<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 20, 1997
REGISTRATION NO. 333-34729
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
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.
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- -------------------------------------------------------------------------------
<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 20, 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>
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(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 $ .
(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> <C> <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 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 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 during the last
ten years of this period 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 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 Companies 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 and 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
1993. 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 a Director of BioSterile Technologies, Inc. and Thomas
Nationwide Computer Corporation.
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. 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 consulting agreement with Mr.
Quinn providing for advice regarding acquisitions. Under such agreement, Mr.
Quinn will receive approximately $100,000 a year (including expenses) and such
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
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.................................................. *
Nasdaq National Market original listing fee...................... $29,122
Blue Sky fees and expenses (including attorneys' fees and
expenses)....................................................... *
Printing expenses................................................ *
Accounting fees and expenses..................................... *
Transfer agent's fees and expenses............................... *
Legal fees and expenses.......................................... *
Miscellaneous expenses........................................... *
-------
Total........................................................ $ *
=======
</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 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 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
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
*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 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
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. 2 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 20, 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. 2 TO REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED ON
OCTOBER 20, 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 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
*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 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 3.1
AMENDED AND RESTATED
--------------------
CERTIFICATE OF INCORPORATION
----------------------------
OF
--
LINC CAPITAL, INC.
------------------
ARTICLE ONE
-----------
The name of the Corporation is LINC Capital, Inc.
ARTICLE TWO
-----------
The address of the Corporation's registered office in the State of
Delaware is The Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware, 19801, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company. The registered office and/or
registered agent of the Corporation may be changed from time to time by action
of the board of directors.
ARTICLE THREE
-------------
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware (the "Delaware
General Corporation Law") either alone or with others through wholly or
partially owned subsidiaries, as a partner (limited or general) in any
partnership, as a member in a limited liability company, as a joint venturer in
any joint venture, or otherwise.
ARTICLE FOUR
------------
SECTION 1. The aggregate number of shares of stock which the
Corporation has authority to issue is 16,000,000, consisting of 1,000,000 shares
of Series Preferred Stock, par value $.01 per share (the "Series Preferred
Stock"), and 15,000,000 shares of Common Stock, par value $.001 per share (the
"Common Stock"). All of such shares shall be issued as fully paid and non-
assessable shares, and the holder thereof shall not be liable for any further
payments in respect thereof.
SECTION 2. The preferences, limitations, designations and relative
rights of the shares of each class and the qualifications, limitations or
restrictions thereof shall be as follows:
<PAGE>
A. Series Preferred Stock.
1. Authorization; Series; Provisions.
(a) The Board of Directors of the Corporation is authorized, subject
to limitations prescribed by law and the provisions of this Article Four, to
provide for the issuance of shares of the Series Preferred Stock in series, and
by filing a certificate pursuant to the General Corporation Law of the State of
Delaware, to establish from time to time the number of shares to be included in
each such series and to fix the designations, powers, preferences and rights of
the shares of each such series and the qualifications, limitations or
restrictions thereof.
(b) The Series Preferred Stock may be issued from time to time in one
or more series, the shares of each series to have such powers, designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as are stated and expressed
herein or in a resolution or resolutions providing for the issuance of such
series, adopted by the Board of Directors as hereinafter provided.
(c) Authority is hereby expressly granted to the Board of Directors,
subject to the provisions of this Section 2, to authorize the issuance of one or
more series of Series Preferred Stock, and with respect to each such series to
fix by resolution or resolutions providing for the issuance of such series:
(i) the maximum number of shares to constitute such series and the
distinctive designation thereof;
(ii) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of
such voting rights;
(iii) the dividend rate, if any, on the shares of such series, the
conditions and dates upon which such dividends shall be payable, the
preference or relation which such dividends shall bear to the dividends
payable on any other class or classes or on any other series of capital
stock, and whether such dividends shall be cumulative or noncumulative;
(iv) whether the shares of such series shall be subject to redemption
by the Corporation and, if made subject to redemption, the times, prices
and other terms and conditions of such redemption;
(v) the rights of the holders of shares of such series upon the
liquidation, dissolution or winding up of the Corporation;
(vi) whether or not the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such series for retirement or to
other corporate purposes and the terms and provisions relative to the
operation thereof;
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(vii) whether or not the shares of such series shall be convertible
into, or exchangeable for, shares of stock of any other class or classes,
or of any other series of the same class, and if so convertible or
exchangeable, the price or prices or the rate or rates of conversion or
exchange and the method, if any, of adjusting the same;
(viii) the limitations and restrictions, if any, to be effective
while any shares of such series are outstanding upon the payment of
dividends or making of other distributions on, and upon the purchase,
redemption or other acquisition by the Corporation of, Common Stock or any
other class or classes of stock of the Corporation ranking junior to the
shares of such series either as to dividends or upon liquidation;
(ix) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock
(including additional shares of such series or of any other series or of
any other class) ranking on a parity with or prior to the shares of such
series as to dividends or distribution of assets on liquidation,
dissolution or winding up; and
(x) any other preference and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions
thereof as shall not be inconsistent with this Section 2.
2. Series Identical; Rank. All shares of any one series of Series
Preferred Stock shall be identical with each other in all respects, except that
shares of any one series issued at different times may differ as to the dates
from which dividends, if any, thereon shall be cumulative; and all series shall
rank equally and be identical in all respects, except as permitted by the
foregoing provisions of paragraph 1(c) hereof; and all shares of Series
Preferred Stock shall rank senior to the Common Stock both as to dividends and
upon liquidation.
3. Liquidation. In the event of any liquidation, dissolution or
winding up of the Corporation, before any payment or distribution of the assets
of the Corporation (whether capital or surplus) shall be made to or set apart
for the holders of any class or classes of stock of the Corporation ranking
junior to the Series Preferred Stock upon liquidation, the holders of the shares
of the Series Preferred Stock shall be entitled to receive payment at the rate
fixed herein or in the resolution or resolutions adopted by the Board of
Directors providing for the issue of such series, plus (if dividends on shares
of such series of Series Preferred Stock shall be cumulative) an amount equal to
all dividends (whether or not earned or declared) accumulated to the date of
final distribution to such holders; but they shall be entitled to no further
payment. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation or proceeds thereof, distributable
among the holders of the shares of the Series Preferred Stock shall be
insufficient to pay in full the preferential amount aforesaid, then such assets,
or the proceeds thereof, shall be distributed among such holders ratably in
accordance with the respective amounts which would be payable on such shares if
all amounts payable thereon were paid in full.
4. Voting Rights. Except as shall be otherwise stated and expressed
herein or in the resolution or resolutions of the Board of Directors providing
for the issue of any series and
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except as otherwise required by the laws of the State of Delaware, the holders
of shares of Series Preferred Stock shall have, with respect to such shares, no
right or power to vote on any question or in any proceeding or to be represented
at, or to receive notice of, any meeting of stockholders.
5. Reacquired Shares. Shares of any Series Preferred Stock which
shall be issued and thereafter acquired by the Corporation through purchase,
redemption, exchange, conversion or otherwise shall return to the status of
authorized but unissued Series Preferred Stock unless otherwise provided in the
resolution or resolutions of the Board of Directors.
6. Increase/Decrease in Authorized Shares of a Series. Unless
otherwise provided in the resolution or resolutions of the Board of Directors
providing for the issuance thereof, the number of authorized shares of stock of
any such series may be increased or decreased (but not below the number of
shares thereof outstanding) by resolution or resolutions of the Board of Direc
tors. In case the number of shares of any such series of Series Preferred Stock
shall be decreased, the shares representing such decrease shall, unless
otherwise provided in the resolution or resolutions of the Board of Directors
providing for the issuance thereof, resume the status of authorized but unissued
Series Preferred Stock, undesignated as to series.
B. Common Stock.
Except as shall otherwise be stated herein or as otherwise required by
applicable law, all shares of Common Stock shall be identical in all respects
and shall entitle the holders thereof to the same rights and privileges, subject
to the same qualifications, limitations and restrictions.
1. Voting Rights. Except as otherwise provided in this Section 2B
of Article Four or as otherwise required by applicable law, holders of Common
Stock shall be entitled to one vote per share on all matters to be voted on by
the stockholders of the Corporation.
2. Dividends. Subject to the rights of each series of the Series
Preferred Stock, dividends may be declared and paid or set apart for payment
upon the Common Stock out of any assets or funds of the Corporation legally
available for the payment of dividends, and all holders of Common Stock shall be
entitled to participate in such dividends ratably on a per share basis.
3. Liquidation. Upon any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, and after the holders of the
Series Preferred Stock of each series shall have been paid in full the amounts
to which they respectively shall be entitled in accordance with Section 2A of
Article Four, the terms of any outstanding Series Preferred Stock and applicable
law, or an amount sufficient to pay the aggregate amount to which the holders of
the Series Preferred Stock of each series shall be entitled shall have been
deposited with a bank or trust company having capital, surplus and undivided
profits of at least Twenty-Five Million Dollars ($25,000,000) as a trust fund
for the benefit of the holders of such Series Preferred Stock, the remaining net
assets of the Corporation shall be distributed pro rata to the holders of the
Common Stock, to the exclusion of the holders of such Series Preferred Stock.
4
<PAGE>
C. General Provisions
1. Nonliquidating Events. A consolidation or merger of the
Corporation with or into another corporation or corporations or a sale, whether
for cash, shares of stock, securities or properties, or any combination thereof,
of all or substantially all of the assets of the Corporation shall not be deemed
or construed to be a liquidation, dissolution or winding up of the Corporation
within the meaning of this Article Four.
2. No Preemptive Rights. No holder of Series Preferred Stock or
Common Stock of the Corporation shall be entitled, as such, as a matter of
right, to subscribe for or purchase any part of any new or additional issue of
stock of any class or series whatsoever or of securities convertible into stock
of any class whatsoever, whether now or hereafter authorized and whether issued
for cash or other consideration, or by way of dividend.
ARTICLE FIVE
------------
The Corporation is to have perpetual existence.
ARTICLE SIX
-----------
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors, and the directors need not be
elected by ballot unless required by the By-laws of the Corporation. In
furtherance and not in limitation of the powers conferred by statute, the Board
of Directors of the Corporation is expressly authorized to make, alter, amend,
change, add to or repeal the By-laws of the Corporation.
ARTICLE SEVEN
-------------
Meetings of stockholders may be held within or without the State of
Delaware, as the By-laws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the Board of Directors or in the By-laws
of the Corporation. The Board of Directors shall from time to time decide
whether and to what extent and at what times and under what conditions and
requirements the accounts and books of the Corporation, or any of them, except
the stock book, shall be open to the inspection of the stockholders, and no
stockholder shall have any right to inspect any books or documents of the
Corporation except as conferred by the laws of the State of Delaware or as
authorized by the Board of Directors.
5
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ARTICLE EIGHT
-------------
Subject to the rights of the holders of any series of Series Preferred
Stock, from and after the date on which the Common Stock of the Corporation is
registered pursuant to the Securities Exchange Act of 1934, as amended, (A) any
action required or permitted to be taken by the stockholders of the Corporation
must be effected at an annual or special meeting of stockholders of the
Corporation and may not be effected in lieu thereof by any consent in writing by
such stockholders, and (B) special meetings of stockholders of the Corporation
may be called only by either (i) the chairman of the board, (ii) the president,
(iii) any vice president, (iv) the secretary or (v) any assistant secretary and
shall be called by any such officer at the request in writing of a majority of
the Board of Directors or at the request in writing of stockholders owning a
majority of the capital stock of the Corporation issued and outstanding and
entitled to vote.
ARTICLE NINE
------------
The number of directors which shall constitute the whole board shall
be such as from time to time shall be fixed by the Board of Directors in the
manner as provided in the By-laws, except that such number shall not be less
than one (1) nor more than fifteen (15), the exact number to be determined by
resolution adopted by affirmative vote of a majority of the Board of Directors.
Vacancies and newly created directorships resulting from any increase in the
number of directors may be filled only by the affirmative vote of the majority
of the Board of Directors then in office, although less than quorum, or by a
sole remaining director. Any director elected to fill a vacancy not resulting
from an increase in the number of directors shall have the same remaining term
as that of his predecessor. Except to the extent prohibited by law, the Board
of Directors shall have the right (which, to the extent exercised, shall be
exclusive) to establish the rights, powers, duties, rules and procedures that
from time to time shall govern the Board of Directors and each of its members,
including without limitation the vote required for any action by the Board of
Directors, and that from time to time shall affect the directors' power to
manage the business and affairs of the Corporation; and no by-law shall be
adopted by stockholders which shall impair or impede the implementation of the
foregoing.
ARTICLE TEN
-----------
Article Eight, Article Nine and this Article Ten of this Restated
Certificate of Incorporation and Sections 2 and 11 of Article II, Sections 2, 3
and 4 of Article III and Article V of the By-laws of the Corporation shall not
be altered, amended or repealed by, and no provision inconsistent therewith
shall be adopted by, the stockholders without the affirmative vote of the
holders of at least 80% of the Common Stock, voting together as a single class.
ARTICLE ELEVEN
--------------
To the fullest extent permitted by the Delaware General Corporation
Law as it now exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that
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<PAGE>
such amendment permits the Corporation to provide broader indemnification rights
than permitted prior thereto), no director of the Corporation shall be liable to
the Corporation or its stockholders for monetary damages arising from a breach
of fiduciary duty owed to the Corporation or its stockholders. Any repeal or
modification of the foregoing paragraph by the stockholders of the Corporation
shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
ARTICLE TWELVE
--------------
The Corporation expressly elects to be governed by Section 203 of the
Delaware General Corporation Law.
ARTICLE THIRTEEN
----------------
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation in the manner now or hereafter prescribed herein and by the laws
of the State of Delaware, and all rights conferred upon stockholders herein are
granted subject to this reservation.
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<PAGE>
Exhibit 3.2
AMENDED AND RESTATED BY-LAWS
----------------------------
OF
--
LINC CAPITAL, INC.
------------------
A Delaware Corporation
ARTICLE I
---------
OFFICES
-------
Section 1. Registered Office. The registered office of the Corporation in
the State of Delaware shall be located at The Corporation Trust Center, 1209
Orange Street, Wilmington, Delaware, 19801, County of New Castle. The name of
its registered agent at such address is The Corporation Trust Company. The
registered office and/or registered agent of the Corporation may be changed from
time to time by action of the board of directors.
Section 2. Other Offices. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the board of
directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place and Time of Meetings. An annual meeting of the
stockholders shall be held each year for the purpose of electing directors and
conducting such other proper business as may come before the meeting. Unless
otherwise directed by the board of directors, annual meetings of stockholders
shall be held on the fifteenth day of May beginning in 1998, if not a legal
holiday and, if a legal holiday, then on the first preceding regular business
day, at 12:00 a.m. At the annual meeting, stockholders shall elect directors
and transact such other business as properly may be brought before the meeting
pursuant to Article II, Section 11 hereof.
