the Executive by the
Employer under this Agreement, or any other plan or agreement under which the
Executive participates or is a party, would constitute an "Excess Parachute
Payment" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code") and be subject to the excise tax imposed by
Section 4999 of the Code (the "Excise Tax"), the Employer shall pay to the
Executive the amount of such Excise Tax and all federal, state and local income
or other taxes with respect to the payment of the amount of such Excise Tax,
including all such taxes with respect to any such additional amount. If at a
later date, the Internal Revenue Service assesses a deficiency against the
Executive for the Excise Tax which is greater than that which was determined at
the time such amounts were paid, the Employer shall pay to the Executive the
amount of such Excise Tax plus any interest, penalties and professional fees or
expenses incurred by the Executive as a result of such assessment, including all
such taxes with respect to any such additional amount. The highest marginal tax
rate applicable to individuals at the time of payment of such amounts will be
used for purposes of determining the federal, state and local income and other
taxes with respect thereto. The Employer shall withhold from any amounts paid
under this Agreement the amount of any Excise Tax or other federal, state or
local taxes then required to be withheld. Computations of the amount of any
supplemental compensation paid under this Section shall be made by the
independent public accountants then regularly retained by the Employer in
consultation with legal counsel acceptable to Executive. The Employer shall pay
all accountant and legal counsel fees and expenses.
7
<PAGE>
(c) For purposes of this paragraph, the term "Change in Control" shall mean
the following:
(i) Any person or entity, including a "group" as contemplated by
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
acquires or gains ownership or control (including, without limitation, the
power to vote) after the date hereof of fifty percent (50%) or more of the
then outstanding voting securities of the Employer; or
(ii) The individuals who, as of the date hereof, are members of the
Board cease for any reason to constitute a majority of the Board, unless
the election, or nomination for election by the stockholders of the
Employer, of any new director was approved by a vote of at least three-
quarters of the members of the Board still in office, and such new director
shall, for purposes of this Agreement, be considered as a member of the
Board; or
(iii) The consummation of: (1) any merger, consolidation or other
reorganization in which the Employer would not be the surviving entity (or
would survive only as a subsidiary of an entity other than a previously
wholly owned subsidiary of the Employer); or (2) a complete liquidation or
dissolution or an agreement for the sale or other disposition of all or
substantially all of the assets of the Employer.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because fifty percent (50%) or more of the combined voting power of
the then outstanding securities of the Employer is acquired by (1) a trustee or
other fiduciary holding securities under one or more employee benefit plans
maintained for employees of the Employer; or (2) any corporation which,
immediately prior to such acquisition, is owned directly or indirectly by the
stockholders of the Employer in the same proportion as their ownership of stock
in the Employer immediately prior to such acquisition.
5. Non-Competition Covenant.
5.1. Restrictive Covenant. The Employer and the Executive have jointly
reviewed the operations of the Employer and have agreed that as an essential
ingredient of and in consideration of this Agreement and the payment of the
amounts described in Section 2, the Executive shall not, except with the express
prior written consent of the Employer, during the period (the "Restrictive
Period") (i) of his employment hereunder and (ii) except in the event of a
termination of Executive's employment hereunder pursuant to the provisions of
Section 4.7, for an additional period of one (1) year after the termination of
the Executive's employment with the Employer, directly or indirectly compete
with the business of the Employer, including, but not by way of limitation, by
directly or indirectly owning, managing, operating, controlling, financing, or
by directly or indirectly serving as an employee, officer or director of or
consultant to, or by soliciting or inducing, or attempting to solicit or induce,
any employee or agent of Employer to terminate employment with Employer and
become employed by any person, firm, partnership, corporation, trust or other
entity which owns or operates a business competitive with that of the Employer
(the "Restrictive Covenant"). Notwithstanding the foregoing, the Executive will
not be deemed to have breached the Restrictive Covenant solely by virtue of
owning an equity interest in or having participated in the operations of LINC
Finance, as such operations are described on
8
<PAGE>
Exhibit A hereto, or by the private practice of law (as in-house counsel or
otherwise) in the asset based financing and leasing industry. If the Executive
violates the Restrictive Covenant and the Employer brings legal action for
injunctive or other relief, the Employer shall not, as a result of the time
involved in obtaining such relief, be deprived of the benefit of the full period
of the Restrictive Covenant. Accordingly, the Restrictive Covenant shall be
deemed to have the duration specified in this Section 5.1 computed from the date
the relief is granted but reduced by the time between the period when the
Restrictive Period began to run and the date of the first violation of the
Restrictive Covenant by the Executive. In the event that a successor assumes
and agrees to perform this Agreement, this Restrictive Covenant shall continue
to apply only to the operations of the Employer as it existed immediately before
such assumption and shall not apply to any of the successor's other operations.
The foregoing Restrictive Covenant shall not prohibit the Executive from owning
directly or indirectly not more than a five percent (5%) equity interest in any
corporation or other entity.
5.2. Remedies for Breach of Restrictive Covenant. The Executive
acknowledges that the restrictions contained in Sections 3 and 5.1 of this
Agreement are reasonable and necessary for the protection of the legitimate
business interests of the Employer, that any violation of these restrictions
would cause substantial injury to the Employer and such interests, that the
Employer would not have entered into this Agreement with the Executive without
receiving the additional consideration offered by the Executive in binding
himself to these restrictions and that such restrictions were a material
inducement to the Employer to enter into this Agreement. In the event of any
violation or threatened violation of these restrictions, the Employer, in
addition to and not in limitation of, any other rights, remedies or damages
available to the Employer under this Agreement or otherwise at law or in equity,
shall be entitled to preliminary and permanent injunctive relief to prevent or
restrain any such violation by the Executive and any and all persons directly or
indirectly acting for or with him, as the case may be. No bond shall be required
for such equitable relief. The Employer and Executive agree that, if either the
length of time, the geographical area, scope or the other parameters of the
Restrictive Covenant set forth above are deemed to be too restrictive to
Employee in any judicial proceeding, the court having jurisdiction of such
matter may reduce such restrictions to ones which it deems reasonable under the
circumstances, and the Restrictive Covenant, with the foregoing restrictions
reduced in accordance with such determination by the court, shall remain in full
force and effect.
9
<PAGE>
6. Indemnification.
6.1. Liability Insurance. The Employer shall provide the Executive
(including his heirs, personal representatives, executors and administrators)
for the term of this Agreement with coverage under a standard directors' and
officers' liability insurance policy at its expense, such coverage to be
provided so long as the annual premium for such policy does not exceed two
hundred percent (200%) of the annual premium for such a policy as of the
Effective Date.
6.2. Indemnity. In addition to the insurance coverage provided for in
Section 6.1, the Employer shall hold harmless and indemnify the Executive (and
his heirs, executors and administrators) to the fullest extent permitted under
applicable law against all expenses and liabilities reasonably incurred by him
in connection with or arising out of any action, suit or proceeding in which he
may be involved by reason of his having been an officer of the Employer (whether
or not he continues to be an officer at the time of incurring such expenses or
liabilities), such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements.
6.3. Expenses. In the event the Executive becomes a party, or is
threatened to be made a party, to any action, suit or proceeding for which the
Employer has agreed to provide insurance coverage or indemnification under this
Section 6, the Employer shall, to the fullest extent permitted under applicable
law, advance all expenses (including reasonable attorneys' fees), judgments,
fines and amounts paid in settlement (collectively "Expenses") incurred by the
Executive in connection with the investigation, defense, settlement, or appeal
of any threatened, pending or completed action, suit or proceeding, subject to
receipt by the Employer of a written undertaking from the Executive (i) to
reimburse the Employer for all Expenses actually paid by the Employer to or on
behalf of the Executive in the event it shall be ultimately determined that the
Executive is not entitled to indemnification by the Employer for such Expense;
and (ii) to assign to the Employer all rights of the Executive to
indemnification, under any policy of directors' and officers' liability
insurance or otherwise, to the extent of the amount of Expenses actually paid by
the Employer to or on behalf of the Executive.
7. General Provisions.
7.1. Intercorporate Transfers. If the Executive shall be voluntarily
transferred to an affiliate of the Employer, such transfer shall not be deemed
to terminate or modify this Agreement and the employing corporation to which the
Executive shall have been transferred shall, for all purposes of this Agreement,
be construed as standing in the same place and stead as the Employer as of the
date of such transfer. For purposes hereof, an affiliate of the Employer shall
mean any corporation directly or indirectly controlling, controlled by, or under
common control with the Employer.
7.2. Interest in Assets. Neither the Executive nor his estate shall
acquire hereunder any rights in funds or assets of the Employer, otherwise than
by and through the actual payment of amounts payable hereunder.
10
<PAGE>
7.3. Successors; Assignment. This Agreement shall be binding upon and
inure to the benefit of the Executive, the Employer and his and its respective
personal representatives, successors and assigns, and, except as otherwise
provided in Section 5.1, any successor or assign of the Employer shall be deemed
the "Employer" hereunder. The Employer shall require any successor to all or
substantially all of the business and/or assets of the Employer, whether
directly or indirectly, by purchase, merger, consolidation, acquisition of
stock, or otherwise, by an agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent as the Employer would be required to perform if no
such succession had taken place.