Section 2. Special Meetings. Special meetings of stockholders may be
called for any purpose and may be held at such time and place, within or without
the State of Delaware, as shall be stated in a notice of meeting or in a duly
executed waiver of notice thereof. Such meetings may be called at any time by
either (i) the chairman of the board, (ii) the president, (iii) any vice
<PAGE>
president, (iv) the secretary or (v) any assistant secretary and shall be called
by any such officer at the request in writing of a majority of the Board of
Directors or at the request in writing of stockholders owning a majority of the
capital stock of the Corporation issued and outstanding and entitled to vote.
The only matters that may be considered at any special meeting of the
stockholders are the matters specified in the notice of the meeting.
Section 3. Place of Meetings. The board of directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal executive office of the
Corporation.
Section 4. Notice. Whenever stockholders are required or permitted to
take action at a meeting, written or printed notice stating the place, date,
time, and, in the case of special meetings, the purpose or purposes, of such
meeting, shall be given to each stockholder entitled to vote at such meeting not
less than ten (10) nor more than sixty (60) days before the date of the meeting.
All such notices shall be delivered, either personally or by mail, by or at the
direction of the board of directors, the chairman of the board, the president or
the secretary, and if mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, postage prepaid, addressed to the
stockholder at his, her or its address as the same appears on the records of the
Corporation. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends for the express purpose
of objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened.
Section 5. Stockholders List. The officer having charge of the stock
ledger of the Corporation shall make, at least 10 days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum. The holders of a majority of the outstanding shares of
capital stock entitled to vote, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders, except as otherwise
provided by statute or by the certificate of incorporation. If a quorum is not
present, the holders of a majority of the shares present in person or
represented by proxy at the meeting, and entitled to vote at the meeting, may
adjourn the meeting to another time and/or place. When a specified item of
business requires a vote by a class or series (if the Corporation shall then
have outstanding shares of more than one class or series) voting as a class, the
holders of a majority of the shares of such class or series shall constitute a
quorum (as to such class or series) for the transaction of such item of
business.
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<PAGE>
Section 7. Adjourned Meetings. When a meeting is adjourned to another
time and place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 8. Vote Required. When a quorum is present, the affirmative vote
of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless (i) by express provisions of an applicable law or of the
certificate of incorporation a different vote is required, in which case such
express provision shall govern and control the decision of such question, or
(ii) the subject matter is the election of directors, in which case Section 2 of
Article III hereof shall govern and control the approval of such subject matter,
or (iii) the amendment of any provision listed in Article VIII, in which case
Article VIII hereof shall govern and control the approval of such subject
matter.
Section 9. Voting Rights. Except as otherwise provided by the General
Corporation Law of the State of Delaware or by the certificate of incorporation
of the Corporation or any amendments thereto and subject to Section 3 of Article
VI hereof, every stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of common stock held
by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him or her by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally. Any proxy is suspended when the person
executing the proxy is present at a meeting of stockholders and elects to vote,
except that when such proxy is coupled with an interest and the fact of the
interest appears on the face of the proxy, the agent named in the proxy shall
have all voting and other rights referred to in the proxy, notwithstanding the
presence of the person executing the proxy. At each meeting of the
stockholders, and before any voting commences, all proxies filed at or before
the meeting shall be submitted to and examined by the secretary or a person
designated by the secretary, and no shares may be represented or voted under a
proxy that has been found to be invalid or irregular.
Section 11. Business Brought Before a Meeting. At an annual meeting of
the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the board of directors, (b)
brought before the meeting by or at the direction of the board of directors, or
(c) otherwise properly brought before
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<PAGE>
the meeting by a stockholder. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation, not less than sixty (60) days
nor more than ninety (90) days prior to the meeting; provided, however, that in
the event that less than seventy (70) days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth (10) day following the date on which such notice of the
date of the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting, (b) the name
and address, as they appear on the Corporation's books, of the stockholder
proposing such business, (c) the class and number of shares of the Corporation
which are beneficially owned by the stockholder, and (d) any material interest
of the stockholder in such business. Notwithstanding anything in these by-laws
to the contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 11 of Article II. The
presiding officer of an annual meeting shall, if the facts warrant, determine
that the business was not properly brought before the meeting and in accordance
with the provisions of this Section 11 of Article II; and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
ARTICLE III
-----------
DIRECTORS
---------
Section 1. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the board of directors. In
addition to such powers as are herein and in the certificate of incorporation
expressly conferred upon it, the board of directors shall have and may exercise
all the powers of the Corporation, subject to the provisions of the laws of
Delaware, the certificate of incorporation and these by-laws.
Section 2. Number, Election and Term of Office. The number of directors
which shall constitute the board shall be seven (7), but the number of directors
may be changed and established from time to time by resolution of the board.
The directors shall be elected by a plurality of the votes of the shares present
in person or represented by proxy at the meeting and entitled to vote in the
election of directors; provided that, whenever the holders of any class or
series of capital stock of the Corporation are entitled to elect one or more
directors pursuant to the provisions of the certificate of incorporation of the
Corporation (including, but not limited to, for purposes of these by-laws,
pursuant to any duly authorized certificate of designation), such directors
shall be elected by a plurality of the votes of such class or series present in
person or represented by proxy at the meeting and entitled to vote in the
election of such directors. The directors shall be elected in this manner at
the annual meeting of the stockholders, except as provided in Section 4 of this
Article III.
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<PAGE>
Each director elected shall hold office until a successor is duly elected and
qualified or until his or her earlier death, resignation or removal as
hereinafter provided.
Section 3. Removal and Resignation. Any director or the entire board of
directors may be removed at any time, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors.
Whenever the holders of any class or series are entitled to elect one or more
directors by the provisions of the Corporation's certificate of incorporation,
the provisions of this section shall apply, in respect to the removal without
cause of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class or series and not to the vote of the
outstanding shares as a whole. Any director may resign at any time upon written
notice to the corporation.
Section 4. Vacancies. Vacancies and newly created directorships resulting
from any increase in the total number of directors established by the board
pursuant to Section 2 of this Article III may be filled only by the affirmative
vote of the majority of the total number of directors then in office, though
less than a quorum, or by a sole remaining director. Any director elected to
fill a vacancy resulting from an increase in the number of directors shall hold
office for a term that shall coincide with the remaining term of the class of
directors to which he is elected. A director elected to fill a vacancy not
resulting from an increase in the number of directors shall have the same
remaining term as that of his predecessor. Each director so chosen shall hold
office until a successor is duly elected and qualified or until his or her
earlier death, resignation or removal as herein provided. Whenever holders of
any class or classes of stock or series thereof are entitled by the provisions
of the certificate of incorporation to elect one or more directors, vacancies of
directorships pertaining to such class or classes or series may only be filled
by the affirmative vote of the majority of the total number of directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected. If no such directors or director remains, then
the vacancy or vacancies of directorships pertaining to such class or classes or
series shall be filled by the affirmative vote of the majority of the total
number of directors then in office, or by any sole remaining director.
Section 5. Annual Meetings. The annual meeting of the board of directors
shall be held without other notice than this by-law immediately after, and at
the same place as, the annual meeting of stockholders.
Section 6. Other Meetings and Notice. Regular meetings, other than the
annual meeting, of the board of directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the board of directors may be called by the
chairman of the board or, upon the written request of at least a majority of the
directors then in office, by the secretary of the Corporation on at least 24
hours notice to each director, either personally, by telephone, by mail, or by
telecopy.
Section 7. Chairman of the Board, Quorum, Required Vote and Adjournment.
The board of directors shall elect, by the affirmative vote of the majority of
the total number of directors then in office, a chairman of the board, who shall
preside at all meetings of the stockholders and board
-5-
<PAGE>
of directors at which he or she is present. If the chairman of the board is not
present at a meeting of the stockholders or the board of directors, the chief
executive officer (if the chief executive officer is a director and is not also
the chairman of the board) shall preside at such meeting, and, if the chief
executive officer is not present at such meeting, a majority of the directors
present at such meeting shall elect one of their members to so preside. A
majority of the total number of directors then in office shall constitute a
quorum for the transaction of business. Unless by express provision of an
applicable law, the Corporation's certificate of incorporation or these by-laws
a different vote is required, the vote of a majority of directors present at a
meeting at which a quorum is present shall be the act of the board of directors.
If a quorum shall not be present at any meeting of the board of directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 8. Committees. The board of directors may, by resolution passed
by a majority of the total number of directors then in office, designate one or
more committees, each committee to consist of one or more of the directors of
the Corporation, which to the extent provided in such resolution or these by-
laws shall have, and may exercise, the powers of the board of directors in the
management and affairs of the Corporation, except as otherwise limited by law.
The board of directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the board
of directors. Each committee shall keep regular minutes of its meetings and
report the same to the board of directors when required.
Section 9. Committee Rules. Each committee of the board of directors may
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. Unless otherwise provided in such a
resolution, in the event that a member and that member's alternate, if
alternates are designated by the board of directors as provided in Section 9 of
this Article III, of such committee is or are absent or disquali fied, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in place of any such absent or disqualified member.
Section 10. Communications Equipment. Members of the board of directors
or any committee thereof may participate in and act at any meeting of such board
or committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
and speak with each other, and participation in the meeting pursuant to this
Section 11 shall constitute presence in person at the meeting.
Section 11. Waiver of Notice and Presumption of Assent. Any member of the
board of directors or any committee thereof who is present at a meeting shall be
conclusively presumed to have waived notice of such meeting except when such
member attends for the express purpose of
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objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened. Such member shall be
conclusively presumed to have assented to any action taken unless his or her
dissent shall be entered in the minutes of the meeting or unless his or her
written dissent to such action shall be filed with the person acting as the
secretary of the meeting before the adjournment thereof or shall be forwarded by
registered mail to the secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to any member
who voted in favor of such action.
Section 12. Action by Written Consent. Unless otherwise restricted by the
certificate of incorporation, any action required or permitted to be taken at
any meeting of the board of directors, or of any committee thereof, may be taken
without a meeting if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
ARTICLE IV
----------
OFFICERS
--------
Section 1. Number. The officers of the Corporation shall be elected by
the board of directors and shall consist of a chairman of the board, chief
executive officer, president, one or more executive vice presidents or vice-
presidents, a chief operating officer, a chief financial officer, a secretary, a
treasurer and such other officers and assistant officers as may be deemed
necessary or desirable by the board of directors. Any number of offices may be
held by the same person. In its discretion, the board of directors may choose
not to fill any office for any period as it may deem advisable, except that the
offices of president and secretary shall be filled as expeditiously as possible.
Section 2. Election and Term of Office. The officers of the Corporation
shall be elected annually by the board of directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as convenient.
Vacancies may be filled or new offices created and filled at any meeting of the
board of directors. Each officer shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the board of
directors may be removed by the board of directors at its discretion, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
Section 4. Vacancies. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
board of directors.
Section 5. Compensation. Compensation of all officers shall be fixed by
the board of directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of the Corporation.
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Section 6. Chairman of the Board. The chairman of the board shall
preside at all meetings of the board of directors and stockholders and shall
have such other powers and perform such other duties as may be prescribed by the
board of directors or provided in these by-laws. The chairman of the board is
authorized to execute bonds, mortgages and other contracts requiring a seal,
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the board of directors to some other
officer or agent of the Corporation.
Section 7. Chief Executive Officer. The chief executive officer shall
have the powers and perform the duties incident to that position. Subject to
the powers of the board of directors, he or she shall be in the general and
active charge of the entire business and affairs of the Corporation, and shall
be its chief policy-making officer. The chief executive officer is authorized
to execute bonds, mortgages and other contracts requiring a seal, under the seal
of the Corporation, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution thereof shall be
expressly delegated by the board of directors to some other officer or agent of
the Corporation. The chief executive officer shall, in the absence or
disability of the chairman of the board, act with all of the powers, perform all
duties and be subject to all the restrictions of the chairman of the board. The
chief executive officer shall have such other powers and perform such other
duties as may be prescribed by the chairman of the board or the board of
directors or as may be provided in these by-laws.
Section 8. The President. The president of the Corporation shall, subject
to the powers of the board of directors, the chairman of the board and the chief
executive officer, shall have general charge of the business, affairs and
property of the Corporation, and control over its officers, agents and
employees; and shall see that all orders and resolutions of the board of
directors and the chief executive officer are carried into effect. The
president shall, in the absence or disability of the chief executive officer,
act with all of the powers and be subject to all the restrictions of the chief
executive officer. The president is authorized to execute bonds, mortgages and
other contracts requiring a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the board of directors to some other officer or agent of the Corporation. The
president shall have such other powers and perform such other duties as may be
prescribed by the chairman of the board, the chief executive officer or the
board of directors or as may be provided in these by-laws.
Section 9. Chief Operating Officer. The chief operating officer of the
Corporation, subject to the powers of the board of directors, the chairman of
the board and the chief executive officer, shall have general and active
management of the business of the Corporation; and shall see that all orders and
resolutions of the board of directors are carried into effect. The chief
operating officer shall have such other powers and perform such other duties as
may be prescribed by the chairman of the board, the chief executive officer or
the board of directors or as may be provided in these by-laws.
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Section 10. Chief Financial Officer. The chief financial officer of the
Corporation shall, under the direction of the chairman of the board, the chief
executive officer and the president, be responsible for all financial and
accounting matters and for the direction of the offices of treasurer and
controller. The chief financial officer shall have such other powers and perform
such other duties as may be prescribed by the chairman of the board, the chief
executive officer or the board of directors or as may be provided in these by-
laws.
Section 11. Vice-presidents. The vice-president, or if there shall be
more than one, the vice-presidents in the order determined by the board of
directors or the chairman of the board, shall, in the absence or disability of
the president, act with all of the powers and be subject to all the restrictions
of the president. The vice-presidents shall also perform such other duties and
have such other powers as the board of directors, the chairman of the board, the
chief executive officer, the president or these by-laws may, from time to time,
prescribe. The vice-presidents may also be designated as executive vice-
presidents or senior vice-presidents, as the board of directors may from time to
time prescribe.
Section 12. The Secretary and Assistant Secretaries. The secretary shall
attend all meetings of the board of directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book or books to be kept for that purpose or shall ensure that
his or her designee attends each such meeting to act in such capacity. Under
the chairman of the board's supervision, the secretary shall give, or cause to
be given, all notices required to be given by these by-laws or by law; shall
have such powers and perform such duties as the board of directors, the chairman
of the board, the chief executive officer, the president or these by-laws may,
from time to time, prescribe; and shall have custody of the corporate seal of
the Corporation. The secretary, or an assistant secretary, shall have authority
to affix the corporate seal to any instrument requiring it and when so affixed,
it may be attested by his or her signature or by the signature of such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
or her signature. The assistant secretary, or if there be more than one, any of
the assistant secretaries in the order determined by the board of directors,
shall, in the absence or disability of the secretary, perform the duties and
exercise the powers of the secretary and shall perform such other duties and
have such other powers as the board of directors, the chairman of the board, the
chief executive officer, the president, or secretary may, from time to time,
prescribe.
Section 13. The Treasurer and Assistant Treasurer. The treasurer shall
have the custody of the corporate funds and securities; shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation; shall deposit all monies and other valuable effects in the name
and to the credit of the Corporation as may be ordered by the chairman of the
board, the chief executive officer, the chief financial officer or the board of
directors; shall cause the funds of the Corporation to be disbursed when such
disbursements have been duly authorized, taking proper vouchers for such
disbursements; and shall render to the chairman of the board, the chief
financial officer and the board of directors, at its regular meeting or when the
board of directors so requires, an account of the Corporation; shall have such
powers and perform such duties as the board
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of directors, the chairman of the board, the chief executive officer, the
president, the chief financial officer or these by-laws may, from time to time,
prescribe. If required by the board of directors, the treasurer shall give the
Corporation a bond (which shall be rendered every six years) in such sums and
with such surety or sureties as shall be satisfactory to the board of directors
for the faithful performance of the duties of the office of treasurer and for
the restoration to the Corporation, in case of death, resignation, retirement,
or removal from office, of all books, papers, vouchers, money, and other
property of whatever kind in the possession or under the control of the
treasurer belonging to the Corporation. The assistant treasurer, or if there
are more than one, the assistant treasurers in the order determined by the board
of directors shall, in the absence or disability of the treasurer, perform the
duties and exercise the powers of the treasurer. The assistant treasurers shall
perform such other duties and have such other powers as the board of directors,
the chairman of the board, the chief executive officer, the president, the chief
financial officer, treasurer or these by-laws may, from time to time, prescribe.
Section 14. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these by-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.
Section 15. Absence or Disability of Officers. In the case of the absence
or disability of any officer of the Corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person selected by it.
ARTICLE V
---------
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
-------------------------------------------------
Section 1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved (including
involvement as a witness) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a director or officer of the
Corporation or, while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter, an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director or officer or in any other capacity
while serving as a director or officer, shall be indemnified and held harmless
by the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA exercise taxes or penalties and amounts paid in
settlement)
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reasonably incurred or suffered by such indemnitee in connection therewith and
such indemnification shall continue as to an indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators; provided, however, that,
except as provided in Section 2 of Article V with respect to proceedings to
enforce rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by such
indemnitee only if such proceeding (or part thereof) was authorized by the board
of directors of the Corporation. The right to indemnification conferred in this
Section 1 of Article V shall be a contract right and shall include the right to
be paid by the Corporation the expenses incurred in defending any such
proceeding in advance of its final disposition (hereinafter an "advance of
expenses"); provided, however, that, if and to the extent that the Delaware
General Corporation Law requires, an advance of expenses incurred by an
indemnitee in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such indemnitee, including,
without limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section 1 of Article V or otherwise. The Corporation may, by action of its
board of directors, provide indemnification to employees and agents of the
Corporation with the same scope and effect as the foregoing indemnification of
directors and officers.
Section 2. Procedure for Indemnification. Any indemnification of a
director or officer of the Corporation or advance of expenses under Section 1 of
this Article V shall be made promptly, and in any event within forty-five (45)
days (or, in the case of an advance of expenses, twenty (20) days), upon the
written request of the director or officer. If a determination by the
Corporation that the director or officer is entitled to indemnification pursuant
to this Article V is required, and the Corporation fails to respond within sixty
(60) days to a written request for indemnity, the Corporation shall be deemed
to have approved the request. If the Corporation denies a written request for
indemnification or advance of expenses, in whole or in part, or if payment in
full pursuant to such request is not made within forty-five (45) days (or, in
the case of an advance of expenses, twenty (20) days), the right to
indemnification or advances as granted by this Article V shall be enforceable by
the director or officer in any court of competent jurisdiction. Such person's
costs and expenses incurred in connection with successfully establishing his or
her right to indemnification, in whole or in part, in any such action shall also
be indemnified by the Corporation. It shall be a defense to any such action
(other than an action brought to enforce a claim for the advance of expenses
where the undertaking required pursuant to Section 1 of this Article V, if any,
has been tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under the Delaware General
Corporation Law for the Corporation to indemnify the claimant for the amount
claimed, but the burden of such defense shall be on the Corporation. Neither the
failure of the Corporation (including its board of directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual
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determination by the Corporation (including its board of directors, independent
legal counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
The procedure for indemnification of other employees and agents for whom
indemnification is provided pursuant to Section 1 of this Article V shall be the
same procedure set forth in this Section 2 for directors or officers, unless
otherwise set forth in the action of the board of directors providing
indemnification for such employee or agent.
Section 3. Service for Subsidiaries. Any person serving as a director,
officer, employee or agent of a Subsidiary shall be conclusively presumed to be
serving in such capacity at the request of the Corporation.
Section 4. Reliance. Persons who after the date of the adoption of this
provision become or remain directors or officers of the Corporation or who,
while a director or officer of the Corporation, become or remain a director,
officer, employee or agent of a Subsidiary, shall be conclusively presumed to
have relied on the rights to indemnity, advance of expenses and other rights
contained in this Article V in entering into or continuing such service. The
rights to indemnification and to the advance of expenses conferred in this
Article V shall apply to claims made against an indemnitee arising out of acts
or omissions which occurred or occur both prior and subsequent to the adoption
hereof.
Section 5. Non-Exclusivity of Rights. The rights to indemnification and
to the advance of expenses conferred in this Article V shall not be exclusive of
any other right which any person may have or hereafter acquire under this
Certificate of Incorporation or under any statute, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 6. Insurance. The Corporation may purchase and maintain insurance
on its own behalf and on behalf of any person who is or was a director, officer,
employee or agent of the Corporation or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss asserted against him or her and incurred by him or her in any
such capacity, whether or not the Corporation would have the power to indemnify
such person against such expenses, liability or loss under the Delaware General
Corporation Law.
Section 7. Expenses. Expenses incurred by any person described in Section
1 of this Article V in defending a proceeding shall be paid by the Corporation
in advance of such proceeding's final disposition unless otherwise determined by
the board of directors in the specific case upon receipt of an undertaking by or
on behalf of the director or officer to repay such amount if it shall ultimately
be determined that he or she is not entitled to be indemnified by the
Corporation. Such expenses incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the board of directors deems
appropriate.
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Section 8. Employees and Agents. Persons who are not covered by the
foregoing provisions of this Article V and who are or were employees or agents
of the Corporation, or who are or were serving at the request of the Corporation
as employees or agents of another Corporation, partnership, joint venture, trust
or other enterprise, may be indemnified to the extent authorized at any time or
from time to time by the board of directors.
Section 9. Contract Rights. The provisions of this Article V shall be
deemed to be a contract right between the Corporation and each director or
officer who serves in any such capacity at any time while this Article V and the
relevant provisions of the General Corporation Law of the State of Delaware or
other applicable law are in effect, and any repeal or modification of this
Article V or any such law shall not affect any rights or obligations then
existing with respect to any state of facts or proceeding then existing.
Section 10. Merger or Consolidation. For purposes of this Article V,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article V
with respect to the resulting or surviving corporation as he or she would have
with respect to such constituent corporation if its separate existence had
continued.
ARTICLE VI
----------
CERTIFICATES OF STOCK
---------------------
Section 1. Form. Every holder of stock in the Corporation shall be
entitled to have a certificate, signed by, or in the name of the Corporation by
the chairman of the board, the president or a vice-president and the secretary
or an assistant secretary of the Corporation, certifying the number of shares
owned by such holder in the Corporation. If such a certificate is countersigned
(1) by a transfer agent or an assistant transfer agent other than the
Corporation or its employee or (2) by a registrar, other than the Corporation or
its employee, the signature of any such chairman of the board, president, vice-
president, secretary, or assistant secretary may be facsimiles. In case any
officer or officers who have signed, or whose facsimile signature or signatures
have been used on, any such certificate or certificates shall cease to be such
officer or officers of the Corporation whether because of death, resignation or
otherwise before such certificate or certificates have been delivered by the
Corporation, such certificate or certificates may nevertheless be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not ceased to be such officer or officers of the
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Corporation. All certificates for shares shall be consecutively numbered or
otherwise identified. The name of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the books of the Corporation. Shares of stock of the Corporation
shall only be transferred on the books of the Corporation by the holder of
record thereof or by such holder's attorney duly authorized in writing, upon
surrender to the Corporation of the certificate or certificates for such shares
endorsed by the appropriate person or persons, with such evidence of the
authenticity of such endorsement, transfer, authorization, and other matters as
the Corporation may reasonably require, and accompanied by all necessary stock
transfer stamps. In that event, it shall be the duty of the Corporation to
issue a new certificate to the person entitled thereto, cancel the old
certificate or certificates, and record the transaction on its books. The board
of directors may appoint a bank or trust company organized under the laws of the
United States or any state thereof to act as its transfer agent or registrar, or
both in connection with the transfer of any class or series of securities of the
Corporation.
Section 2. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the Corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the Corporation
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the Corporation a bond
sufficient to indemnify the Corporation against any claim that may be made
against the Corporation on account of the loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that
the Corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty (60) nor less
than ten (10) days before the date of such meeting. If no record date is fixed
by the board of directors, the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be the close of
business on the next day preceding the day on which notice is first given. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
Section 4. Fixing a Record Date for Action by Written Consent. In order
that the Corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without
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a meeting, when no prior action by the board of directors is required by
statute, shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the board of directors and prior action by the board of directors is required by
statute, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the board of directors adopts the resolution taking such
prior action.
Section 5. Fixing a Record Date for Other Purposes. In order that the
Corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty (60) days prior to such action. If no record date is fixed,
the record date for determining stockholders for any such purpose shall be at
the close of business on the day on which the board of directors adopts the
resolution relating thereto.
Section 6. Registered Stockholders. Prior to the surrender to the
Corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the Corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications, and otherwise to exercise all the rights and
powers of an owner. The Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
Section 7. Subscriptions for Stock. Unless otherwise provided for in the
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
board of directors. Any call made by the board of directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is due, the Corporation may proceed to collect the
amount due in the same manner as any debt due the Corporation.
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ARTICLE VII
-----------
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, in accordance with applicable law. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
certificate of incorpo ration. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
any other purpose and the directors may modify or abolish any such reserve in
the manner in which it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts, or other
orders for the payment of money by or to the Corporation and all notes and other
evidences of indebtedness issued in the name of the Corporation shall be signed
by such officer or officers, agent or agents of the Corporation, and in such
manner, as shall be determined by resolution of the board of directors or a duly
authorized committee thereof.
Section 3. Contracts. In addition to the powers otherwise granted to
officers pursuant to Article IV hereof, the board of directors may authorize any
officer or officers, or any agent or agents, of the Corporation to enter into
any contract or to execute and deliver any instrument in the name of and on
behalf of the Corporation, and such authority may be general or confined to
specific instances.
Section 4. Loans. The Corporation may lend money to, or guarantee
any obligation of, or otherwise assist any officer or other employee of the
Corporation or of its subsidiaries, including any officer or employee who is a
director of the Corporation or its subsidiaries, whenever, in the judgment of
the directors, such loan, guaranty or assistance may reasonably be expected to
benefit the Corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the Corporation at
common law or under any statute.
Section 5. Fiscal Year. The fiscal year of the Corporation shall be fixed
by resolution of the board of directors.
Section 6. Corporate Seal. The board of directors shall provide a
corporate seal which shall be in the form of a circle and shall have inscribed
thereon the name of the Corporation and the words "Corporate Seal, Delaware."
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
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Section 7. Voting Securities Owned By Corporation. Voting securities in any
other corporation held by the Corporation shall be voted by the chairman of the
board, the chief executive officer, the president or a vice-president, unless
the board of directors specifically confers authority to vote with respect
thereto, which authority may be general or confined to specific instances, upon
some other person or officer. Any person authorized to vote securities shall
have the power to appoint proxies, with general power of substitution.
Section 8. Inspection of Books and Records. Any stockholder of
record, in person or by attorney or other agent, shall, upon written demand
under oath stating the purpose thereof, have the right during the usual hours
for business to inspect for any proper purpose the Corporation's stock ledger, a
list of its stockholders, and its other books and records, and to make copies or
extracts therefrom. A proper purpose shall mean any purpose reasonably related
to such person's interest as a stockholder. In every instance where an attorney
or other agent shall be the person who seeks the right to inspection, the demand
under oath shall be accompanied by a power of attorney or such other writing
which authorizes the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the Corporation at its
registered office in the State of Delaware or at its principal place of
business. The Corporation shall have a reasonable amount of time to respond to
any such request.
Section 9. Section Headings. Section headings in these by-laws are
for convenience of reference only and shall not be given any substantive effect
in limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision
of these by-laws is or becomes inconsistent with any provision of the
certificate of incorporation, the General Corporation Law of the State of
Delaware or any other applicable law, the provision of these by-laws shall not
be given any effect to the extent of such inconsistency but shall otherwise be
given full force and effect.
ARTICLE VIII
------------
AMENDMENTS
----------
These by-laws may be amended, altered, or repealed and new by-laws
adopted at any meeting of the board of directors by the affirmative vote of the
majority of the total number of directors then in office. The fact that the
power to adopt, amend, alter, or repeal the by-laws has been conferred upon the
board of directors shall not divest the stockholders of such powers as set forth
in the certificate of incorporation; provided, that Sections 2 and 11 of Article
II, Sections 2, 3 and 4 of Article III and Article V of these By-laws of the
Corporation shall not be altered, amended or repealed by, and no provision
inconsistent therewith shall be adopted by, the stockholders without the
affirmative vote of the holders of at least 80% of the Common Stock, voting
together as a single class.
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<PAGE>
EXHIBIT 10.1(a)
THIRD AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------------
AGREEMENT, made as of the 22nd day of July, 1997, by and among:
LINC CAPITAL, INC. (formerly known as Scientific Leasing, Inc.),
a Delaware corporation ("LCI");
LINC QUANTUM ANALYTICS, INC., a Delaware corporation ("Quantum")
(each of LCI and Quantum are sometimes individually referred to herein as a
"Borrower" and collectively referred to herein as the "Borrowers");
The Banks which from time to time are parties to this Agreement
(individually, a "Bank" and collectively, the "Banks"); and
FLEET BANK, N.A. (formerly known as National Westminster Bank
USA) as Agent for itself and for the Banks, including Fleet Bank, N.A. as
Temporary Lender (in its individual capacity as a lender, "Fleet" and in its
capacity as agent, together with its successors in such capacity, the "Agent");
WITNESSETH:
-----------
WHEREAS, LCI, LINC Equipment Services, Inc. ("LES"), Quantum, the
Banks and the Agent have entered into a Second Amended and Restated Loan
Agreement dated as of September 28, 1994, as amended (the "Second Restated
Agreement") pursuant to which the Banks agreed to make loans to LCI, LES and
Quantum in the aggregate principal sum of up to Fifty-Four Million Five Hundred
Thousand ($54,500,000) Dollars upon the terms and conditions set forth in the
Second Restated Agreement;
WHEREAS, the Borrowers have requested, and the Banks and the
Agent have agreed, to amend the Second Restated Loan Agreement in the manner set
forth herein;
NOW, THEREFORE, the parties hereto agree that the Second Restated
Agreement is amended and restated in its entirety to provide as follows:
Article 1. Definitions.
Section 1.1 General Definitions.