7.4. Entire Agreement; Modifications. This Agreement constitutes the
entire agreement between the parties respecting the subject matter hereof, and
supersedes all prior negotiations, undertakings, agreements and arrangements
with respect thereto, whether written or oral. Except as otherwise explicitly
provided herein, this Agreement may not be amended or modified except by written
agreement signed by the Executive and the Employer.
7.5. Enforcement and Governing Law. The provisions of this Agreement
shall be regarded as divisible and separate; if any of said provisions should be
declared invalid or unenforceable by a court of competent jurisdiction, the
validity and enforceability of the remaining provisions shall not be affected
thereby. This Agreement shall be construed and the legal relations of the
parties hereto shall be determined in accordance with the laws of the State of
Illinois without reference to the law regarding conflicts of law.
7.6. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators sitting in a location selected by
the Executive within twenty (20) miles from the location of the Employer, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrators' award in any court having
jurisdiction; provided, however, that the Executive shall be entitled to seek
specific performance of his right to be paid through the date of termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.
7.7. Legal Fees. All reasonable legal fees paid or incurred by the
Executive pursuant to any dispute or question of interpretation relating to this
Agreement shall be paid or reimbursed by the Employer if the Executive is
successful on the merits pursuant to a legal judgment, arbitration or
settlement.
7.8. Waiver. No waiver by either party at any time of any breach by the
other party of, or compliance with, any condition or provision of this Agreement
to be performed by the other party, shall be deemed a waiver of any similar or
dissimilar provisions or conditions at the same time or any prior or subsequent
time.
7.9. Notices. Notices pursuant to this Agreement shall be in writing and
shall be deemed given when received; and, if mailed, shall be mailed by United
States registered or certified mail, return receipt requested, postage prepaid;
and if to the Employer, addressed to the principal headquarters of the Employer,
attention: Chairman; or, if to the Executive, to the address
11
<PAGE>
set forth below the Executive's signature on this Agreement, or to such other
address as the party to be notified shall have given to the other.
7.10. Miscellaneous. Time is of the essence of this Agreement and all of
the obligations of each party hereto. Wherever from the context that it appears
appropriate, each term stated in either the singular or plural shall include the
singular and the plural, and the pronouns stated in either the masculine,
feminine or the neuter gender shall include the masculine, feminine and the
neuter genders. This Agreement may be executed in any number of identical
counterparts, any of which may contain the signatures of less than all parties,
and all of which together shall constitute a single agreement. This Agreement
shall be effective when signed by all of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
LINC Capital, Inc. [Executive]
By:________________________________ _____________________________________
Name:______________________________ _____________________________________
Title:_____________________________ _____________________________________
(Address)
12
<PAGE>
Exhibit A
---------
Description of the Operations of LINC Finance Corporation
---------------------------------------------------------
. The direct or indirect management, operation and control of LINC Finance
Corporation and of those assets and liabilities of the Affiliate Group (as
defined in footnote 1 of the financial statements for the Employer as at June
30, 1997).
. Engaging, directly or indirectly, in the business of investing in, or
otherwise acquiring subordinated and other debt instruments in, and equity
instruments of all types in, any public or private company, provided that
(other than in LINC Finance Corporation) the Executive may not acquire more
than five percent (5%) of the equity interests in any corporation or other
entity which is competitive with the Employer (as provided in Section 5.1
above).
13
<PAGE>
Exhibit 10.5
================================================================================
LINC CAPITAL, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
1. Purpose of the Plan....................................................1
2. Definitions............................................................1
2.1. Board...........................................................1
2.2. Cause...........................................................1
2.3. Change of Control...............................................1
2.4. Code............................................................2
2.5. Company.........................................................2
2.6. Compete.........................................................2
2.7. Director........................................................2
2.8. Disability......................................................2
2.9. Employee........................................................2
2.10. ERISA...........................................................2
2.11. Fair Market Value...............................................2
2.12. Act.............................................................3
2.13. Act.............................................................3
2.14. Option..........................................................3
2.15. Option Agreement................................................3
2.16. Optionee........................................................3
2.17. Related Corporation.............................................3
2.18. Rule 16b-3......................................................3
2.19. Shares..........................................................3
3. Administration of the Plan.............................................4
4. Shares Subject to the Plan.............................................4
5. Stock Options..........................................................4
5.1. Grant; Type of Options..........................................4
5.2. Option Agreement; Terms of Options..............................4
5.3. Additional Terms Applicable to All Options......................5
5.3.1. Written Notice..........................................5
5.3.2. Method of Exercise......................................5
5.3.3. Term of Option..........................................5
5.3.4. Disability or Death of Optionee.........................5
5.3.5. Transferability.........................................5
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
6. Other Awards ---------------------------------------------------------- 5
7. Amendment or Termination of the Plan ---------------------------------- 5
8. Term of Plan ---------------------------------------------------------- 6
9. Rights as Shareholder ------------------------------------------------- 6
10. Merger or Consolidation ----------------------------------------------- 6
11. Changes in Capital and Corporate Structure ---------------------------- 6
12. Service --------------------------------------------------------------- 6
13. Withholding of Tax ---------------------------------------------------- 6
14. Delivery and Registration of Stock ------------------------------------ 6
15. Miscellaneous --------------------------------------------------------- 7
15.1. No Right to An Award ------------------------------------------- 7
15.2. No Restriction on Corporate Action ----------------------------- 7
15.3. Rule 16b-3 ----------------------------------------------------- 7
15.4. Governing Law -------------------------------------------------- 7
</TABLE>
ii
<PAGE>
LINC CAPITAL, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
---------------------------------------
1. Purpose of the Plan. The LINC CAPITAL, INC., NON-EMPLOYEE DIRECTOR
STOCK OPTION PLAN (hereinafter referred to as the "Plan") is intended to provide
a means whereby Non-Employee Directors of LINC CAPITAL, INC., and its Related
Corporations may sustain a sense of proprietorship and personal involvement in
the continued development and financial success of the Company, and to encourage
them to remain with and devote their best efforts to the business of the
Company, thereby advancing the interests of the Company and its shareholders.
Accordingly, the Company may permit certain Non-Employee Directors to acquire
Shares or otherwise participate in the financial success of the Company, on the
terms and conditions established herein.
2. Definitions. The following terms shall be defined as set forth below:
2.1. Board. Shall mean the Board of Directors of LINC Capital, Inc.
2.2. Cause. Shall mean the commitment of fraud, the misappropriation
of or intentional material damage to the property or business of the
Company, the substantial failure to fulfill the duties and responsibilities
of a regular position with the Company and/or comply with Company policies,
rules or regulations, or the conviction of a felony.
2.3. Change of Control. Shall mean:
2.3.1. the consummation of the acquisition after the date
hereof by any person (as such term is defined in Section 13(d) or
14(d) of the 1934 Act of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the 1934 Act) of fifty percent (50%) or
more of the combined voting power of the then outstanding voting
securities of LINC Capital, Inc.; or
2.3.2. the individuals who, as of the date hereof, are members
of the Board cease for any reason to constitute a majority of the
Board, unless the election, or nomination for election by the
stockholders, of any new Director was approved by a vote of a majority
of the Board, and such new Director shall, for purposes of this Plan,
be considered as a member of the Board; or
2.3.3. consummation of: (1) a merger or consolidation if the
stockholders, immediately before such merger or consolidation, do not,
as a result of such merger or consolidation, own, directly or
indirectly, more than fifty percent (50%) of the combined voting power
of the then outstanding voting securities of the entity resulting from
such merger or consolidation in substantially the same proportion as
their ownership of the combined voting power of the voting securities
of LINC Capital, Inc. outstanding immediately before such merger or
consolidation; or (2) a complete liquidation or dissolution
<PAGE>
or an agreement for the sale or other disposition of all or
substantially all of the assets of LINC Capital, Inc.
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because fifty percent (50%) or more of the
combined voting power of the then outstanding securities of LINC
Capital, Inc. are acquired by (1) a trustee or other fiduciary holding
securities under one or more employee benefit plans maintained for
Employees of the Company; or (2) any corporation which, immediately
prior to such acquisition, is owned directly or indirectly by the
stockholders in the same proportion as their ownership of stock
immediately prior to such acquisition.
2.4. Code. Shall mean the Internal Revenue Code of 1986, and any
amendments thereto. Reference in the Plan to any section of the Code
shall be deemed to include any amendments or successor provisions to
such section and any regulations promulgated under such section.
2.5. Company. Shall mean LINC Capital, Inc. and its Related
Corporations.
2.6. Compete. Shall mean within a period of one (1) year after
the termination of service, the direct or indirect competition with
the business of the Company, including, but not by way of limitation,
the direct or indirect owning, managing, operating, controlling,
financing or serving as an officer, employee, director or consultant
to, or by soliciting or inducing, or attempting to solicit or induce,
any Employee or agent of the Company to terminate employment and
become employed by, any person, firm, partnership, corporation, trust
or other entity which owns or operates, a business competitive with
that of the Company, except with the express prior written consent of
the Company.
2.7. Director. Shall mean an individual elected to the Board by
the stockholders of LINC Capital, Inc. or appointed by the Board under
applicable corporate law who is serving on the Board on the date the
Plan is adopted by the Board or is elected or appointed to the Board
after such date.
2.8. Disability. Shall mean a physical or mental disability
which impairs the individual's ability to substantially perform his
current duties for a period of at least twelve (12) consecutive
months, as determined by the Board.
2.9. Employee. Shall mean any person (including a Director) in
an employment relationship with the Company.
2.10. ERISA. Shall mean the Employee Retirement Income Security
Act of 1974, and any amendment thereto.
2.11. Fair Market Value. Shall mean, as of any specified date,
the mean of the high and low sales prices of the Shares (i) reported
by the National Market System of NASDAQ on that date or (ii) if the
Common Stock is listed on a national stock
2
<PAGE>
exchange, reported on the stock exchange composite tape on that date;
or, in either case, if no prices are reported on that date, on the
last preceding date on which such prices of the Shares are so
reported. If the Shares are traded over the counter at the time a
determination of their Fair Market Value is required to be made
hereunder, their Fair Market Value shall be deemed to be equal to the
average between the reported high and low or closing bid and asked
prices of Shares on the most recent date on which Shares were publicly
traded. In the event Shares are not publicly traded at the time a
determination of their value is required to be made hereunder, the
determination of their Fair Market Value shall be made by the Board in
such manner as it deems appropriate. Notwithstanding the foregoing,
the Fair Market Value of a Share on the date of an initial public
offering of Shares shall be the offering price under such initial
public offering.
2.12. 1933 Act. Shall mean the Securities Act of 1933, and any
amendments thereto.
2.13. 1934 Act. Shall mean the Securities Exchange Act of 1934
and any amendments thereto.
2.14. Non-Employee Director. Shall have the same meaning as
under Rule 16b-3.
2.15. Option. Shall mean a right to purchase Shares granted
under Section 5 of the Plan.
2.16. Option Agreement. Shall mean a written agreement between
the Company and an Optionee with respect to an Option.
2.17. Optionee. Shall mean a Non-Employee Director who has been
granted an Option.
2.18. Related Corporation. Shall mean a corporation which would
be a parent or subsidiary corporation with respect to LINC Capital,
Inc. as defined in Section 424(e) or (f), respectively, of the Code.
2.19. Rule 16b-3. Shall mean United States Securities and
Exchange Commission Rule 16b-3 promulgated under the 1934 Act, as such
may be amended from time to time, and any successor rule, regulation,
statute fulfilling the same or a similar function.
2.20. Shares. Shall mean common stock of LINC Capital, Inc.
3
<PAGE>
3. Administration of the Plan. The Plan shall be administered by the
Board. The Board shall have sole authority to:
3.1. After consultation with, and upon the recommendation of, the
Chairman of the Board, select the Non-Employee Directors to whom awards
shall be granted under the Plan. In making such determinations, the Board
shall take into account the nature of the services rendered by the
respective Directors, their present and potential contribution to the
Company's success and such other factors as the Board and the Chairman
shall deem relevant;
3.2. Establish the amount and conditions of each such award;
3.3. Prescribe any legend to be affixed to certificate(s)
representing such awards;
3.4. Interpret the Plan and correct any defect or supply any omission
or reconcile any inconsistency in the Plan or in any agreement relating to
an award in the manner and to the extent the Board shall determine in its
sole discretion; and
Adopt such rules, regulations, forms and agreements, not inconsistent
with the provisions of the Plan, as it may deem advisable to carry out the
Plan.
All decisions made by the Board in administering the Plan and all
determinations of the Board on the matters referred to in this Section 3
shall be final.
4. Shares Subject to the Plan. The aggregate number of Shares that may be
obtained by Non-Employee Directors under the Plan shall be One Hundred Thousand
(100,000) Shares. Any Shares that remain unissued at the termination of the
Plan shall cease to be subject to the Plan, but until termination of the Plan,
LINC Capital, Inc. shall at all times make available sufficient Shares to meet
the requirements of the Plan. To the extent that an Option lapses or the rights
of an Optionee terminate, any Shares subject to such Option shall again be made
available for the grant of an Option to the extent permitted under Rule 16b-3.
5. Stock Options.
5.1. Grant. The Company may from time to time grant Options to one
or more individuals who are Non-Employee Directors at the time of grant
under and pursuant to the terms of the Plan. Any such Options may be
granted on more than one occasion to the same person.
5.2. Option Agreement; Terms of Options. The grant of each Option
shall be confirmed by an Option Agreement that shall be executed by the
Company and the Optionee as soon as practicable after such grant. The
Option Agreement shall expressly state or incorporate by reference the
provisions of the Plan. Except as provided in Section 5.3 below, each
Option granted under the Plan shall be subject to
4
<PAGE>
the terms and conditions set forth by the Board in the Option Agreement
including, but not limited to, the exercise price ("Exercise Price") for
each Share subject to the Option and Option term.
5.3. Terms Applicable to All Options. Each Option shall be subject
to the following terms and conditions:
5.3.1. Written Notice. An Option may be exercised only by
giving written notice to the Company specifying the number of Shares
to be purchased.
5.3.2. Method of Exercise. Except as otherwise may be provided
in the Option Agreement, the aggregate Exercise Price shall be paid in
any one or a combination of cash, personal check, Shares already owned
(which Shares shall be valued at their Fair Market Value) or Plan
awards which the Optionee has an immediate right to exercise.
5.3.3. Term of Option. No Option may be exercised more than ten
(10) years after the date of grant. No Option may be exercised more
than six (6) months after the Optionee terminates service with the
Company.
5.3.4. Death of Optionee. If an Optionee terminates service due
to death prior to exercise in full of any Options, his beneficiary,
executor, administrator or personal representative shall have the
right to exercise the Options within a period of six (6) months after
the date of such termination to the extent that the right was
exercisable at the date of such termination as provided in the Option
Agreement, or subject to such other terms as may be determined by the
Board.
5.3.5. Transferability. No Option may be transferred, assigned
or encumbered by an Optionee, except (i) by will or the laws of
descent and distribution, (ii) by gifting for the benefit of
descendants for estate planning purposes, or (iii) pursuant to a
certified domestic relations order.
6. Other Awards. Other awards, including, without limitation, performance
or restricted shares, convertible debentures, other convertible securities and
other forms of awards measured in whole or in part by the value of Shares, the
performance of the Non-Employee Director or the performance of the Company, may
be granted under the Plan. Such awards may be payable in Shares, cash or both,
and shall be subject to such terms as the Board shall determined.
7. Amendment or Termination of the Plan. The Board may amend, suspend or
terminate the Plan or any portion thereof at any time provided, however, that no
such amendment, suspension or termination shall impair the rights of any
individual, without his consent, in any award theretofore made pursuant to the
Plan.
5
<PAGE>
8. Term of Plan. The Plan shall be effective upon the date of its
adoption by the Board. Unless sooner terminated under the provisions of Section
7, awards shall not be granted under the Plan after the expiration of ten (10)
years from the effective date of the Plan. However, awards may be exercisable
after the end of the term of the Plan.
9. Rights as Shareholder. Upon delivery of any Share to a Non-Employee
Director, such Non-Employee Director shall have all of the rights of a
shareholder of LINC Capital, Inc. with respect to such Share, including the
right to vote such Share and to receive all dividends or other distributions
paid with respect to such Share.
10. Merger or Consolidation. In the event LINC Capital, Inc. is merged or
consolidated with another corporation and LINC Capital, Inc. is not the
surviving corporation, the surviving corporation may agree to exchange awards
issued under this Plan for awards (with the same aggregate Exercise Price) to
acquire and participate in that number of shares in the surviving corporation
that have a Fair Market Value equal to the Fair Market Value (determined on the
date of such merger or consolidation) of Shares that the grantee is entitled to
acquire and participate in under this Plan on the date of such merger or
consolidation. In the event of a Change of Control, awards may become
immediately and fully exercisable at the discretion of the Board.
11. Changes in Capital and Corporate Structure. The aggregate number of
Shares and interests awarded and which may be awarded under the Plan shall be
adjusted to reflect a change in the outstanding Shares of LINC Capital, Inc. by
reason of a recapitalization, reclassification, reorganization, stock split,
reverse stock split, combination of shares, stock dividend or similar
transaction. Any such adjustment shall be made by the Board in an equitable
manner which will cause the awards to remain unchanged as a result of the
applicable transaction. Any such adjustment made by the Board shall be final and
nonappealable.
12. Service. An individual shall be considered to be in the service of
the Company as long as he remains a Director of the Company. Nothing herein
shall confer on any individual the right to continued service with the Company
or affect the right of the Company to terminate such service.
13. Withholding of Tax. To the extent the issuance or exercise of an
award results in the receipt of compensation by a Director, the Company is
authorized to withhold a portion of any Shares or any cash compensation then or
thereafter payable to such Director to pay any tax required to be withheld by
reason of the receipt of such compensation. Alternatively, the Director may
tender Shares with a Fair Market Value equal to, or a personal check in the
amount of, the tax required to be withheld.