In addition to the terms defined elsewhere in this Agreement and
all terms relating to the Borrowing Base which are defined in Section 1.2
hereof, the following terms shall have the following meanings as used in this
Agreement (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
<PAGE>
"Account Party" - LCI or Quantum.
"Additional Costs" - as defined in Section 2.16 hereof.
"Adjusted Tangible Net Worth" - at any time, the difference
between (a) the sum of (i) the non-current portion of Subordinated Debt
(excluding in full all portions of the LFC Subordinated Debt) (ii) the total of
shareholders' equity calculated in accordance with GAAP, provided, however, that
from and after the date of the occurrence of any default under the LFC
Subordinated Debt, there shall be deducted and excluded from shareholder's
equity an amount equal to the shareholder's equity of LFC 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.
"Affiliate" - as to any Person, any other Person which directly
or indirectly controls, or is under common control with, or is controlled by,
such Person. As used in this definition, "control" (including, with its
correlative meanings, "controlled by" and "under common control with") shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise), provided
that, in any event: (a) any Person which owns directly or indirectly 5% or more
of the securities having ordinary voting power for the election of directors or
other governing body of a corporation or 5% or more of the partnership or other
ownership interests of any other Person (other than as a limited partner of such
other Person) will be deemed to control such corporation or other Person; and
(b) each shareholder, director and officer of any of the Borrowers shall be
deemed to be an Affiliate of the Borrowers.
"Agent" - Fleet in its capacity as agent for the Banks under this
Agreement or any successor Agent pursuant to Section 9.8 hereof.
"Agent's Lien" - the security interest granted to the Agent (or
any successor to the Agent) for the ratable benefit of the Banks pursuant to the
Security Documents.
"Agreement" or "this Agreement" - this Third Amended and Restated
Loan Agreement as originally executed including the Schedules and Exhibits
hereto, or if amended, supplemented, restated or modified from time to time as
so amended or supplemented or restated or modified and in force for the time
being.
"Amended and Restated LCI Assignment of Contracts" - as defined
in Section 2.21 hereof.
"Amended and Restated LCI Pledge Agreement" - as defined in
Section 2.21 hereof.
-2-
<PAGE>
"Amended and Restated LCI Security Agreement" - as defined in
Section 2.21 hereof.
"Amended and Restated LES Security Agreement" - as defined in
Section 2.21 hereof.
"Amended and Restated LES Assignment of Leases as defined in
Section 2.21 hereof.
"Amended and Restated LINC Group Pledge Agreement" - as defined
in Section 2.21 hereof.
"Amended and Restated Quantum Assignment of Leases" - as defined
in Section 2.21 hereof.
"Amended and Restated Quantum Security Agreement" - as defined in
Section 2.21 hereof.
"Amended and Restated Quantum Shareholder Pledge Agreements" - as
defined in Section 2.21 hereof.
"Annual EBDIT" - as at any date, the EBDIT for the immediately
preceding full twelve calendar months.
"Applicable Company" - the applicable Borrower or applicable
Foreign Leasing Subsidiary; provided that in respect of Finished Goods Inventory
Loans and Receivables Loans, "Applicable Company" shall be deemed to refer
solely to LCI.
"Applicable Lending Office" - with respect to each type of Loan,
the lending office as designated for such type of Loan below the name of the
Bank on the signature page hereof or such other office of the Bank or of an
affiliate of the Bank as the Bank may from time to time specify to the Borrowers
as the office at which its Loans of such type are to be made and maintained.
"Applicable Margin" - (a) as at any date of determination thereof
which determinations shall be made on each successive Applicable Margin
Determination Date, the applicable percentage set forth below shall apply if
such date of determination is prior to the Commitment Termination Date:
<TABLE>
<CAPTION>
Applicable
Margin for Applicable Margin
Prime Rate for Eurodollar
Leverage Ratio Loans Loans
- -------------- ----------- ------------------
<S> <C> <C>
</TABLE>
-3-
<PAGE>
Less than 3:1 0% 1.75%
3:1 or more but less than
3.5:1 .25% 2.00%
3.5:1 and over .50% 2.25%
(b) 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).
"Applicable Margin Determination Date" - the date on which the
Applicable Margin is from time to time established, commencing on the date of
this Agreement, and thereafter on the first date of each successive month.
"Application Documents" - as defined in Section 2.33 hereof.
"Assignee" - as defined in Section 10.15 hereof.
"Assignment and Acceptance" - an agreement in substantially the
form of Exhibit A.
"Banks" - as defined in the Recitals herein.
"Basic Business" - the business of providing asset-based
financing and related services to business enterprises, including, but not
limited to equipment leasing and financing, accounts receivable purchase and
financing, finished goods inventory financing, renting, selling and leasing new
and reconditioned equipment, the purchase, financing or servicing of third party
originated lease and equipment loan portfolios and other services related to the
foregoing; provided that, in the case of Quantum, Basic Business shall mean
primarily the business of renting analytical instruments, but may also include
leasing and financing and selling new and reconditioned equipment.
"Basic Business Assets" - assets owned or acquired by any of the
Borrowers or any Subsidiary in the ordinary course of, and for the direct
purpose of conducting, the Basic Business.
"Beneficiary Documents" - as defined in Section 2.33 hereof.
"Borrower(s)" - as defined in the Recitals herein.
-4-
<PAGE>
"Borrowing Availability" - the difference between (a) the
Borrowing Capacity, minus (b) the aggregate outstanding balance of all Loans and
all Temporary Loans and all L/C Obligations.
"Borrowing Base" - as defined in Section 1.2 hereof.
"Borrowing Base Report" - a report substantially in the form of
Schedule 1 annexed hereto with appropriate insertions.
"Borrowing Base Report Certification" - a certificate of the
Borrowers signed by the president, chief financial officer or treasurer of each
Borrower substantially in the form of Schedule 1 annexed hereto with appropriate
insertions and which shall accompany each Borrowing Base Report.
"Borrowing Capacity" - as defined in Section 2.1 hereof
"Borrowing Computation" - a certificate of the Borrowers, signed
by the president, chief financial officer or treasurer of each Borrower,
substantially in the form of Schedule 2 annexed hereto with appropriate
insertions.
"Borrowing Notice" - as defined in Section 2.3 hereof
"Business Day" - any day other than Saturday, Sunday or other day
on which commercial banks in New York City are authorized or required to close
under the laws of the State of New York.
"Cash Flow Coverage" - as of any date of determination, Cash
Receipts received during the prior 12 months, or such shorter period as
specified in subsection 6.9(c) hereof, divided by Cash Operating Expenses paid
during the prior 12 months, or such shorter period as specified in subsection
6.9(c) hereof.
"Cash Operating Expenses" - as of any date of determination, the
sum of the following items actually paid in cash by any of the Borrowers or
their Subsidiaries (but excluding LFC and its Subsidiaries) and arising out of
the conduct of their business in the ordinary course: (a) interest expense on
debt; (b) selling, general and administrative expenses and sales commissions;
(c) selling expenses which have been capitalized, and (d) all other operating
expenses paid in cash whether or not capitalized, including those cash expenses
permitted to be deferred hereunder; provided, however, that Cash Operating
Expenses shall not in any event include any bad debt expense.
"Cash Receipts" - as of any date of determination, the sum of the
following items actually received in cash by any of the Borrowers or their
Subsidiaries (but excluding LFC and its subsidiaries) and arising out of the
conduct of their business in the ordinary course: (a) profits from conditional
sales agreements; (b) profits from the sale of fair market value lease
-5-
<PAGE>
streams; (c) Lease rental payments; (d) the interest portion of payments from
leases held in the portfolio of any of the Borrowers or their Subsidiaries (but
excluding LFC and its Subsidiaries); (e) interest income; (f) Lease receipts;
(g) realized residual proceeds; (h) proceeds from sales of equipment; (i)
revenue received by Quantum from the servicing of Equipment; and (j) fees,
commissions and other miscellaneous income.
"Closing Date" - the date on which there shall have been
satisfied or waived all of the conditions precedent set forth in Article 4
hereof to the making of the initial Loans hereunder.
"Code" - the Internal Revenue Code of 1986, as amended.
"Collateral" - as defined in Section 2.21 hereof and in the
respective Security Documents.
"Commitment" - as to each Bank, the amount set forth opposite
such Bank's name on the signature pages hereof under the caption "Commitment" as
the same shall and/or may be reduced pursuant to Sections 2.1 and 2.2 hereof.
"Commitment Termination Date" - July 15, 1998 or such later date
to which the Commitment Termination Date shall have been extended in accordance
with subsection 2.1(b) hereof.
"Compliance Certificate" - a certificate executed by the
president, chief financial officer or treasurer of each of the Borrowers in the
form of Schedule 3 annexed hereto to the effect that, among other things, as of
the calculation date of the certificate, no Default or Event of Default under
this Agreement exists or would exist after giving effect to action intended to
be taken by any of the Borrowers, as described in such certificate, including,
without limitation, that the covenants set forth in Section 6.9 and the other
Sections referred to in Schedule 3 hereto would not be breached after giving
effect to such action, together with a calculation in reasonable detail, and in
form and substance satisfactory to the Majority Banks, of such compliance.
"Controlled Group" - all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with any of the Borrowers, are treated as a
single employer under Section 414(b), 414(c) or 414(m) of the Code and Section
4001(a)(2) of ERISA.
"Convertible Subordinated Debt" - the balance (approximately
$7,759,000 in principal amount outstanding as of the date of this Agreement) of
the $25,000,000 in original face principal amount of 8-1/4% Convertible
Subordinated Debentures due 2003 issued by LCI pursuant to the Convertible
Subordinated Debt Documents.
"Convertible Subordinated Debt Documents" - as defined in Section
3.18 hereof.
-6-
<PAGE>
"Corporate Loan Party" - any Loan Party which is a corporation or
partnership.
"Credit Period" - the period commencing on the date of this
Agreement and ending on the Commitment Termination Date.
"Credit Policy Manual" - a copy of which has been delivered to
the Agent on the Closing Date.
"Credit Scoring Model" - the credit scoring model utilized by the
Borrowers and their Affiliates to assess the relative creditworthiness of
Lessees and other Obligors, a copy of which has been delivered to the Agent on
the Closing Date.
"Debt Instrument" - as defined in Section 8.4 hereof
"Debt Service" - as at any date, as to any Person, the sum of all
mandatory scheduled principal payments and interest on all items of Indebtedness
for money borrowed by such Person and all items of Indebtedness of any other
Person for which such Person is liable, directly or indirectly, as guarantor or
in any other capacity, which was paid and not refinanced, or, if required to
have been paid, was not paid or refinanced, in each case during the 365-day
period ending on such date, or such shorter period as specified in subsection
6.9(c) hereof, and payments of capitalized lease obligations due or paid during
such period.
"Debt Service Coverage" - as at any date, the quotient, expressed
as a percentage (which may be in excess of 100%), determined by dividing Annual
EBDIT by Debt Service.
"Default" - an event which with notice or lapse of time or both
would constitute an Event of Default.
"Dollars" - and "$" - lawful money of the United States of
America.
"EBDIT" - for any period, as to any Person, on a consolidated
basis, the excess of (a) without duplication, the sum of (i) net income for such
period plus (ii) depreciation and other non-cash charges to income for such
period plus (iii) interest on all Indebtedness for such period plus (iv) taxes
accrued for such period plus (v) revenue from leases of Equipment which are
treated as direct finance, leverage or sales type leases, to the extent not
otherwise included in net income plus (vi) revenue from Residual Values to the
extent not otherwise included in net income over (b) the net amount of items
which are classified as extraordinary items in accordance with GAAP for such
period; as to all of the foregoing, as determined in accordance with GAAP,
consistently applied.
"Eligible Assignee" - (a) any of the following that have been
approved by the Agent and the Borrowers (such approval by the Borrowers not to
be unreasonably withheld):
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<PAGE>
(i) a commercial bank organized under the laws of the United States, or any
state thereof; (ii) a commercial bank organized under the laws of any other
country that is a member of the OECD or has concluded special lending
arrangements with the International Monetary Fund associated with its General
Arrangements to Borrow, or a political subdivision of any such country, so long
as such bank is acting through a branch or agency located in the country in
which it is organized or another country that is described in this clause (ii);
(iii) the central bank of any country that is a member of the OECD which bank
has assumed the assets and liabilities of a Bank; and (iv) a finance company,
insurance company or other financial institution or fund (whether a corporation,
partnership, trust or other entity) that is engaged in making, purchasing or
otherwise investing in commercial loans in the ordinary course of its business;
(b) any other Person approved by the Agent and reasonably acceptable to the
Borrowers; and (c) a Bank or an Affiliate of a Bank; provided, however, that
neither the Borrowers nor an Affiliate of the Borrowers shall qualify as an
Eligible Assignee under this definition; and provided, further, that the
Borrowers' approval under clause (a) or (b) shall not be required at any time
after the occurrence of a Default.
"Emerging Growth Credit Scoring Matrix" - the credit scoring
matrix utilized by the Borrowers and their Affiliates to assess the relative
creditworthiness of Obligors which are Emerging Growth Companies, a copy of
which has been delivered to the Agent on the Closing Date.
"Environmental Laws and Regulations" - all environmental, health
and safety laws, regulations, resolutions, and ordinances applicable to any of
the Borrowers or any other Loan Party, or any of their respective assets or
properties, including, without limitation: (i) all regulations, resolutions,
ordinances, decrees, and other similar documents and instruments of all decrees,
and other similar documents and instruments of all courts and governmental
authorities, bureaus and agencies, domestic and foreign, whether issued by
environmental regulatory agencies or otherwise, and (ii) all laws, regulations,
resolutions, ordinances and decrees relating to Environmental Matters.
"Environmental Matter(s)" - a release of any toxic or hazardous
waste or other chemical substance, pollutant or contaminant into the environment
or the generation, treatment, storage or disposal of any toxic or hazardous
wastes or other chemical substances.
"ERISA" - the Employee Retirement Income Security Act of 1974, as
it may be amended from time to time, and the regulations thereunder.
"Eurodollar Base Rate" - with respect to any Eurodollar Loan for
any Interest Period therefor, the rate per annum (rounded upwards, if necessary,
to the nearest 1/16 of 1%) quoted by the Reference Bank at approximately 10:00
a.m. New York time (or as soon thereafter as practicable) two Business Days
prior to the first day of such Interest Period for the offering by the Reference
Bank to leading banks in the Eurodollar interbank market of Dollar deposits
having a term comparable to such Interest Period and in an amount comparable to
the principal amount of the Eurodollar Loan made by the Banks to which such
Interest Period relates.
-8-
<PAGE>
"Eurodollar Business Day" - a Business Day on which dealings in
Dollar deposits are carried out in the interbank Eurodollar market.
"Eurodollar Loans" - Loans, or portions thereof, the interest on
which is determined on the basis of rates referred to in the definition of
"Eurodollar Rate" in this Article 1.