14. Delivery and Registration of Stock. The obligation of LINC Capital,
Inc. to deliver Shares with respect to an award shall, if the Board so requests,
be conditioned upon the receipt of a representation as to the investment
intention of the individual to whom such Shares are to be delivered, in such
form as the Board shall determine to be necessary or advisable to comply with
the provisions of the 1933 Act or any other federal, state or local securities
law or
6
<PAGE>
regulation. It may be provided that any representation requirement shall become
inoperative upon a registration of the Shares or other action eliminating the
necessity of such representation under any applicable securities law. LINC
Capital, Inc. shall not be required to deliver any Shares under the Plan prior
to (i) the admission of such Shares to listing on any stock exchange on which
Shares may then be listed, and (ii) the completion of such registration or other
qualification of such Shares under any state or federal law, rule or regulation,
as the Board shall determine to be necessary or advisable.
15. Miscellaneous.
15.1. No Right to An Award. Neither the adoption of this Plan nor
any action of the Board shall be deemed to give a Non-Employee Director any
right to be granted an award or any other rights hereunder except as may be
evidenced by an Agreement duly executed on behalf of the Company, and then
only to the extent and on the terms and conditions expressly set forth
therein. The Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
funds or assets to assure the payment of any award.
15.2. No Restriction on Corporate Action. Nothing contained in the
Plan shall be construed to prevent LINC Capital, Inc. or any Related
Corporation from taking any corporate action which is deemed by LINC
Capital, Inc. or by any Related Corporation to be appropriate or in its
best interest, including, without limitation, any adjustment,
recapitalization, reorganization, or other change in the LINC Capital, Inc.
capital structure or its business, any merger or consolidation of LINC
Capital, Inc., any issue of debt or equity securities prior to or affecting
the Shares or the rights thereof, the dissolution or liquidation of LINC
Capital, Inc., or any sale, lease, exchange or other disposition of all or
any part of the assets or business of LINC Capital, Inc., all whether or
not such action would have an adverse effect on the Plan or on any award
granted under the Plan. No Director or other person shall have any claim
against LINC Capital, Inc., as a result of any such action.
15.3. Rule 16b-3. It is intended that the Plan and any grant of an
award made to a person subject to Section 16 of the 1934 Act meet all of
the requirements of Rule 16b-3. If any provision of the Plan or any such
award would disqualify the Plan or such award under, or would otherwise not
comply with, Rule 16b-3, such provision or award shall be construed or
deemed amended to conform to Rule 16b-3.
15.4. Governing Law. The Plan shall be construed in accordance with
the laws of the State of Delaware.
7
<PAGE>
Exhibit 10.6
================================================================================
LINC CAPITAL, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
================================================================================
<PAGE>
TABLE OF CONTENTS
1. PURPOSE.....................................................................1
2. DEFINITIONS.................................................................1
2.1 AFTER-TAX CONSOLIDATED BASE EARNINGS....................................1
2.2 ALLOCATION PERCENTAGE...................................................1
2.3 AVERAGE COMMON EQUITY...................................................1
2.4 BOARD...................................................................1
2.5 CEO.....................................................................1
2.6 CODE....................................................................1
2.7 COMMITTEE...............................................................1
2.8 COMMON EQUITY...........................................................1
2.9 COMPANY.................................................................1
2.10 COMPENSATION COMMITTEE.................................................2
2.11 FISCAL YEAR............................................................2
2.12 GAAP...................................................................2
2.13 INCENTIVE POOL.........................................................2
2.14 PARTICIPANT............................................................2
2.15 PRE-TAX CONSOLIDATED BASE EARNINGS.....................................2
2.16 PLAN...................................................................2
2.17 RETURN ON EQUITY.......................................................2
3. ADMINISTRATION OF THE PLAN..................................................2
3.1 GENERAL.................................................................2
3.2 MEETINGS................................................................3
3.3 COMMITTEE DETERMINATIONS................................................3
4. ALLOCATION PERCENTAGES......................................................3
5. PAYMENTS FROM INCENTIVE POOL................................................3
5.1 DETERMINATION OF INCENTIVE POOL.........................................3
5.2 PAYMENTS FROM INCENTIVE POOL............................................3
5.3 PAYMENTS TO DECEASED PARTICIPANTS.......................................4
5.4 WITHHOLDING.............................................................4
6. AMENDMENT AND TERMINATION OF THE PLAN.......................................4
7. NATURE OF THE PLAN..........................................................4
8. EMPLOYMENT RELATIONSHIP.....................................................4
9. GOVERNING LAW...............................................................4
i
<PAGE>
LINC CAPITAL, INC.
EXECUTIVE INCENTIVE COMPENSATION PLAN
-------------------------------------
1. PURPOSE. THE LINC CAPITAL, INC. EXECUTIVE INCENTIVE COMPENSATION PLAN (the
"Plan") is intended to provide a means through which LINC CAPITAL, INC. (the
"Company") may attract able persons to enter the employ of the Company and its
subsidiaries and to retain those employees upon whom the responsibilities of the
successful administration and management of the Company rest. A further purpose
of the Plan is to provide such employees with additional reward and incentive
opportunities designed to enhance profitable growth of the Company, thereby
encouraging teamwork among such employees and aligning the interests of such
employees with those of the shareholders.
2. DEFINITIONS. Where the following words and phrases appear in the Plan, they
shall have the respective meanings set forth below unless their context clearly
indicates to the contrary:
2.1 AFTER-TAX CONSOLIDATED BASE EARNINGS: For each Fiscal Year, the
Company's consolidated income after federal income taxes for such Fiscal Year as
determined in accordance with GAAP; provided, however, that After-Tax
Consolidated Base Earnings shall be determined without regard to any payments
made or to be made pursuant to Section 5.2.
2.2 ALLOCATION PERCENTAGE: For each Fiscal Year, the percentage of the
Incentive Pool for such Fiscal Year to be allocated and paid to an individual
who was a Participant at any time during such Fiscal Year.
2.3 AVERAGE COMMON EQUITY: For each Fiscal Year, an amount determined by
summing the Common Equity as of the last day of each month during such Fiscal
Year and dividing the result by the number of such months.
2.4 BOARD: The Board of Directors of the Company.
2.5 CEO: The individual who serves, from time to time, as the Chief
Executive Officer of the Company.
2.6 CODE: The Internal Revenue Code of 1986, as amended.
2.7 COMMITTEE: The committee appointed by the Board.
2.8 COMMON EQUITY: The total stockholders' equity that is attributable to
the outstanding common stock of the Company (including par value of common
stock, additional paid in capital of common stock, and retained earnings) as
determined in accordance with GAAP and as reflected in the consolidated
financial statements of the Company.
2.9 COMPANY: The LINC Group, Inc., a Delaware corporation.
<PAGE>
2.10 COMPENSATION COMMITTEE: The Compensation Committee of the Board.
2.11 FISCAL YEAR: The twelve-consecutive month period commencing January
1 of each year.
2.12 GAAP: Generally accepted accounting principles, or, where none
apply, such other sound accounting methodology as the Compensation Committee may
select.
2.13 INCENTIVE POOL: For each Fiscal Year for which the Return on Equity
(computed using Pre-Tax Consolidated Base Earnings without regard to any
Incentive Pool payments made or to be made pursuant to Section 5.2 below)
exceeds seventeen and one-half percent (17.5%) for such Fiscal Year, an amount
equal to the difference of (i) the product of (x) ______, multiplied by (y) the
After-Tax Consolidated Base Earnings for such Fiscal Year, minus (ii) that
amount, if any, required so as to maintain the Return on Equity for such Fiscal
Year (computed using Pre-Tax Consolidated Base Earnings after giving regard to
any Incentive Pool payments made or to be made pursuant to Section 5.2 below) at
or greater than seventeen and one-half percent (17.5%) for such Fiscal Year.
2.14 PARTICIPANT: For each Fiscal Year, each individual (whether or not a
director) who is a senior management employee of the Company or any subsidiary
of the Company at any time during such Fiscal Year and who is selected by the
Committee to be included in the Plan.
2.15 PRE-TAX CONSOLIDATED BASE EARNINGS: For each Fiscal Year, the
Company's consolidated income before federal income taxes for such Fiscal Year
as determined in accordance with GAAP; provided, however, that Pre-Tax
Consolidated Base Earnings shall be determined with or without regard to any
payments made or to be made pursuant to Section 5.2 below as provided in the
definition of Incentive Pool above.
2.16 PLAN: The LINC Capital, Inc. Executive Incentive Compensation Plan,
as amended from time to time.
2.17 RETURN ON EQUITY: For each Fiscal Year a percentage equal to the
quotient of (i) Pre-Tax Consolidated Base Earnings (with or without regard to
any payments made or to be made pursuant to Section 5.2 below, as provided in
the definition Incentive Pool above), divided by (ii) Average Common Equity.
3. ADMINISTRATION OF THE PLAN.
3.1 GENERAL: The Plan shall be administered by the Committee. The
Committee shall consist solely of two (2) or more outside directors (within the
meaning of Section 162(m) of the Code) selected by the Compensation Committee.
The Committee shall have all of the powers and duties specified for it under the
Plan. The Committee may from time to time establish rules and procedures for the
administration of the Plan which are
2
<PAGE>
not inconsistent with the provisions of the Plan, and any such rules and
procedures shall be effective as if included in the Plan.
3.2 MEETINGS: A majority of the members of the Committee shall constitute
a quorum for the transaction of business. All action taken by the Committee at
a meeting shall be by vote of a majority of those present at such meeting, but
any action may be taken by the Committee without a meeting upon written consent
signed by all of the members of the Committee. Members of the Committee may
participate in a meeting by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear and speak to each other. No member of the Committee shall vote
on any matter directly affecting the amounts payable under the Plan to such
member.
3.3 COMMITTEE DETERMINATIONS: Except as otherwise expressly provided
herein, the Committee shall make all determinations necessary or advisable for
the administration of the Plan, including, without limitation, determinations as
to the right of any person to a payment under the Plan and the amount of such
payment in accordance with the provisions of the Plan. Any determination made
by the Committee shall be final, binding, and conclusive upon all persons.
4. ALLOCATION PERCENTAGES. On or before the date that is thirty-one (31) days
after the last day of each Fiscal Year beginning on or after January 1, 1997,
the CEO shall assign an Allocation Percentage for such Fiscal Year to each
individual who was a Participant at any time during such Fiscal Year; provided,
however, that the aggregate sum of all Allocation Percentages assigned for a
particular Fiscal Year shall equal one hundred percent (100%). The Allocation
Percentage assigned to a Participant may be higher or lower than the Allocation
Percentage assigned to another Participant, and a Participant may be assigned an
Allocation Percentage of zero percent (0%). The Allocation Percentages assigned
to Participants by the CEO for each Fiscal Year shall be submitted to the
Committee for review and approval. Upon such approval by the Committee, all
determinations as to which Participants shall be assigned Allocation Percentages
and the amount of such Allocation Percentages shall be final, binding, and
conclusive on all persons.
5. PAYMENTS FROM INCENTIVE POOL.
5.1 DETERMINATION OF INCENTIVE POOL: As soon as administratively feasible
after the last day of each Fiscal Year, the Board shall cause the amount of the
Incentive Pool relating to such Fiscal Year to be determined. The Company shall
keep proper books and records of account so that as of the end of each Fiscal
Year the amount of the Incentive Pool for such Fiscal Year may be readily
determined. A determination of the amount of the Incentive Pool for a Fiscal
Year, which shall be supported by audited financial statements of the Company,
shall be made no later than two and one-half (2-1/2) months after the last day
of such Fiscal Year.
5.2 PAYMENTS FROM INCENTIVE POOL: On or before the date which is two and
one-half (2-1/2) months after the last day of a Fiscal Year, the amount of the
Incentive Pool for such Fiscal Year shall be paid by the Company to the
Participants for such
3
<PAGE>
Fiscal Year. Each payment pursuant to the preceding provisions of this
Paragraph shall be allocated and paid among the Participants based on their
Allocation Percentages for such Fiscal Year.
5.3 PAYMENTS TO DECEASED PARTICIPANTS: Any payment required to be paid to
a deceased Participant shall be paid to such Participant's executor or
administrator or to his heirs-at-law if there is no administration of such
Participant's estate.
5.4 WITHHOLDING: All payments provided for hereunder shall be made by the
Company as provided herein and shall be reduced by any amount required to be
withheld by the Company under applicable local, state, or federal withholding
requirements.
6. AMENDMENT AND TERMINATION OF THE PLAN. The Board may amend, suspend, or
terminate the Plan at any time or from time to time; provided, however, that,
after the last day of a Fiscal Year, the Board may not amend the Plan to reduce
benefits or rights to benefits or suspend or terminate the Plan for such Fiscal
Year without the prior written consent of more than fifty percent (50%) of the
Participants (or their representatives) as of the later of the adoption or
effective date of such amendment, suspension, or termination.
7. NATURE OF THE PLAN. The establishment of the Plan shall not be deemed to
create a trust. The Plan shall constitute an unfunded, unsecured liability of
the Company to make payments in accordance with the provisions of the Plan, and
no individual shall have any security or other interest in any assets of the
Company, in shares of stock of the Company or otherwise.
8. EMPLOYMENT RELATIONSHIP. Nothing in the adoption of this Plan nor the
payment of any amounts hereunder shall confer on any individual the right to
continued employment by the Company or any of its subsidiaries, or affect in any
way the right of the Company or any such subsidiary to terminate his employment
at any time.
9. GOVERNING LAW. All provisions of the Plan shall be construed in accordance
with the laws of Illinois.
IN WITNESS WHEREOF, the undersigned officer of the Company has executed
this LINC Capital, Inc. Executive Incentive Compensation Plan on this _____ day
of _________________, 1997.
LINC CAPITAL, INC.
By:____________________________
Name:__________________________
Title:_________________________
4
<PAGE>
Exhibit 10.8
================================================================================
LINC CAPITAL, INC.
1997 STOCK INCENTIVE PLAN
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
1. Purpose of the Plan...................................................1
2. Definitions...........................................................1
2.1. Board..........................................................1
2.2. Cause..........................................................1
2.3. Change of Control..............................................1
2.4. Code...........................................................2
2.5. Committee......................................................2
2.6. Compensation Committee.........................................2
2.7. Company........................................................2
2.8. Compete........................................................2
2.9. Director.......................................................2
2.10. Disability.....................................................2
2.11. Employee.......................................................2
2.12. ERISA..........................................................2
2.13. Fair Market Value..............................................2
2.14. Incentive Stock Option.........................................3
2.15. Act............................................................3
2.16. Act............................................................3
2.17. Nonqualified Options...........................................3
2.18. Option.........................................................3
2.19. Option Agreement...............................................3
2.20. Optionee.......................................................3
2.21. Related Corporation............................................3
2.22. Rule 16b-3.....................................................4
2.23. Shares.........................................................4
3. Administration of the Plan............................................4
4. Shares Subject to the Plan............................................4
5. Stock Options.........................................................5
5.1. Grant; Type of Options.........................................5
5.2. Option Agreement; Terms of Options.............................5
5.3. Additional Terms Applicable to All Options.....................5
5.3.1. Written Notice..........................................5
5.3.2. Method of Exercise......................................5
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
5.3.3. Term of Option............................................5
5.3.4. Disability or Death of Optionee...........................5
5.3.5. Transferability...........................................5
5.4. Additional Terms Applicable to Incentive Options..................6
5.4.1. Exercise Price.............................................6
5.4.2. Term of Option............................................6
5.4.3. Annual Exercise Limit.....................................6
5.4.4. Transferability...........................................6
6. Other..................................................................6
7. Amendment or Termination of the Plan...................................6
8. Term of Plan...........................................................7
9. Rights as Shareholder..................................................7
10. Merger or Consolidation................................................7
11. Changes in Capital and Corporate Structure.............................7
12. Service................................................................7
13. Withholding of Tax.....................................................7
14. Delivery and Registration of Stock.....................................7
15. Miscellaneous..........................................................8
15.1. No Right to An Award............................................8
15.2. No Restriction on Corporate Action..............................8
15.3. Rule 16b-3......................................................8
15.4. Governing Law...................................................8
</TABLE>
ii
<PAGE>
LINC CAPITAL, INC.
1997 STOCK INCENTIVE PLAN
-------------------------
1. Purpose of the Plan. The LINC CAPITAL, INC., 1997 STOCK INCENTIVE PLAN
(hereinafter referred to as the "Plan") is intended to provide a means whereby
Employees of LINC CAPITAL, INC., and its Related Corporations may sustain a
sense of proprietorship and personal involvement in the continued development
and financial success of the Company, and to encourage them to remain with and
devote their best efforts to the business of the Company, thereby advancing the
interests of the Company and its shareholders. Accordingly, the Company may
permit certain Employees to acquire Shares or otherwise participate in the
financial success of the Company, on the terms and conditions established
herein.
2. Definitions. The following terms shall be defined as set forth below:
-----------
2.1 Board. Shall mean the Board of Directors of LINC Capital, Inc.
2.2. Cause. Shall mean the commitment of fraud, the misappropriation of
or intentional material damage to the property or business of the Company, the
substantial failure to fulfill the duties and responsibilities of a regular
position with the Company and/or comply with Company policies, rules or
regulations, or the conviction of a felony.