"Eurodollar Rate" - for any Eurodollar Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) determined by the Agent to be equal to (x) the Eurodollar
Base Rate for such Loan for such Interest Period; divided by (y) 1 minus the
Reserve Requirement for such Loan for such Interest Period. The Agent shall use
its best efforts to advise the Borrowers of the Eurodollar Rate as soon as
practicable after each change in the Eurodollar Rate; provided, however, that
the failure of the Agent to so advise the Borrowers on any one or more occasions
shall not affect the rights of the Banks or the Agent or the obligations of the
Borrowers hereunder.
"Event of Default" - as defined in Article 8 hereof.
"Federal Funds Rate" - for any day, the weighted average of the
rates on overnight federal funds transactions with member banks of the Federal
Reserve System arranged by federal funds brokers as published by the Federal
Reserve Bank of New York for such day, or if such day is not a Business Day, for
the next preceding Business Day (or, if such rate is not so published for any
such day, the average rate charged to the Agent on such day on such transactions
as reasonably determined by the Agent).
"Fee" and "Fees" - as defined in Section 2.4 hereof
"Fleet"- Fleet Bank, N.A. in its individual capacity.
"Financial Statements" -
(a) the audited consolidated and unaudited consolidating balance
sheet of LCI and its Subsidiaries for the fiscal year then ended and the related
statements of operations or income and stockholders' equity and cash flow for
such fiscal year;
(b) the unaudited consolidated and consolidating balance sheet
of LCI and its Subsidiaries for the fiscal quarter then ended and the related
unaudited statements of operations or income and stockholders' equity and cash
flow for the quarter then ended;
(c) the audited consolidated and unaudited consolidating balance
sheet of LINC Group and its Subsidiaries for the fiscal year then ended and the
related statement of operations or income and stockholders equity and cash flow
for such fiscal year;
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<PAGE>
(d) the unaudited consolidated and consolidating balance sheet
of LINC Group and its Subsidiaries for the fiscal quarter then ended, and the
related unaudited statements of operations or income and stockholders equity and
cash flow for the quarter then ended; and
(e) for purposes of any updating of representations and
warranties in Article 3 hereof, each annual financial statement delivered
pursuant to Section 5.1 hereof and each quarterly financial statement delivered
pursuant to Section 5.2 hereof.
"Financing Statements" - Uniform Commercial Code Financing
Statements duly executed and completed and in form necessary for perfection of a
security interest in the state in which such filing must be made.
"Foreign Leasing Subsidiary" - any Foreign Subsidiary (a) any
assets of which are included in the Borrowing Base, (b) with respect to which
the Agent has received such agreements, instruments and documents as the Agent
may reasonably require, including, without limitation, modifications of the
Exhibits to this Agreement to reflect the existence of any such Foreign Leasing
Subsidiary, and opinions of counsel relating thereto, and (c) is otherwise
acceptable to the Agent.
"Foreign Security Documents" - as defined in Section 2.21 hereof.
"Foreign Location" - the countries included in the United Kingdom
and Canada and such other countries as shall be approved in writing by the
Majority Banks.
"Foreign Subsidiary" - any Subsidiary of any of the Borrowers at
such time as such Subsidiary (a) leases Leased Property under a Lease in a
Foreign Location; (b) the corporate and organizational structure of which are
acceptable to the Agent and (c) is otherwise acceptable to the Agent.
"Foreign Subsidiary Loan(s)" - as defined in Section 2.9 hereof.
"GAAP" - whether used directly or indirectly through use of a
capitalized term, generally accepted accounting principles consistently applied
and in accordance with past practices provided that wherever "GAAP" is referred
to in this Agreement, a certified public accountant would, insofar as the use of
such accounting principles is pertinent, be in a position to deliver an
unqualified opinion (other than a qualification regarding changes in generally
accepted accounting principles) as to financial statements in which such
principles have been properly applied.
"Guarantor(s) - as defined in Section 2.21 hereof.
"Guaranty(ies) - as defined in Section 2.21 hereof.
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<PAGE>
"Indebtedness" - with respect to any Person, all (a) liabilities
or obligations, direct and contingent, which liabilities or obligations would,
in accordance with GAAP, be included in determining total liabilities as shown
on the liability side of a balance sheet of such Person at the date as of which
Indebtedness is to be determined, including, without limitation, (i) contingent
liabilities which, in accordance with such principles, would be set forth in a
specific Dollar amount on the liability side of such balance sheet, (ii)
capitalized lease obligations of such Person, (iii) obligations in respect of
interest rate exchange, swap, cap and other agreements or arrangements designed
to provide protection against fluctuation in interest rates; (b) liabilities or
obligations of others for which such Person is directly or indirectly liable, by
way of guaranty (whether by direct guaranty, suretyship, discount, endorsement,
reimbursement of amounts drawn under letters of credit, take-or-pay agreement,
agreement to purchase or advance or keep in funds or other agreement having the
effect of a guaranty other than endorsements of negotiable instruments for
deposit or collection in the ordinary course of business) or otherwise whether
or not such liabilities would, in accordance with GAAP, be included in
determining total liabilities as shown on a balance sheet; and (c) without
duplication, liabilities or obligations secured by liens on any assets of such
Person, whether or not such liabilities or obligations shall have been assumed
by it.
"Intercompany Subordination Agreement" - as defined in Section
2.22 hereof.
"Intercreditor Agreement" - as defined in Section 2.22 hereof.
"Interest Period" - with respect to any Eurodollar Loan, each
period commencing on the date such Loan is made or converted from a Loan or
Loans of another type, or the last day of the next preceding Interest Period
with respect to such Loan, and ending one, two, three, four, five, six, nine or
twelve months later as the Borrowers may select as provided in Section 2.3
hereof (subject to availability of funds), except that each such Interest Period
which commences on the last Eurodollar Business Day of a calendar month (or on
any day for which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Eurodollar Business Day of the
appropriate subsequent calendar month. Notwithstanding the foregoing: (i) any
Interest Period which commences prior to a Payment Date shall end no later than
such Payment Date if the aggregate principal amount of the Loans or portions
thereof to which such Interest Period would be applicable would include any
portion of the aggregate principal amount of the Loans which is due and payable
on such Payment Date; (ii) each Interest Period which would otherwise end on a
day which is not a Business Day shall end on the next succeeding Business Day
(or, in the case of an Interest Period for Eurodollar Loans, if such next
succeeding Eurodollar Business Day falls in the next succeeding calendar month,
on the next preceding Eurodollar Business Day); (iii) no more than five (5)
Interest Periods for Eurodollar Loans shall be in effect at the same time; (iv)
any Interest Period which commences before the Commitment Termination Date shall
end no later than the Commitment Termination Date; and (v) notwithstanding
clauses (i) and (iv) above, no Interest Period shall have a duration of less
than one month. In the event that the Borrowers fail to select the duration of
any Interest Period for any Loan within the time period and otherwise as
provided in Section 2.7 hereof, such
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<PAGE>
Loans will be automatically converted into a Prime Rate Loan on the last day of
the preceding Interest Period for such Loan.
"Investment" - in any Person by any Borrower or any of its
Subsidiaries:
(a) the amount paid or committed to be paid, or the value of
property or services contributed or committed to be contributed, by any Borrower
or any Subsidiary for or in connection with the acquisition by such Borrower or
such Subsidiary of any stock, bonds, notes, debentures, partnership or other
ownership interests or other securities of such Person; and
(b) the amount of any advance, loan or extension of credit to,
or guaranty or other similar obligation with respect to any Indebtedness of,
such Person by any Borrower or such Subsidiary and (without duplication) any
amount committed to be advanced, loaned, or extended to, or the payment of which
is committed to be assured by a guaranty or similar obligation for the benefit
of, such Person by such Borrower or such Subsidiary; provided, however, that for
the purposes of Section 7.9, a Foreign Subsidiary Loan shall not constitute an
"Investment."
"IRS" - Internal Revenue Service.
"Issuing Bank" - as defined in Section 2.33 hereof.
"Latest Balance Sheet" - as defined in Section 3.9 hereof.
"L/C" - any letter of credit issued by the Issuing Bank pursuant
to Section 2.33 hereof, in each case, as amended, supplemented or modified from
time to time.
"L/C Fees" - as defined in Section 2.33 hereof.
"L/C Obligations" - as of any date of determination, all the
existing liabilities (including all fees) of the Borrowers and the Account
Parties to the Issuing Banks and the Banks and the Agent in respect of all L/Cs,
whether such liability is contingent or fixed and shall be computed to include
the sum of the aggregate maximum amount then available to be drawn under all
L/Cs (assuming, whether or not such is the case, that such aggregate maximum
amount shall have been drawn) and the aggregate amount of any Unreimbursed
Drawings then outstanding.
"LFC" - LINC Finance Corporation, a Delaware corporation.
"LFC Intercreditor Agreement" - as defined in Section 2.22
hereof.
"LFC Subordinated Debt" - the $15,000,000 Principal Amount 10%
Senior Subordinated Note due September 30, 1999 issued by LFC pursuant to the
Note Purchase Agreement dated September 28, 1994 between LFC and Newcourt (as
assignee of Anthem
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Financial, Inc.) as the same may be amended, modified and supplemented to the
extent not prohibited by the terms of Section 7.12 hereof.
"LFC Subordinated Debt Documents" - Note Purchase Agreement dated
September 28, 1994 between LFC and Newcourt (as assignee of Anthem Financial,
Inc.), and all agreements, instruments and documents executed and delivered in
connection therewith, as the same may be amended, modified and supplemented to
the extent not prohibited by the terms of Section 7.12 hereof.
"Lien" - any mortgage, deed of trust, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement, any
lease in the nature thereof, and the filing of or agreement to give any
financing statement intended as security under the Uniform Commercial Code of
any jurisdiction); provided that an agreement to grant a Lien entered into after
the date of this Agreement shall not be deemed to be a "Lien" until the Lien is
actually granted so long as each of the Borrowers and their Subsidiaries are and
would be in compliance with the terms and conditions of this Agreement and no
Default or Event of Default then exists or would exist after giving effect to
such lien.
"LINC Capital Partners Division" and "LINC Capital Partners,
Inc." - a division and (subject to satisfaction of the conditions set forth in
subsection 7.7(b) hereof) a subsidiary of LCI, respectively, that engage in the
business of financing Emerging Growth Companies.
"LINC Group" - The LINC Group, Inc., a Delaware corporation.
"LINC Group Intercreditor Agreement" - as defined in Section 2.22
hereof.
"Loan" and "Loans" - as defined in Section 2.1 hereof. Loans of
different types made or converted from Loans of other types on the same day (or
of the same type but having different Interest Periods) shall be deemed to be
separate Loans for all purposes of this Agreement.
"Loan Business" - the business to be entered into by any one or
more of LCI and LINC Capital Partners, Inc. after the date hereof of making
Finished Goods Inventory Loans and Receivables Loans to Obligors.
"Loan Documents" - this Agreement, the Notes, the Temporary Loan
Note, the Security Documents, the Subordination Agreements, Interest Rate
Contracts (but only to the extent relating to the Loans) to which any Lender or
the Agent is a party, and all other instruments, agreements and documents
executed, issued and delivered to or for the benefit of the Agent or any Bank by
any Loan Party in connection with the Loans and the L/Cs at any time in
connection herewith or therewith, including all amendments, modifications and
supplements of or to all such documents.
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"Loan Party" - each of the Borrowers, each Subsidiary of any
Borrower, LINC Group, the Quantum Shareholders and any other Person which now or
hereafter executes and delivers to the Banks or the Agent any Loan Document.
"Loan Policy Manual" - the Borrowers' credit policy with respect
to the making of Finished Goods Inventory Loans and Receivables Loans, which
policy shall be delivered to the Banks and the Agent in accordance with Section
7.21 hereof, and shall be satisfactory to the Banks and the Agent in all
respects.
"Loan Scoring Model" - the loan scoring model utilized by the
Borrowers and their Affiliates to assess the relative creditworthiness of
Obligors in connection with the making of Finished Goods Inventory Loans and
Receivables Loans, a copy of which shall be delivered to the Agent no later than
30 days prior to any inclusion in the Borrowing Base of any Finished Goods
Inventory Notes or Receivables Notes, and which shall be satisfactory to the
Banks and the Agent in all respects.
"Majority Banks" - at any time while no Loans are outstanding
hereunder, Banks having at least 66% of the aggregate amount of the Commitments
and, at any time while Loans are outstanding hereunder, Banks holding at least
66% of the outstanding aggregate principal amount of the Loans hereunder,
provided, however, that for purposes of this definition Temporary Loans shall
not be deemed "Loans".
"Monthly Borrowing Base Report" - as defined in Section 5.9
hereof.
"Net Book Value" - with respect to Eligible Equipment, the
Invoiced Cost of such Eligible Equipment minus accumulated depreciation or any
valuation reserve in each case with respect to such Eligible Equipment
determined in accordance with GAAP.
"Newcourt" - Newcourt Financial Services, Inc. or any successor
or assign thereof accepted as such in accordance with the terms of any
applicable Loan Document.
"Non-Recourse Debt" - of any Person, and only so long as each of
the following terms continues to be satisfied, Indebtedness of such Person for
borrowed money which is secured by Liens on specific assets of such Person as to
which the lender or obligee thereof is to be repaid only out of such assets or
proceeds thereof and as to which such Person is not otherwise liable for
repayment in the event of a deficiency or default in payment, except for
liability for misrepresentations by such Person, defects in title caused by such
Person or impairment of the lender's Lien caused by such Person, failure to
insure or maintain or to cause any Lessee to insure or maintain such assets, and
except that any repayment made by such Person prior to a default in payment may
be from a source other than such specific assets or proceeds, and except that
for purposes of computations hereunder "Non-Recourse Debt" shall include the
"Non-Recourse Debt" portion of Partial Recourse Debt.
"Non-Recourse Lender" - a lender of Non-Recourse Debt.
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"Non-Recourse Liens" - Liens securing Non-Recourse Debt which
Liens are solely on assets financed with the proceeds of any such Non-Recourse
Debt, respectively.
"Note" - as defined in Section 2.12 hereof.
"Notice of Issuance" - as defined in Section 2.33 hereof.
"Obligations" - as defined in Section 2.21 hereof.
"Partial Recourse Debt" - as to any Person Indebtedness of such
Person for which such Person has only partial liability for repayment and
deficiency and the balance of which is Non-Recourse Debt.
"Participant" - as defined in Section 10.14 hereof.
"Participation" - as defined in Section 10.14 hereof.
"Participation Documents" - as defined in Section 10.14 hereof.
"Participating Bank" - as defined in Section 10.14 hereof.
"Payment Dates" - each Quarterly Date in each year commencing
with the first Quarterly Date after the Term Conversion Date.
"Payor" - as defined in Section 2.28 hereof.
"PBGC" - as defined in Section 3.17 hereof.
"Permanent Lender" - a lender of Permanent Secured Debt.
"Permanent Secured Debt" - as of any date of determination,
Indebtedness for borrowed money of any of the Borrowers or a Subsidiary which
meets each of the following conditions:
(a) (i) It is secured Indebtedness (whether recourse, Non-
Recourse or Partial Recourse Debt) which is incurred to finance or re-finance
Equipment in the ordinary course of business of the Basic Business, which
Indebtedness is secured only by such Equipment or Contracts to which such
Equipment may be subject or identified as collateral, and related amounts
payable under such Contracts and proceeds of the foregoing; (ii) the aggregate
net payments due during the initial terms respectively of such Contracts and the
related residual values of the related Equipment at any one time equal no less
than one hundred (100%) percent of the principal, interest and all other amounts
owing in respect of such Indebtedness during the term of such Indebtedness;
(iii) the repayment of all or any portion of such Indebtedness is scheduled to
coincide approximately with (and is not due prior to) the due date of Contract
Payments of the same or
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corresponding amount under such respective Contracts; (iv) the incurrence of
such Indebtedness occurs at a time when no Default or Event of Default is
continuing or would be created after giving effect to such Indebtedness, except
that Non-Recourse Debt (but only Non-Recourse Debt) may be incurred, following
not less than ten (10) Business Days' prior notice to the Agent, while a Default
or Event of Default (not created or potentially caused by the proposed
incurrence) exists if the proceeds of such Non-Recourse Debt are used
simultaneously with its incurrence to cure the existing Default or Event of
Default but only if the incurrence of such Indebtedness does not otherwise
impair the overall value of the Collateral or repayment of the Loans, all as
determined by the Agent in its reasonable judgment;
(b) (i) It is secured Indebtedness (whether recourse, Non-
Recourse or Partial Recourse Debt) which is incurred to finance or re-finance
the acquisition of Basic Business Assets (other than assets of the type
described in subsection (a) above) in the ordinary course of business of the
Obligor, which Indebtedness is secured only by such acquired Assets and the
proceeds thereof, (ii) the principal amount of such Indebtedness, interest and
fees and all other amounts owing in respect of such Indebtedness do not exceed
the fair market value of the Collateral therefor at the date of incurrence of
such Indebtedness (or subsequently unless such excess results from a change in
market value of Collateral which change was beyond each of the Borrower's or
Subsidiaries' control at the date of incurrence of such Indebtedness); (iii) the
incurrence of such Indebtedness occurs at a time when no Default or Event of
Default is continuing or would be created after giving effect to such
Indebtedness, except that Non-Recourse Debt may be incurred, following not less
than ten (10) Business Days' prior notice to the Agent, while a Default or Event
of Default (not created or potentially caused by the proposed incurrence) exists
if the proceeds of such Non-Recourse Debt are used simultaneously with its
incurrence to cure the existing Default or Event of Default but only if the
incurrence of such Indebtedness does not otherwise impair the overall value of
the Collateral or repayment of the Loans, all as determined by the Agent in its
reasonable judgment;
provided, however, that neither any Borrower nor any Subsidiary shall create,
incur, permit to exist or have outstanding any Indebtedness on terms and
conditions setting forth affirmative or negative covenants of any Borrower or
Subsidiary or events of default any of which can be reasonably construed to be
more restrictive than any of the covenants set forth in Articles 6 and 7 and
events of default set forth in Article 8 hereof, the breach of which could
result in a right of the lender thereunder to accelerate payment sooner than the
right of acceleration provided to the Agent and the Banks under this Agreement,
other than (A) with respect to Non-Recourse Debt, any covenant or default which
permits acceleration based on defaults under financed leases and Rental
Agreements; and (B) Non-Recourse Debt under Debt Instruments which would then be
excluded from Section 8.4 as a result of the terms of the parenthetical
following the phrase "Debt Instrument" as it appears in subsections 8.4(a), (b)
and (c) of this Agreement; and provided, further, that Permanent Secured Debt
shall at all times comply with and conform to the representations and warranties
set forth in Section 3.24 hereof and such representations and warranties shall
be deemed repeated as if made by the Borrowers as of the date of incurrence of
any Permanent Secured Debt.
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"Permitted Liens" - (i) pledges or deposits by any of the
Borrowers and their Subsidiaries under workman's compensation laws, unemployment
insurance laws, social security laws, or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than for the payment
of Indebtedness of any of the Borrowers and their Subsidiaries), or leases to
which any of the Borrowers and their Subsidiaries are parties as lessees, or
deposits to secure public or statutory obligations of any of the Borrowers and
their Subsidiaries or deposits of cash or U.S. Government Bonds to secure
surety, appeal, performance or other similar bonds to which any of the Borrowers
and their Subsidiaries are parties, or deposits as security for contested taxes
or import duties or for the payment of rent; (ii) Liens imposed by law, such as
carriers', warehousemen's, materialmen's and mechanics' liens, or Liens arising
out of judgments or awards against any of the Borrowers and their Subsidiaries
with respect to which any of the Borrowers and their Subsidiaries at the time
shall currently be prosecuting an appeal or proceedings for review; (iii) Liens
for taxes not yet subject to penalties for non-payment and Liens for taxes the
payment of which is being contested as permitted by Section 6.6 hereof; (iv)
minor survey exceptions, minor encumbrances, easements or reservations of, or
rights of others for rights of way, highways and railroad crossings, sewers,
electric lines, telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of real properties, or Liens
incidental to the conduct of the business of any of the Borrowers and their
Subsidiaries or to the ownership of their property which were not incurred in
connection with Indebtedness of any of the Borrowers and their Subsidiaries, all
of which Liens referred to in each of the preceding clauses (i) through (iv) do
not in the aggregate under any such clauses individually or under all such
clauses together materially detract from the value of the properties to which
they relate or materially impair their use in the operation of the business
taken as a whole of any of the Borrowers and their Subsidiaries, and as to all
the foregoing referred to in clauses (i) through (iv) only to the extent arising
and continuing in the ordinary course of business; (v) Permitted Borrowing Base
Encumbrances; and (vi) liens on Equipment, Contracts and other assets and
properties of any of the Borrowers and their Subsidiaries securing Permanent
Secured Debt incurred by any of the Borrowers or Subsidiary in the ordinary
course of business of the Basic Business in the amounts and to the extent
permitted to exist under the subsections of Section 7.1 hereof referring to such
Debt which Debt either (1) exists on the date hereof or (2) if incurred after
the date hereof, has been incurred only upon compliance with the terms and
conditions of Section 2.23 hereof, provided, that in any event (A) the assets to
which such liens attach shall be consistent with the definition of the
respective term Permanent Secured Debt; and (B) no such liens shall exist on or
be equal or prior to the Agent's Lien on assets and properties included in
computation of the Borrowing Base except for Permitted Borrowing Base
Encumbrances and as otherwise set forth on Exhibit S annexed hereto.
"Person" - an individual, a corporation, a partnership, a joint
venture, a trust or unincorporated organization, a joint stock company or other
similar organization, a government or any political subdivision thereof, a
court, or any other legal entity, whether acting in an individual fiduciary or
other capacity.
"Plan" - at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (i) maintained by any of the Borrowers or
any member of the Controlled Group for
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employees of any of the Borrowers, or by any of the Borrowers for any other
member of such Controlled Group or (ii) maintained pursuant to a collective
bargaining agreement or any other arrangement under which more than one employer
makes contributions and to which any of the Borrowers or any member of the
Controlled Group is then making or accruing an obligation to make contributions
or has within the preceding five plan years made contributions.
"Pledge Agreements" - the Amended and Restated Quantum
Shareholder Pledge Agreements, the Amended and Restated LINC Group Pledge
Agreement, the Amended and Restated LCI Pledge Agreement and the LCI-LFC Pledge
Agreement.
"Post-Default Rate" - (i) in respect of any Loans, or any portion
of any Loans, not paid when due (whether at stated maturity, by acceleration or
otherwise and whether before or after judgment), a rate per annum during the
period commencing on the due date until such Loans are paid in full equal to, if
(a) such Loans are Prime Rate Loans, 2% above the Prime Rate as in effect from
time to time plus the Applicable Margin for Prime Rate Loans (but in no event
less than the interest rate in effect on the due date), or (b) if such Loans are
Eurodollar Loans, 2% above the rate of interest in effect thereon at the time of
such due date until the end of the then current Interest Period therefor plus
the Applicable Margin for Eurodollar Loans and, thereafter, 2% above the Prime
Rate as in effect from time to time plus the Applicable Margin for Prime Rate
Loans (but in no event less than the interest rate in effect on the due date);
and (ii) in respect of other amounts payable by any of the Borrowers hereunder
(other than interest on the Loans but including interest on Unreimbursed
Drawings) not paid when due (whether at stated maturity, by acceleration or
otherwise and whether before or after judgment), a rate per annum during the
period commencing on the due date until such other amounts are paid in full
equal to 2% above the Prime Rate as in effect from time to time plus the
Applicable Margin for Prime Rate Loans (but in no event less than the interest
rate in effect on the due date).
"Prime Rate" - the interest rate established from time to time by
Fleet as its prime rate at the Principal Office, but in any event not less than
the Federal Funds Rate as in effect from time to time plus one half (.5%)
percent. Notwithstanding the foregoing, each of the Borrowers acknowledges the
fact that Fleet may regularly make domestic commercial loans at rates of
interest less than the rates of interest referred to in the preceding sentence.
Each change in any interest rate provided for herein based upon the Prime Rate
resulting from a change in the Prime Rate shall take effect at the time of such
change in the Prime Rate.
"Prime Rate Loans" - Loans (or in Section 2.32 hereof, Temporary
Loans), or portions thereof, which bear interest at a rate based upon the Prime
Rate.
"Principal Office" - the principal office of Fleet presently
located at 592 Fifth Avenue, Second Floor, New York, New York 10036 and as also
defined in Section 9.8(b) hereof
"Projections" - in respect of any fiscal year, consolidated and
consolidating projections for the Borrowers and each of their Subsidiaries.
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"Purchase Money Security Interest" - as defined in Section 7.2
hereof.
"Quantum" - as defined in the preamble hereto.
"Quantum Shareholder Agreement" - the Shareholders' Agreement,
dated on or about September 17, 1991, by and among LCI and the individual
shareholders of Quantum named herein, as amended.
"Quantum Shareholders" - collectively, Gerard M. Farren and R.E.
Laing in their capacity as shareholders of Quantum.
"Quarterly Dates" - the last day of each calendar quarter, the
first of which shall be the first such day after the date of this Agreement,
provided that, in the event that any Eurodollar Loans are then outstanding and
if any such date is not a Eurodollar Business Day, the relevant Quarterly Date
shall be the next succeeding Eurodollar Business Day (or, if the next succeeding
Eurodollar Business Day falls in the next succeeding calendar month, then on the
next preceding Eurodollar Business Day).
"Recourse Debt" - Indebtedness of any Person, as to which such
Person is liable for repayment in full in the event of a deficiency or default
in payment.
"Reference Bank" - (i) for purposes of determining the rates
referred to in clause (a) of the definition of "Eurodollar Base Rate" in this
Article 1, the non-United States office or offices or international banking
facility or facilities of Fleet as Fleet may from time to time select and (ii)
for all other purposes hereunder, the Principal Office.
"Regulation D" - Regulation D of the Board of Governors of the
Federal Reserve System, as the same may be amended or supplemented from time to
time.
"Regulatory Change" - any change after the date of this Agreement
in United States federal, state or foreign laws or regulations (including
Regulation D) or the adoption or making after such date of any interpretations,
directives or requests applying to a class of banks including any of the Banks
of or under any United States federal, state, or foreign laws or regulations
(whether or not having the force of law) by any court or governmental or
monetary authority charged with the interpretation or administration thereof.
"Required Payment" - as defined in Section 2.20 hereof.
"Reserve Requirement" - for any Eurodollar Loans for any Interest
Period therefor, the average maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period under Regulation D by member banks of the Federal
Reserve System in New York City with deposits exceeding One Billion Dollars
against in the case of Eurodollar Loans, "Eurocurrency liabilities" (as such
term is
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used in Regulation D). Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be maintained by such
member banks by reason of any Regulatory Change against (i) any category of
liabilities which includes deposits by reference to which the Eurodollar Rate
for Eurodollar Loans (as the case may be) is to be determined as provided in the
definition of "Eurodollar Rate" in this Article 1 or (ii) any category of
extensions of credit or other assets which include Eurodollar Loans.
"Sale and Assignment Agreement" - the Sale and Assignment
Agreement dated September 28, 1994 between LCI and LFC providing for the sale of
certain assets by LCI to LFC and the assumption by LFC of LCI's obligation to
repurchase defaulted leases and other obligations of LCI under LCI's servicing,
credit enhancement and other documents relating to Special Purpose Entities.
"Second Restated Agreement" - as defined in the Recitals herein.
"Security Agreements" - the Amended and Restated LES Security
Agreement, the Amended and Restated Quantum Security Agreement and the Amended
and Restated LCI Security Agreement.
"Security Documents" - as defined in Section 2.21 hereof.
"Servicing Agreement" - the Servicing Agreement dated September
28, 1994 between LCI and LFC relating to the allocation to LFC of certain
administrative expenses, including, without limitation, expenses for employees,
space and services, borne by LCI for the benefit of LFC in connection with the
servicing of LFC's portfolio of leases.
"Special Purpose Entity" - a Subsidiary or Affiliate of any
Borrower or other Person formed by or at the request of any Borrower for the
sole purpose of holding and/or assigning contract receivables and equipment
received directly or indirectly from such Borrower or any of its Subsidiaries
and issuing notes or other Indebtedness which are secured by such receivables
and equipment, and which Subsidiary or Affiliate or other Person is prohibited
by its Articles of Incorporation or (if not a corporation) other organizational
documents from engaging in any other business (and shall not be deemed a Special
Purpose Entity hereunder if it does engage in any other business).
"Standby L/C" - any L/C which is not a documentary L/C (i.e., not
issued for the benefit of a supplier of inventory to a Borrower or Account Party
in order to support payment of the purchase price of such inventory).
"Subordinated Debt" - (i) the Convertible Subordinated Debt; and
(ii) any unsecured Indebtedness for money borrowed by any of the Borrowers in an
amount and on terms and conditions satisfactory to the Majority Banks and which
is subordinated under terms satisfactory in form and substance to the Majority
Banks in their sole judgment, as evidenced by
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the Agent's written consent thereto given prior to the creation of such
Indebtedness, to such Borrower's Obligations and any other Loan Party's
Obligations, as the case may be, hereunder.
"Subordination Agreement(s)" - individually or collectively, as the
context requires, the Intercompany Subordination Agreement, the Intercreditor
Agreement, the LFC Intercreditor Agreement or the LINC Group Intercreditor
Agreement.
"Subordination Agreement Confirmation" - as defined in Section 2.22
hereof.
"Subsidiary" - with respect to any Person, any corporation,
partnership or joint venture whether now existing or hereafter organized or
acquired: (i) in the case of a corporation, of which a majority of the
securities having ordinary voting power for the election of directors (other
than securities having such power only by reason of the happening of a
contingency) are at the time owned by such Person and/or one or more
Subsidiaries of such Person or (ii) in the case of a partnership or joint
venture in which such Person is a general partner or joint venturer of which a
majority of the partnership or other ownership interests are at the time owned
by such Person and/or one or more of its Subsidiaries. Unless the context
otherwise requires, references in this Agreement to "Subsidiary" or
"Subsidiaries" shall be deemed to be references to a Subsidiary or Subsidiaries
of the Borrowers.