2.3. Change of Control. Shall mean:
-----------------
(i) the consummation of the acquisition after the date hereof by
any person (as such term is defined in Section 13(d) or 14(d) of the 1934
Act of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the 1934 Act) of fifty percent (50%) or more of the combined voting
power of the then outstanding voting securities of LINC Capital, Inc.; or
(ii) the individuals who, as of the date hereof, are members of the
Board cease for any reason to constitute a majority of the Board, unless
the election, or nomination for election by the stockholders, of any new
Director was approved by a vote of a majority of the Board, and such new
Director shall, for purposes of this Plan, be considered as a member of the
Board; or
(iii) consummation of: (1) a merger or consolidation if the
stockholders, immediately before such merger or consolidation, do not, as a
result of such merger or consolidation, own, directly or indirectly, more
than fifty percent (50%) of the combined voting power of the then
outstanding voting securities of the entity resulting from such merger or
consolidation in substantially the same proportion as their ownership of
the combined voting power of the voting securities of LINC Capital, Inc.
outstanding immediately before such merger or consolidation; or (2) a
complete liquidation or dissolution or an agreement for the sale or other
disposition of all or substantially all of the assets of LINC Capital, Inc.
<PAGE>
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because fifty percent (50%) or more of the combined voting power of
the then outstanding securities of LINC Capital, Inc. are acquired by (1) a
trustee or other fiduciary holding securities under one or more employee benefit
plans maintained for Employees of the Company; or (2) any corporation which,
immediately prior to such acquisition, is owned directly or indirectly by the
stockholders in the same proportion as their ownership of stock immediately
prior to such acquisition.
2.4. Code. Shall mean the Internal Revenue Code of 1986, and any
amendments thereto. Reference in the Plan to any section of the Code shall be
deemed to include any amendments or successor provisions to such section and any
regulations promulgated under such section.
2.5. Committee. Shall mean the committee appointed by the Board
accordancewith Section 3 hereof.
2.6. Compensation Committee. The Compensation Committee of the Board.
2.7. Company. Shall mean LINC Capital, Inc. and its Related Corporations.
2.8. Compete. Shall mean within a period of one (1) year after the
termination of service, the direct or indirect competition with the business of
the Company, including, but not by way of limitation, the direct or indirect
owning, managing, operating, controlling, financing or serving as an officer,
employee, director or consultant to, or by soliciting or inducing, or attempting
to solicit or induce, any Employee or agent of the Company to terminate
employment and become employed by, any person, firm, partnership, corporation,
trust or other entity which owns or operates, a business competitive with that
of the Company, except with the express prior written consent of the Company.
2.9. Director. Shall mean an individual elected to the Board by the
stockholders of LINC Capital, Inc. or appointed by the Board under applicable
corporate law who is serving on the Board on the date the Plan is adopted by the
Board or is elected or appointed to the Board after such date.
2.10. Disability. Shall mean a physical or mental disability which impairs
the individual's ability to substantially perform his current duties for a
period of at least twelve (12) consecutive months, as determined by the
Committee.
2.11. Employee. Shall mean any person (including a Director) in an
employment relationship with the Company.
2.12. ERISA. Shall mean the Employee Retirement Income Security Act of
1974, and any amendment thereto.
2.13. Fair Market Value. Shall mean, as of any specified date, the mean of
the high and low sales prices of the Shares (i) reported by the National Market
System of NASDAQ on
2
<PAGE>
that date or (ii) if the Common Stock is listed on a national stock exchange,
reported on the stock exchange composite tape on that date; or, in either case,
if no prices are reported on that date, on the last preceding date on which such
prices of the Shares are so reported. If the Shares are traded over the counter
at the time a determination of their Fair Market Value is required to be made
hereunder, their Fair Market Value shall be deemed to be equal to the average
between the reported high and low or closing bid and asked prices of Shares on
the most recent date on which Shares were publicly traded. In the event Shares
are not publicly traded at the time a determination of their value is required
to be made hereunder, the determination of their Fair Market Value shall be made
by the Committee in such manner as it deems appropriate. Notwithstanding the
foregoing, the Fair Market Value of a Share on the date of an initial public
offering of Shares shall be the offering price under such initial public
offering.
2.14. Incentive Stock Option. Shall mean an award under the Plan that
satisfies the general requirements of Code Section 422, namely: (i) grantees
must be Employees; (ii) the exercise price may not be less than the Fair Market
Value of the underlying Shares at the date of grant; (iii) no more than $100,000
worth of Shares may become exercisable in any one year; (iv) the maximum
duration of an award may be ten (10) years; (v) awards must be exercised within
three (3) months after termination of employment (except in the case of death or
Disability, in which event such three (3) month period shall be a twelve (12)
month period as provided in Section 5.3.4 below); and (vi) Shares received upon
exercise must be retained for the greater of two (2) years from the date of
grant or one (1) year from the date of exercise.
2.15. 1933 Act. Shall mean the Securities Act of 1933, and any amendments
thereto.
2.16. 1934 Act. Shall mean the Securities Exchange Act of 1934 and any
amendments thereto.
2.17. Nonqualified Options. Shall mean an award under the Plan that is not
an Incentive Stock Option.
2.18. Option. Shall mean an Incentive Stock Option or a Nonqualified
Option granted under Section 5 of the Plan.
2.19. Option Agreement. Shall mean a written agreement between the Company
and an Optionee with respect to an Option.
2.20. Optionee. Shall mean an Employee who has been granted an Option.
2.21. Related Corporation. Shall mean a corporation which would be a
parent or subsidiary corporation with respect to LINC Capital, Inc. as defined
in Section 424(e) or (f), respectively, of the Code.
3
<PAGE>
2.22. Rule 16b-3. Shall mean SEC Rule 16b-3 promulgated under the 1934
Act, as such may be amended from time to time, and any successor rule,
regulation, statute fulfilling the same or a similar function.
2.23. Shares. Shall mean common stock of LINC Capital, Inc.
3. Administration of the Plan. The Plan shall be administered by the Committee
which shall be comprised solely of two (2) or more Directors who are "outside
directors" (within the meaning of Section 162(m) of the Code) and "non-employee
directors" (with the meaning of Rule 16b-3) and who are selected by and who may
be members of the Compensation Committee. The Committee shall have sole
authority to:
3.1. Select the Employees to whom awards shall be granted under the Plan.
In making such determinations, the Committee shall take into account the nature
of the services rendered by the respective Employees, their present and
potential contribution to the Company's success and such other factors as the
Committee in its sole discretion shall deem relevant;
3.2. Establish the form (e.g., an Incentive Stock Option or Nonqualified
Option), amount and conditions of each such award;
3.3. Prescribe any legend to be affixed to certificate(s) representing
such awards;
3.4. Interpret the Plan and correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any agreement relating to an award
in the manner and to the extent the Committee shall determine in its sole
discretion; and
3.5. Adopt such rules, regulations, forms and agreements, not inconsistent
with the provisions of the Plan, as it may deem advisable to carry out the Plan.
All decisions made by the Committee in administering the Plan and all
determinations of the Committee on the matters referred to in this Section 3
shall be final.
4. Shares Subject to the Plan. The aggregate number of Shares that may be
obtained by Employees under the Plan shall be Three Hundred Seventy-five
Thousand (375,000) Shares. Any Shares that remain unissued at the termination
of the Plan shall cease to be subject to the Plan, but until termination of the
Plan, LINC Capital, Inc. shall at all times make available sufficient Shares to
meet the requirements of the Plan. The maximum number of Shares that may be
granted to any one Employee pursuant to an award for any calendar year may not
exceed Fifty Thousand (50,000) Shares. The limitation set forth in the
preceding sentence shall be applied in a manner which will permit compensation
generated under the Plan to constitute "performance-based" compensation for
purposes of Section 162(m) of the Code, including, without limitation, counting
against such maximum number of Shares, to the extent required under Section
162(m) of the Code and all applicable interpretive authority thereunder, any
Shares subject to Options that are canceled or repriced. To the extent that an
Option
4
<PAGE>
lapses or the rights of an Optionee terminate, any Shares subject to such Option
shall again be made available for the grant of an Option to the extent permitted
under Rule 16b-3.
5. Stock Options.
5.1. Grant; Type of Options. The Company may from time to time grant
Options that constitute Incentive Stock Options or Nonqualified Options to one
or more individuals who are Employees at the time of grant under and pursuant to
the terms of the Plan. Any such Options may be granted on more than one occasion
to the same person.
5.2. Option Agreement; Terms of Options. The grant of each Option shall be
confirmed by an Option Agreement that shall be executed by the Company and the
Optionee as soon as practicable after such grant. The Option Agreement shall
expressly state or incorporate by reference the provisions of the Plan and state
whether the Option is an Incentive Option or a Nonqualified Option. Except as
provided in Sections 5.3 and 5.4 below, each Option granted under the Plan shall
be subject to the terms and conditions set forth by the Committee in the Option
Agreement including, but not limited to, the exercise price ("Exercise Price")
for each Share subject to the Option and Option term.
5.3. Additional Terms Applicable to All Options. Each Option shall be
subject to the following terms and conditions:
5.3.1. Written Notice. An Option may be exercised only by giving
written notice to the Company specifying the number of Shares to be purchased.
5.3.2. Method of Exercise. Except as otherwise may be provided in the
Option Agreement, the aggregate Exercise Price shall be paid in any one or a
combination of cash, personal check, Shares already owned (which Shares shall be
valued at their Fair Market Value) or Plan awards which the Optionee has an
immediate right to exercise.