"Tax Agreement" - the Tax Agreement between LINC, LCI, LFC, Anthem
Equipment Leasing and Anthem Financial.
"Temporary Commitment" - as at any date of determination, the
agreement of the Temporary Lender to make Temporary Loans in the amount equal to
the lesser of (a) Five Million ($5,000,000) Dollars and (b) the Unused
Commitment of Fleet in its capacity as a Bank.
"Temporary Lender" - Fleet in its capacity as lender of the Temporary
Loans.
"Temporary Loan" - as defined in Section 2.32 hereof.
"Temporary Loan Note" - as defined in Section 2.32 hereof.
"Temporary Loan Obligations" - as at the date of any determination
thereof, total Indebtedness of the Borrowers outstanding in respect of (but
without duplication) Temporary Loans and includes interest thereon accrued to
such date and unpaid and all other amounts payable in respect of Temporary Loans
and the Temporary Commitment pursuant to this Agreement which has not been paid.
"Term Conversion Date" - the date, which shall be the then-current
Commitment Termination Date, on which the Borrowers shall have elected to
convert the then-outstanding principal balance of Loans to a term loan following
the determination by any Bank not to extend the then-current Commitment
Termination Date in accordance with the provisions of subsection 2.1(b) hereof
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"Term Period" - the period of time commencing on the Term Conversion
Date and expiring on the final date of repayment of the Loans which shall not in
any event be later than the third anniversary of the Term Conversion Date.
"Total Commitment" - the aggregate sum of the Commitments of the
Banks.
"Total Recourse Liabilities" - at any time, as to each of the
Borrowers and its Subsidiaries, the sum of (a) all liabilities of such Borrower
and its Subsidiaries, which, in accordance with GAAP, would be shown as
liabilities on such Borrower's or Subsidiary's balance sheet, including all
accounts payable, accrued expenses and the current portion of Subordinated Debt
but excluding (to the extent included therein) the non-current portion of
Subordinated Debt and deferred income taxes payable, and Non-Recourse Debt
(provided that the recourse portion of any limited or partial recourse
obligations shall be included in Total Recourse Liabilities); plus (b) all
liabilities for which such Borrower or any Subsidiary is contingently liable,
whether or not such contingent liabilities would, in accordance with GAAP, be
capitalized on such Borrower's balance sheet, including without limitation,
under or pursuant to (i) any or all guaranties or letters of credit or
repurchase or substitution or put obligations or other credit enhancements of
any type including, without limitation, guaranties of or letters of credit
supporting the residual value of Leased Property or Contracts sold by any
Borrower or any Subsidiary, and (ii) letters of credit and guaranties intended
to secure the payment or performance of an obligation of a Person other than
such Borrower or the Subsidiary contingently liable thereunder.
"Transaction Documents" - collectively, the LFC Subordinated Debt
Documents, the Sale and Assignment Agreement, the Servicing Agreement, the Tax
Agreement, and the Asset Purchase Agreement dated September 28, 1994 between
LCI, Anthem Equipment Leasing, Inc., and LINC Group.
"Type" or "type" - any Loan (other than a Temporary Loan) determined
with respect to the interest option applicable thereto, i.e., either a Prime
Rate Loan or a Eurodollar Rate Loan.
"Unreimbursed Drawings" - as defined in Section 2.33 hereof.
"Unused Commitment" - as at any date, the difference, if any, between:
(a) the amount of the Banks' Total Commitment as in effect on such date and (b)
the then aggregate outstanding principal amount of all Loans made by the Banks
and all L/C Obligations (excluding fees in respect of L/C Obligations).
"Upstream Payments" - any combination of dividends, distributions,
advances, and loans made by any of the Foreign Leasing Subsidiaries or Special
Purpose Entities to the Borrowers.
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Section 1.2 Borrowing Base Definitions.
--------------------------
In addition to the terms defined elsewhere in this Agreement, the
following terms relating to the Borrowing Base shall have the meanings indicated
for purposes of this Agreement (such meanings to be equally applicable to both
the singular and plural forms of the terms defined):
"Account Debtor" - the party who is obligated on or under or with
respect to any Account Receivable.
"Account Receivable" - as to each of the following, to the extent
arising in the ordinary course of the Basic Business and recorded on books of
account in accordance with GAAP: (a) any right of LCI or Quantum to payment for
Equipment sold or rented under a Rental Agreement; (b) any right of LCI or
Quantum to payment of fees in respect of a sale described in the preceding
clause (a); and (c) any right of LCI or Quantum to payment for services rendered
by LCI or Quantum, respectively, but no Contract Payments shall be deemed to be
an Account Receivable; less that portion of the sum of money or other proceeds
due thereon that relate to sales, use or property taxes in conjunction with such
transactions.
"Balance of Payments" - at any date, the total unpaid regularly
scheduled rental payments under a Lease or the total unpaid regularly scheduled
payments under any other Contract, but not in any event including payments or
amounts due directly or indirectly on account of use, sales or property taxes,
maintenance, repairs, management fees, insurance and similar items and net of
any credits, customer deposits, rebates, offsets, holdbacks or other adjustments
or commissions payable to third parties that are adjustments to such payments,
and provided that the Balance of Payments with respect to an item of related
Equipment is that portion of the Balance of Payments attributable to such item
of Equipment.
"Borrowing Base" - at any time the excess of (i) sections (a) through
(g), as set forth immediately below, over (ii) the sum of Excludable Amounts:
(a) "Contract Receivables Clause" - 90% of the Present Value of the
Balance of Payments under Unfunded Eligible Contracts (other than Unfunded
Eligible Contracts which are Eligible Emerging Growth Contracts);
(b) "Emerging Growth Contract Clause" - 85% of the Present Value of
the Balance of Payments under Unfunded Eligible Contracts;
(c) "Residual Value Clause" - 50% of the Present Value of the
aggregate Residual Values of Eligible Residual Leased Property under Eligible
Contracts or Eligible Emerging Growth Contracts; provided, however, that (i) in
no event shall the Post-Computation Amounts included under this clause (c)
exceed at any one time 15% of the Total Commitment; (ii) in no event shall the
sum of advances against a Contract under clause (a) or (b) above and advances
against Eligible Residual Leased Property under the same Contract exceed 100%
of the
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original Invoiced Cost to the Borrower; (iii) in no event shall the Post-
Computation Amount included under this clause (c) in respect of Residual Values
owned by either LCI or a Foreign Leasing Subsidiary which Residual Values relate
to Equipment located in a Foreign Location exceed Two Million ($2,000,000)
Dollars; and (iv) the Contract covering such Eligible Residual Leased Property
is either a direct finance or a sales-type lease or an operating lease, but if
an operating lease, the Residual Value is less than fifteen (15%) percent of the
Invoiced Cost of the related Equipment;
(d) "Accounts Receivable Clause" - 85% of the value of Unfunded
Eligible Accounts Receivable;
(e) "Inventory Clause" - 50% of the Net Book Value of Eligible
Equipment (including spare parts that constitute finished goods and not work-in-
progress) owned by any Foreign Leasing Subsidiary or LCI, which Equipment is
not then (as of any date of determination hereunder) subject to, nor identified
nor committed to, a Lease or Rental Agreement, and is located on the applicable
Borrower's or Foreign Leasing Subsidiary's premises (or in a warehouse as to
which applicable Uniform Commercial Code financing statements have been filed)
and not on the related Lessee's or Obligor's premises; provided, however, that
no such Eligible Equipment may be included under this clause (e) for a period
longer than two hundred seventy (270) days, and in no event shall the Post-
Computation Amount of any Equipment included in this clause (e) exceed
$1,000,000;
(f) "Rental Equipment NBV Clause" - at any time, with respect to
Quantum, 85% of the lesser of (i) and (ii):
(i) the Invoiced Cost of all Eligible Equipment owned by Quantum;
(ii) the Net Book Value of such Eligible Equipment referred to in
the preceding clause (i);
provided, however, that (A) the reference to 85% shall be deemed
changed from time to time as and to the extent provided in subsection (4) below
of this definition of Borrowing Base; and (B) the reference to 85% (as it may be
changed pursuant to the immediately preceding clause (A)) shall be deemed to
read 50% in respect of any Eligible Equipment that has not been rented within
four months preceding any date of computation of the Borrowing Base hereunder;
(g) "Finished Goods Inventory Note and Receivables Note Clause" - at
any time, 80% of the principal balance of all Unfunded Finished Goods Inventory
Notes and Unfunded Receivables Notes which are Eligible Contracts, provided that
the aggregate Post-Computation Amount included under this clause (g) may not
exceed 10% of the Total Commitment;
The Borrowing Base shall be calculated in accordance with and
subject to the following principles:
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(1) No Multiple Inclusion; Assets and Values. At no time shall assets
covered by any of the clauses of the Borrowing Base be included under any other
clause. At no time shall the Post-Computation Amount originally included under
any clause of the Borrowing Base with respect to any Eligible Contract exceed
the lesser of the Invoiced Cost or the Net Book Value of any item of Equipment
individually or items of Equipment in the aggregate covered by such Eligible
Contract. At no time shall the amount originally included under any clause of
the Borrowing Base with respect to any Eligible Contract purchased by an
Applicable Company exceed the purchase price of such Eligible Contract. At no
time shall the amount included under any clause of the Borrowing Base with
respect to any Eligible Contract that includes a refinancing exceed the amount
refinanced plus the Invoiced Cost of any upgrade or other newly purchased
Equipment. At no time shall the amount included under any clause of the
Borrowing Base include the interest of a Person who is not the Applicable
Company so that any interest conveyed to another Person pursuant to an Obligor
Creditor Participation Agreement shall not in any event be eligible for
inclusion in the Borrowing Base.
(2) Certain Concentration Limits. At no time shall the Post-
Computation Amounts included in the Borrowing Base under all clauses thereof
pursuant to Eligible Contracts with a single Obligor (together with its
Affiliates) (including, without limitation, related amounts in the Residual
Value and Inventory Clauses) exceed 5% of the Total Commitment.
In addition, at no time shall the aggregate of the Post-Computation
Amounts of all assets included in the Borrowing Base related to lessees and
borrowers (i) who are rated "four" under the Emerging Growth Credit Scoring
Matrix or are rated "five" under the Credit Scoring Model or Loan Scoring Model
exceed an aggregate of 20% of the Post-Computation Amount of all assets included
in the Borrowing Base; and (ii) who are rated "five" under the Emerging Growth
Credit Scoring Matrix exceed an aggregate of 10% of the Post-Computation Amount
of all assets included in the Borrowing Base.
In addition, at no time shall the Post-Computation Amount included in
the Borrowing Base of Eligible Contracts of Foreign Leasing Subsidiaries or of
any Borrower covering Eligible Equipment in a Foreign Location (including,
without limitation, Residual Values) in respect of such assets in all Foreign
Locations exceed in the aggregate Five Million ($5,000,000) Dollars.
In addition, at no time shall the Post-Computation Amount included in
all clauses of the Borrowing Base relating to software components of Eligible
Equipment or Contract Collateral or Eligible Contracts exceed in the aggregate
Five Million ($5,000,000) Dollars.
(3) Residual Component of Borrowing Base. In any event, without
duplication of amounts excluded from the Borrowing Base as Excludable Amounts,
there shall not be included in the Borrowing Base (or if for any reason
theretofore included, there shall be deducted from the Borrowing Base in the
Pre-Computation Amount relating to Residual Values to the extent of such Pre-
Computation Amount) (i) an amount equal to 100% of the
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Pre-Computation Amount of Residual Values relating to Equipment which Equipment
secures Indebtedness (other than the Indebtedness created hereunder and
Indebtedness which is Single Lessee Cross-Collateralized Financing) under which
a right to cross-collateralize the Equipment exists; (ii) to the extent then
otherwise included in the Residual Value Clause of the Borrowing Base, any
amount that exceeds One Million ($1,000,000) Dollars in Pre-Computation Amount
of Residual Values which Residual Values arise in association with any Single
Lessee Cross-Collateralized Financing; and (iii) the amount by which any
Permanent Secured Debt exceeds the amount of the present value (using the rate
provided for in such Permanent Secured Debt for computing present value) of the
lease receivables securing such Debt if such lease receivables relate to
Equipment the Residual Value of which is then included in the Borrowing Base.
(4) Change in Quantum Rental Equipment NBV Advance Rate. As of any
date of determination and only with respect to computations relating to Eligible
Equipment owned by Quantum: (A) in the event that the Quantum Yield is less than
nine (9%) percent for the two immediately preceding full fiscal quarters of
Quantum, the reference to "85%" as the advance rate percentage in clause (f)
(i.e., Rental Equipment NBV Clause) shall be deemed to read "80%"; (B) in the
event that the Quantum Yield is less than nine (9%) percent for the next
succeeding full fiscal quarter following any such reduction under the preceding
clause (A), the above-described reference to "80%" shall be deemed to read
"75%"; (C) following any reduction in the advance rate percentage described in
clause (A) or (B) above, and following the date (if any) on which the average
Quantum Yield shall have been at least nine (9%) percent for one full fiscal
quarter of Quantum, the above-described advance rate percentage shall be deemed
again to be "85%"; (D) the reference to "85%" as the advance rate percentage in
clause (f) (i.e., Rental Equipment NBV Clause) shall be deemed to read "50%"
with respect to any model of Eligible Equipment, every item of which model has
not been subject to, nor identified nor committed to, a Rental Agreement for a
period of four months or more prior to the date of any Monthly Borrowing Base
Report; and (E) changes in the advance rate percentage as set forth above shall
be made on each occasion when the foregoing conditions are met, and shall become
effective as of the date of delivery to the Banks and the Agent of any quarterly
Compliance Certificate showing relevant changes in the Quantum Yield or rental
status of Eligible Equipment, as applicable, provided that if a quarterly
Compliance Certificate is not delivered when due, or if it is not in compliance
with the other requirements in respect thereof (in the sole judgment of the
Agent), then the Agent may determine, in its reasonable judgment, the Quantum
Yield or rental status of Eligible Equipment, as applicable.
(5) Transportation Equipment, Non-UCC Assets and Fixtures. In no
event shall the Pre-Computation Amounts relating to transportation equipment,
including medical evacuation aircraft and helicopters, trucks and trailers, used
in connection with mobile diagnostic imaging equipment, or other assets the
perfection of the Agent's Lien on which cannot be effected by possession or
filing under the Uniform Commercial Code (such other assets, together with
transportation equipment, are hereinafter sometimes referred to collectively as
"Non-UCC Assets," provided, however, that in no event shall the term "Non-UCC
Assets" include any assets of any Foreign Leasing Subsidiary) exceed Four
Million ($4,000,000) Dollars in the aggregate with respect to all such items at
any one time included in the Borrowing Base, provided that no more
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than $1,000,000 of such $4,000,000 amount shall represent motor vehicles on
which the Agent's Lien is not perfected under clause (c) (i.e., Residual Value
Clause) of the Borrowing Base; and in no event shall the aggregate Post-
Computation Amount of that component of Eligible Equipment or Eligible Leased
Residual Property which is comprised of fixtures, if any, included in
computation of the Borrowing Base at any time exceed an amount equal to five
(5%) percent of the lesser of the Total Commitment or the Borrowing Base as then
in effect.