5.3.3. Term of Option. No Option may be exercised more than ten (10)
years after the date of grant. No Option may be exercised more than six (6)
months after the Optionee terminates employment with the Company, except in the
event of Disability or death as provided in Section 5.3.4 below.
5.3.4. Disability or Death of Optionee. If an Optionee terminates
employment due to Disability or death prior to exercise in full of any Options,
he or his beneficiary, executor, administrator or personal representative shall
have the right to exercise the Options within a period of twelve (12) months
after the date of such termination to the extent that the right was exercisable
at the date of such termination as provided in the Option Agreement, or subject
to such other terms as may be determined by the Committee.
5.3.5. Transferability. No Option may be transferred, assigned or
encumbered by an Optionee, except (i) by will or the laws of descent and
distribution,
5
<PAGE>
(ii) by gifting for the benefit of descendants for estate planning
purposes, or (iii) pursuant to a certified domestic relations order.
5.4. Additional Terms Applicable to Incentive Options. Each Incentive
Option shall be subject to the following terms and conditions:
5.4.1. Exercise Price. The Exercise Price per Share for each Incentive
Option shall be 100 percent of the Fair Market Value of such Share on the date
the Incentive Option is granted. Notwithstanding the preceding sentence, the
Exercise Price per Share granted to an individual (hereinafter referred to as a
"10 Percent Shareholder") who, at the time such Incentive Option is granted,
owns stock possessing more than 10 percent of the total combined voting power of
all classes of stock of LINC Capital, Inc. shall not be less than 110 percent of
the Fair Market Value of such Share on the date the Incentive Option is granted.
5.4.2. Term of Option. No Incentive Option granted to a 10 Percent
Shareholder may be exercised more than five (5) years after the date of grant.
Notwithstanding any other provisions hereof, no Incentive Option may be
exercised more than three (3) months after the Optionee terminates employment
with the Company, except in the event of Disability or death as provided in
Section 5.3.4 above.
5.4.3. Annual Exercise Limit. The aggregate Fair Market Value of
Shares with respect to any Incentive Options which first become exercisable
during any calendar year shall not exceed $100,000. For purposes of the
preceding sentence, the Fair Market Value of each Share shall be determined on
the date the Incentive Option with respect to such Share is granted.
5.4.4. Transferability. No Incentive Option may be transferred,
assigned or encumbered by an optionee, except by will or the laws of descent and
distribution, and during the Optionee's lifetime an Incentive Option may only be
exercised by him.
6. Other Awards. Other awards, including, without limitation, performance or
restricted shares, convertible debentures, other convertible securities and
other forms of awards measured in whole or in part by the value of Shares, the
performance of the Employee or the performance of the Company, may be granted
under the Plan. Such awards may be payable in Shares, cash or both, and shall be
subject to such terms as the Committee shall determined.
7. Amendment or Termination of the Plan. The Board may amend, suspend or
terminate the Plan or any portion thereof at any time, but (except as provided
in Section 11 below) no amendment shall be made without approval of the
stockholders of LINC Capital, Inc. which shall (i) materially increase the
aggregate number of Shares with respect to which awards may be made under the
Plan, or (ii) change the class of persons eligible to participate in the Plan;
provided, however, that no such amendment, suspension or termination shall
impair the rights of any individual, without his consent, in any award
theretofore made pursuant to the Plan.
6
<PAGE>
8. Term of Plan. The Plan shall be effective upon the date of its adoption by
the Board; provided, however, that Incentive Options may be granted only if the
Plan is approved by the shareholders of LINC Capital, Inc. within twelve (12)
months before or after such date of adoption. Unless sooner terminated under the
provisions of Section 7, awards shall not be granted under the Plan after the
expiration of ten (10) years from the effective date of the Plan. However,
awards may be exercisable after the end of the term of the Plan.
9. Rights as Shareholder. Upon delivery of any Share to an Employee, such
Employee shall have all of the rights of a shareholder of LINC Capital, Inc.
with respect to such Share, including the right to vote such Share and to
receive all dividends or other distributions paid with respect to such Share.
10. Merger or Consolidation. In the event LINC Capital, Inc. is merged or
consolidated with another corporation and LINC Capital, Inc. is not the
surviving corporation, the surviving corporation may agree to exchange awards
issued under this Plan for awards (with the same aggregate Exercise Price) to
acquire and participate in that number of shares in the surviving corporation
that have a Fair Market Value equal to the Fair Market Value (determined on the
date of such merger or consolidation) of Shares that the grantee is entitled to
acquire and participate in under this Plan on the date of such merger or
consolidation. In the event of a Change of Control, awards may become
immediately and fully exercisable at the discretion of the Committee.
11. Changes in Capital and Corporate Structure. The aggregate number of Shares
and interests awarded and which may be awarded under the Plan shall be adjusted
to reflect a change in the outstanding Shares of LINC Capital, Inc. by reason of
a recapitalization, reclassification, reorganization, stock split, reverse stock
split, combination of shares, stock dividend or similar transaction. Any such
adjustment shall be made by the Committee in an equitable manner which will
cause the awards to remain unchanged as a result of the applicable transaction.
Any such adjustment made by the Committee shall be final and nonappealable.
12. Service. An individual shall be considered to be in the service of the
Company as long as he remains an Employee of the Company. Nothing herein shall
confer on any individual the right to continued service or employment with the
Company or affect the right of the Company to terminate such service or
employment.
13. Withholding of Tax. To the extent the issuance or exercise of an award
results in the receipt of compensation by a Employee of the Company, the Company
is authorized to withhold a portion of any Shares or any cash compensation then
or thereafter payable to such Employee to pay any tax required to be withheld by
reason of the receipt of such compensation. Alternatively, the Employee may
tender Shares with a Fair market Value equal to, or a personal check in the
amount of, the tax required to be withheld.
14. Delivery and Registration of Stock. The obligation of LINC Capital, Inc.
to deliver Shares with respect to an award shall, if the Committee so requests,
be conditioned upon the receipt of a representation as to the investment
intention of the individual to whom such Shares are to be delivered, in such
form as the Committee shall determine to be necessary or
7
<PAGE>
advisable to comply with the provisions of the 1933 Act or any other federal,
state or local securities law or regulation. It may be provided that any
representation requirement shall become inoperative upon a registration of the
Shares or other action eliminating the necessity of such representation under
any applicable securities law. LINC Capital, Inc. shall not be required to
deliver any Shares under the Plan prior to (i) the admission of such Shares to
listing on any stock exchange on which Shares may then be listed, and (ii) the
completion of such registration or other qualification of such Shares under any
state or federal law, rule or regulation, as the Committee shall determine to be
necessary or advisable.
15. Miscellaneous.
15.1. No Right to An Award. Neither the adoption of this Plan nor any
action of the Board or of the Committee shall be deemed to give an Employee any
right to be granted an award or any other rights hereunder except as may be
evidenced by an Agreement duly executed on behalf of the Company, and then only
to the extent and on the terms and conditions expressly set forth therein. The
Plan shall be unfunded. The Company shall not be required to establish any
special or separate fund or to make any other segregation of funds or assets to
assure the payment of any award.
15.2. No Restriction on Corporate Action. Nothing contained in the Plan
shall be construed to prevent LINC Capital, Inc. or any Related Corporation from
taking any corporate action which is deemed by LINC Capital, Inc. or by any
Related Corporation to be appropriate or in its best interest, including,
without limitation, any adjustment, recapitalization, reorganization, or other
change in the LINC Capital, Inc. capital structure or its business, any merger
or consolidation of LINC Capital, Inc., any issue of debt or equity securities
prior to or affecting the Shares or the rights thereof, the dissolution or
liquidation of LINC Capital, Inc., or any sale, lease, exchange or other
disposition of all or any part of the assets or business of LINC Capital, Inc.,
all whether or not such action would have an adverse effect on the Plan or on
any award granted under the Plan. No Employee beneficiary or other person shall
have any claim against LINC Capital, Inc., as a result of any such action.
15.3. Rule 16b-3. It is intended that the Plan and any grant of an award
made to a person subject to Section 16 of the 1934 Act meet all of the
requirements of Rule 16b-3. If any provision of the Plan or any such award would
disqualify the Plan or such award under, or would otherwise not comply with,
Rule 16b-3, such provision or award shall be construed or deemed amended to
conform to Rule 16b-3.
15.4. Governing Law. The Plan shall be construed in accordance with the
laws of the State of Delaware.
8
<PAGE>
Exhibit 10.9
LINC CAPITAL, INC.
303 E. Wacker Drive
Chicago, Illinois 60601
October 30, 1997
Mr. Terry Quinn
Quinn Capital Services
San Francisco, California
Dear Terry:
This letter will serve as our understanding with respect to your engagement by
LINC Capital, Inc. ("LINC Capital") for the period commencing November 1, 1997
to October 31, 1998 to perform certain consulting services in connection with
our activities relating to acquisition of leasing and rental companies
("Acquisition Activities") as well as other of our strategic initiatives.
Following is our understanding:
You will be engaged for a period of one year commencing on November 1, 1997 and
ending on October 31, 1998 to provide consulting services primarily with respect
to Acquisition Activities, including; but not limited to due diligence,
structuring, financing and originating and following up on potential acquisition
candidates. Notwithstanding this engagement period, either party may terminate
this engagement upon ninety (90) days prior written notice. Your monthly
retainer fee will be appropriately pro-rated for any month in the event that
such termination date is not the last day of a month.
For your services, LINC Capital will pay you a fee of $6,250.00 per month
payable on the last day of each month during the term hereof commencing on
November 30, 1997. This fee is based on the understanding that you will provide
not less than three (3) days per month in consulting services to LINC Capital at
its headquarters office in Chicago or at another location selected by LINC
Capital. Any time devoted to your activities, as a director of LINC Capital
shall be in addition to this three-day period.
In the event that you are required to provide more than three days of consulting
services in any given month as a result of concentration of activities regarding
an acquisition candidate, either LINC Capital will reduce the number of days
that you are required to provide in subsequent periods during the term of this
agreement or it will pay you an
<PAGE>
additional consulting fee of $2,500 per day for each day in excess of three days
of services provided per month or such other additional fee relating to the
success of any transaction as may be approved by the Compensation Committee of
the Board of Directors of LINC Capital.
In addition to the monthly consulting fee provided for above, LINC Capital will
reimburse you for your reasonable out of pocket travel and entertainment
expenses incurred directly in connection with the services provided to us,
including, but not limited to airfare, hotel rooms and business entertainment
expenses. Your expense reports should be submitted on a monthly basis and will
be reimbursed generally within ten days of receipt.
Notwithstanding the above, if the total amount to be paid to you (including
reimbursed expenses) during the term of this agreement is in excess of $100,000,
payment of such excess shall be subject to the approval of the Compensation
Committee of LINC Capital's board of directors.
If this agreement is acceptable to you, please execute the enclosed copy and
return it to my attention.
Best regards,
Martin E. Zimmerman
Chairman and Chief Executive Officer
cc: Allen P. Palles
Agreed:
By:
Date:
<PAGE>
Exhibit 10.10
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered into
as of ________, 1997, by and between LINC Capital, Inc. (the "Company") and
_______________ (the "Director").
WHEREAS, the Director is a member of the Board of Directors (the "Board")
of the Company;
WHEREAS, the Company desires to provide insurance and indemnification to
the Director in connection with liability incurred by reason of being a director
of the Company; and
WHEREAS, the Director is willing to accept such insurance and
indemnification upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual obligations
of the parties hereto, the parties do hereby agree as follows:
1. Indemnification.
---------------
1.1. Liability Insurance. The Company shall provide the Director
(including his heirs, personal representatives, executors and administrators)
for as long as he or she remains a director of the Company, with coverage in the
amount existing on the date hereof under a standard directors' and officers'
liability insurance policy at its expense, such coverage to be provided that the
annual premium for such policy does not exceed two hundred (200%) of the annual
premium for such a policy as of the date hereof. The Company will deliver to the
Director written notice at least thirty (30) days prior to the termination of
coverage or reduction of coverage below the amount existing on the date hereof.
1.2. Indemnity. In addition to the insurance coverage provided for in
Section 1.1, the Company shall hold harmless and indemnify the Director (and his
heirs, executors and administrators) to the fullest extent permitted under
applicable law against all expenses and liabilities reasonably incurred by him
in connection with or arising out of any action, suit or proceeding in which he
may be involved by reason of his having been a director of the Company (whether
or not he continues to be a director at the time of incurring such expenses or
liabilities), such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements.
1.3. Expenses. In the event the Director becomes a party, or is
threatened to be made a party, to any action, suit or proceeding for which the
Company has agreed to provide insurance coverage or indemnification under this
Section 1, the Company shall, to the fullest extent permitted under applicable
law, advance all expenses (including reasonable attorneys' fees), judgments,
fines and amounts paid in settlement (collectively "Expenses") incurred by the
Director in connection with the investigation, defense, settlement, or appeal or
any threatened, pending or completed action, suit or proceeding, subject to
receipt by the Company of a written undertaking from the Director (i) to
reimburse the Company for all Expenses actually paid by the Company to or on
behalf of the Director
<PAGE>
in the event it shall be ultimately determined that the Director is not entitled
to indemnification by the Company for such Expenses and (ii) to assign to the
Company all rights of the Director to indemnification, under any policy of
directors' and officers' liability insurance or otherwise, to the extent of the
amount of Expenses actually paid by the Company to or on behalf of the Director.
2. General Provisions.
------------------
2.1. Successors; Assignment. This Agreement shall be binding upon and
inure to the benefit of the Director, the Company and his and its respective
personal representatives, successors and assigns. The Company shall require any
successor to all or substantially all of the business and/or assets of the
Company, whether directly or indirectly, by purchase, merger, consolidation,
acquisition of stock, or otherwise, by an agreement inform and substance
satisfactory to the Director, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent as the Company would be
required to perform if no such succession had taken place.
2.2. Entire Agreement; Modifications. This Agreement constitutes the
entire Agreement between the parties respecting the subject matter hereof, and
supercedes all prior negotiations, undertakings, agreements and arrangements
with respect thereto, whether written or oral. Except as otherwise explicitly
provided herein, this Agreement may not be amended or modified except by written
agreement signed by the Director and the Company.
2.3. Enforcement and Governing Law. The provisions of this Agreement
shall be regarded as divisible and separate; if any of said provisions should be
declared invalid or unenforceable by a court of competent jurisdiction, the
validity and enforceability of the remaining provisions shall not be affected
thereby. This Agreement shall be construed and the legal relations of the
parties hereto shall be determined in accordance with the laws of the State of
Illinois without reference to the law regarding conflicts of law.
2.4. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators sitting in a location selected by
the Director within twenty (20) miles from the location of the Company, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrators' award in any court having
jurisdiction.
2.5. Legal Fees. All reasonable legal fees paid or incurred by the
Director pursuant to any dispute or question of interpretation relating to this
Agreement shall be paid or reimbursed by the Company if the Director is
successful on the merits pursuant to a legal judgment, arbitration or
settlement.
- 2 -
<PAGE>
2.6. Waiver. No waiver by either party at any time of any breach by the
other party of, or compliance with, any condition or provision of this Agreement
to be performed by the other party, shall be deemed a waiver of any similar or
dissimilar provisions or conditions at the same time or any prior or subsequent
time.
2.7. Notices. Notices pursuant to this Agreement shall be in writing and
shall be deemed given when received; and, if mailed, shall be mailed by United
States registered or certified mail, return receipt requested, postage prepaid;
and if to the Company, addressed to the principal headquarters of the Company,
attention: Chairman; or, if to the Director, to the address set froth below the
Director's signature on this Agreement, or to such other address as the party to
be notified shall have given to the other.
2.8. Miscellaneous. Time is of the essence of this Agreement and all of
the obligations of each party hereto. Wherever from the context that it appears
appropriate, each term stated in either the singular or plural shall include the
singular and the plural, and the pronouns stated in either the masculine,
feminine or the neuter general shall include the masculine, feminine and the
neuter genders. This Agreement may be executed in any number of identical
counterparts, any of which may contain the signatures of less than all parties,
and all of which together shall constitute a single agreement. This Agreement
shall be effective when signed by all of the parties hereto.
- 3 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indemnification
Agreement to be executed as of ___________, 1997.
LINC CAPITAL, INC.
____________________________________
By:
Title:
____________________________________
[DIRECTOR]
Address:____________________________
____________________________
____________________________
- 4 -
<PAGE>
LINC Capital, Inc. Exhibit 11.1
Computation of earnings per share
(in thousands except per share data)
Average shares used in computing earning per common and common equivalent share
were as follows;
<TABLE>
<CAPTION>
1994 1995 1996 6/30/96 6/30/97
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Average shares outstanding 3,495,804 3,397,507 3,404,255 3,404,255 3,373,021
Effect of dilutive option 9,143 96,548 170,554 96,548 150,867
Treasury stock - - (21,760) - (64,602)
--------- --------- --------- --------- ---------
3,504,947 3,494,055 3,553,049 3,500,803 3,459,286
========= ========= ========= ========= =========
Net income from continuing operations 255 763 1,435 737 902
Discontinued operations
Income (loss) from discontinued
operations, net of income tax (benefit) (3,902) 169 (706) (783) (55)
Net gain from disposal of discontinued
operations, net of income tax (benefit) 985 - 1,513 1,758 -
--------- --------- --------- --------- ---------
Net income (loss) (2,662) 932 2,242 1,712 847
========= ========= ========= ========= =========
Per common share
Net income from continuing operations 0.07 0.22 0.40 0.21 0.28
Discontinued operations
Income (loss) from discontinued
operations, net of income tax (benefit) (1.11) 0.05 (0.20) (0.22) (0.02)
Net gain from disposal of discontinued
operations, net of income tax (benefit) 0.28 - 0.43 0.50 -
--------- --------- --------- --------- ---------
Net income (loss) (0.76) 0.27 0.63 0.49 0.24
========= ========= ========= ========= =========
</TABLE>