(6) Aggregate Rental Equipment. In no event shall the aggregate Post-
Computation Amount included under clause (f) (i.e., Rental Equipment NBV Clause)
and the Rental Payments portion of the Accounts Receivable Clause exceed Thirty
Million ($30,000,000) Dollars in the aggregate at any one time.
(7) Affiliates. In no event shall obligations of Lessees, Account
Debtors or other Obligors or lessees under Third Party Leases which are
Affiliates of LINC Group and/or either of the Borrowers be eligible for
inclusion under any clause of the Borrowing Base; provided, however, that
Obligors and lessees under Third Party Leases (together with their Affiliates)
in which the Borrowers, LINC Group and their Subsidiaries (individually and in
the aggregate) own less than fifteen (15%) percent of the voting securities (and
which Obligors and lessees under Third Party Leases are not in any event under
the control of the Borrowers, LINC Group and their Subsidiaries) shall not be
deemed to be ineligible as "Affiliates" for purposes of inclusion in the
Borrowing Base so long as none of the individual principals of LINC Group, any
Borrower or any of their Subsidiaries has any economic or voting interest in any
such entity.
(8) No Liens. Assets included in the Borrowing Base shall be subject
to no Liens other than the Agent's Lien under the Security Documents and
Permitted Borrowing Base Encumbrances, and all assets included in the Borrowing
Base shall be subject to a perfected first priority Lien and security interest
in favor of the Agent except to the extent of Permitted Borrowing Base
Encumbrances.
(9) Term Conversion. From and after the Term Conversion Date (if any):
(A) no assets not then included in the Borrowing Base may thereafter be added
under any clause of the Borrowing Base, and no Eligible Equipment, Eligible
Contract, Eligible Emerging Growth Contract or other assets included in any one
of the clauses under the Borrowing Base may be included in any other clause of
the Borrowing Base; (B) the amounts then included under clause (c) of the
Borrowing Base (i.e., Residual Value Clause) shall not be increased by virtue of
accretion or otherwise, and no effect shall be given to any increase in value of
such amounts included under the Residual Value Clause after the Term Conversion
Date; and (C) no Residual Values may be included in the Borrowing Base following
the Term Conversion Date other than Residual Values represented by Eligible
Residual Leased Property in existence on the Term Conversion Date and as (and
not greater than to the extent) described in the Borrowing Base Computation
delivered to the Banks on the Term Conversion Date.
(10) Compliance During Default. During the existence and continuance
of a Default or an Event of Default, failure of any asset included in the
Borrowing Base to satisfy
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any condition for continued inclusion for computation of the amount of the
Borrowing Base shall (as provided elsewhere in this Agreement) cause such asset
to cease to be included for purposes of computation of the amount of the
Borrowing Base, but such asset shall not cease to be deemed a part of the
Borrowing Base with respect to other provisions of this Agreement which require
compliance with certain more general covenants in respect of assets included in
the Borrowing Base unless and until the lease of the Agent's Lien thereon shall
have occurred upon the terms set forth in Section 2.23 hereof.
(11) Residuals/Past Maturity Payments. In no event shall any amount
relating to an item of Equipment be included under clause (c) (i.e., Residual
Value Clause) simultaneously with inclusion with respect to the same item of
Equipment as a past maturity payment under clause (d) (i.e., Accounts Receivable
Clause) of the Borrowing Base.
(12) GAAP. Inclusion under any clause of the Borrowing Base must be
consistent at all times (A) with the method of recording the subject amount,
item or transaction in the books of account of the applicable Borrower or
applicable Foreign Leasing Subsidiary and (B) GAAP.
(13) 365 Days. References to inclusion in the Borrowing Base for not
"more than 365 days" or similar phrases shall be deemed to mean the period
commencing on the date of the Borrowing Base Report which forms the basis for
inclusion in the Borrowing Base (which date is assumed to be the first day
(whether or not a Business Day) of a calendar month) and ending on the last day
(whether or not a Business Day) of the twelfth month thereafter.
(14) Captions. The captions and headings describing clauses and
sections of the Borrowing Base are for convenience only and shall not affect the
construction or interpretation of this Agreement.
"Contract" - a Lease, Equipment Note, CSA, Finished Goods Inventory
Note, Receivables Note, or Third Party Note, and "related Contract" means, with
reference to any Equipment or Contract Collateral, the Contract covering or
secured by such Equipment or Contract Collateral.
"Contract Collateral" - means all Obligor Finished Goods Inventory or
Obligor Accounts Receivable that secure the obligations of an Obligor to an
Applicable Company under a Contract that is a Receivables Note or a Finished
Goods Inventory Note.
"Contract Payments" - (i) in the case of a Lease, all rental payments,
security deposits, advance rental, indemnity payments and other amounts at any
time made or due or to become due (whether or not earned by performance) under
or pursuant to a Lease including, but not limited to, any proceeds of any
insurance and (ii) in the case of an Equipment Note, CSA, Third Party Lease,
Finished Goods Inventory Note or Receivables Note, all rental, debt service or
installment payments thereunder, including all security deposits, advance
rentals, indemnity payments, insurance proceeds, purchase price payments,
principal, interest, payments in connection
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with any purchase, renewal, termination, option or obligation and other amounts
at any time made, due or to become due, whether or not earned by performance,
under or pursuant to such Equipment Note, CSA, Third Party Note, Finished Goods
Inventory Note or Receivables Note, including, but not limited to, any proceeds
of any insurance.
"Contract Receivables Clauses" - clauses (a) and (b) of the Borrowing
Base.
"CSA" - a conditional sale agreement or similar arrangement providing
for the sale of Eligible Equipment by a Borrower, as vendor, to an Obligor and
for the retention of a Lien on such Eligible Equipment to secure amounts payable
by such Obligor under such CSA.
"Eligible Account Receivable" - an Account Receivable which meets each
of the following requirements:
(a) LCI or Quantum is the direct related obligee (i.e., the Account
Receivable was originated and generated by LCI or Quantum and not acquired by
transfer or assignment of any kind and was not a fee in connection with a
brokered transaction) and the related Account Debtor is not an Affiliate of any
Applicable Company, LINC Group or any of their Subsidiaries (except to the
extent otherwise permitted under subsection (7) of the definition of Borrowing
Base);
(b) the Account Receivable represents the billed but unpaid portion of
an Account Receivable, net of any credits, rebates, offsets, hold backs or other
adjustments or commissions payable to third parties that are adjustments to such
Accounts Receivables;
(c) if it arises from the sale or rental of Equipment or fees relating
thereto, such Equipment has been shipped or delivered to the Account Debtor
under such Account Receivable or if it constitutes fees for services rendered,
such services have been rendered in full;
(d) the Account Receivable arises from a bona fide agreement in an
arm's-length transaction entered into in the ordinary course of business of the
Basic Business and is a legal, valid, binding and enforceable obligation of the
Account Debtor, and is in full force and effect and complies with all applicable
laws and regulations and the charter and by-laws of such Account Debtor, and the
payment by the Account Debtor of such Account Receivable does not and will not
conflict with any agreement or other instrument binding upon or applicable to
such Account Debtor;
(e) it is not subject to any offset, counterclaim or other defense or
dispute on the part of such Account Debtor or to any claim on the part of such
Account Debtor denying liability thereunder in whole or in part, is subject to
no conditions precedent which are unsatisfied, and no agreement relating to such
Account Receivable imposes any obligation upon LCI or Quantum, as applicable
(other than any warranty of title under any such agreement or any agreement of
quiet enjoyment and other than certain maintenance obligations on the part of
LCI or Quantum, as applicable) while such related Account Debtor is not in
default or any other Person
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(including, without limitation, the original related obligee) which if not
performed would give rise to any right of offset, counterclaim or any other
defense on the part of such Account Debtor to payment of any part of such
Account Receivable;
(f) it is evidenced by an invoice sent to the Account Debtor for the
full purchase price or fee payment or monthly or quarterly rental payment under
an Eligible Rental Agreement dated not earlier than the date of shipment or
performance rendered to such Account Debtor and stating a due date for payment
of all payments due thereunder which date is prior to the expiration of ninety
(90) days following the date of invoice, and if there are payments related to
such transaction due more than ninety (90) days later than the date of invoice
such payments shall not at any time be Eligible Accounts Receivable (except in
the case of rental payments under Eligible Rental Agreements which will satisfy
the conditions of this clause (f) upon billing of each due payment);
(g) it is not evidenced by any negotiable or non-negotiable instrument
or chattel paper except with respect to rental payments under Eligible Rental
Agreements evidenced by such Eligible Rental Agreements;
(h) it is not owing by an Account Debtor who shall have failed to pay
in full an invoice or invoices evidencing 10% or more of the unpaid net amount
of all Accounts Receivable owing by such Account Debtor within ninety (90) days
after the due date of such invoice(s);
(i) payment under the invoice evidencing such Account Receivable is
not more than ninety (90) days overdue;
(j) Quantum or LCI is the lawful owner, free and clear of all Liens
(other than the Agent's Lien), of such Account Receivable and holds indefeasible
title to such Account Receivable, and such ownership interest is, except as
aforesaid, protected against all Persons whatsoever;
(k) the Agent's Lien is a first security interest in LCI's or
Quantum's interest therein, and such security interest is perfected against all
Persons whatsoever subject to no other Liens;
(l) the Account Debtor (if not an individual) is an entity duly
organized and existing in good standing under the laws of the jurisdiction of
its organization in the United States of America with full power and authority
to enter into the agreement giving rise to the Account Receivable and performed
its obligations thereunder or (if an individual) is a permanent resident or
citizen of the United States of America; provided, however, that the
requirements of this clause (1) shall not apply to Accounts Receivable included
in the Borrowing Base in an aggregate amount of up to Two Hundred Fifty Thousand
($250,000) Dollars;
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(m) no bankruptcy or insolvency proceeding shall have been commenced
by or against the Account Debtor and the Account Debtor shall not have taken any
corporate action relating to any such proceeding;
(n) the Account Debtor is not the United States of America or any
agency or instrumentality thereof or any entity entitled to full or partial
sovereign immunity or with respect to which an assignment of claims is subject
to consent;
(o) the Account Receivable is payable in the lawful currency of the
United States;
(p) if the Account Receivable does not conform with the terms of the
preceding clause (b), it is a right to payment representing an account
receivable which the Agent, acting in its sole discretion, has determined is
acceptable following delivery by LCI or Quantum of all agreements, instruments
and documents relating to such account receivable as may be requested by the
Agent; provided, however, that if and so long as the inclusion of any such
Account Receivable acceptable to the Agent would (after giving effect to any
proposed inclusion) result in the aggregate amount of all such Accounts
Receivable exceeding Five Hundred Thousand ($500,000) Dollars, then no such
Account Receivable shall be included except with the prior consent of the
Majority Banks; and
(q) none of the Applicable Companies knows of any fact or
circumstance that might render such Account Receivable less valuable than it
purports to be, nor has it taken any action that will impair the value of such
Account Receivable, or of any rights of any of the parties hereto with respect
to such Account Receivable.
Any Account Receivable which is at any time an Eligible Account Receivable, but
which subsequently fails to meet any of the foregoing requirements, shall
immediately cease to be an Eligible Account Receivable.
"Eligible Contract" - a Contract that meets each of the following
requirements at all times:
(a) no Contract Payment is more than 90 days past due, and no other
material default exists by the Obligor under such Contract or under any security
or other documents executed in connection with such Contract or by any other
Obligor of its obligations with respect to such Contract, provided, however, in
respect of such material default which is not a failure to make a payment when
due, no default under the Contract shall be deemed to exist under this
subparagraph (a) until the earlier of the expiration of the aforementioned
ninety (90) day period or delivery of notice of default to the Lessee or Obligor
there under by the Applicable Company;
(b) it arises in the ordinary course of the Applicable Company's
business, is the legal, valid, binding and enforceable recourse obligation of
the Obligor under such Contract,
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is in full force and effect and complies with all applicable laws, and all of
the Applicable Company's procedures, requirements and conditions; and, with
respect to any Finished Goods Inventory Note or Receivables Note, complies with
all federal and state laws applicable thereto; and the obligations of the
Obligor have been duly authorized and have not been canceled or terminated and
the execution and delivery by such Obligor of and the performance of its
obligations under such Contract do not and will not conflict with or result in
any violation of or constitute a default under the charter or by-laws of such
Obligor;
(c) the Initial Term of the Contract has commenced and it is
noncancellable and non-prepayable during its Initial Term and it provides that
the Obligor under such Contract will pay all amounts due without set-off,
counterclaim, defense or abatement (provided, that such Contract will be an
Eligible Contract even if cancelable or prepayable by the Obligor thereunder if,
in the event of cancellation, the Obligor thereunder is unconditionally
obligated to make a lump-sum payment to the Applicable Company or its assignee
on the date of cancellation which is not less than, with respect to (i) a Lease,
CSA, or Equipment Note, 100% of the Present Value of the Balance of Payments
with respect thereto and (ii) a Finished Goods Inventory Note or a Receivables
Note, 100% of the principal balance thereof;
(d) no set-offs, counterclaims, defenses or disputes exist with the
Obligor or any Affiliate of the Obligor with respect to such Contract which
could have a material effect on such Contract, the Obligor has not denied
liability under such Contract in whole or in part, the payment of amounts due
under such Contract is subject to no conditions precedent that are unsatisfied,
and no agreement relating to such Contract imposes any obligation on the
Applicable Company (other than a warranty of title) that if not performed would
give rise to a right of offset, counterclaim or any other defense on the part of
such Obligor to payment of any part of such Contract (provided that disputes
regarding rental payments, principal payments, interest payments, maintenance,
taxes, insurance, non-cancellability and term (excluding disputes regarding
fewer than twenty days difference in commencement of the Contract term) shall in
any event be deemed to be material);
(e) such Contract, including all related security documents, (i)
constitutes a non-cancelable Lease or a non-cancelable Equipment Note, CSA,
Third Party Note, Finished Goods Inventory Note or Receivables Note, (ii) can be
assigned as collateral by the Applicable Company without the Obligor's consent,
(iii) cannot be assigned or transferred by the Obligor without the consent of
the Applicable Company, (iv) are marked in accordance with Section 6.16 and
satisfy the requirements of Section 6.17 hereof, (v) includes an obligation on
the part of the Obligor to maintain or cause to be maintained the Equipment or
Obligor Finished Goods Inventory at the Obligor's expense in good condition,
repair and working order, (vi) does not permit a balloon payment exceeding an
amount equal to 30% of the aggregate payments due thereunder and otherwise
provides for payments in substantially equal installments and (vii) is, in
respect of all other material terms therein substantially the same in form as
one of the forms delivered to the Agent on the Closing Date, or with respect to
Contracts entered into in connection with the Loan Business, delivered to the
Agent at least 30 days prior to inclusion in the Borrowing Base of any
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Contracts related to the Loan Business and contains no terms in contradiction or
in conflict with any of the foregoing;
(f) all Equipment covered by such Contract is at all times Eligible
Equipment, and all Contract Collateral securing such Contract, if any, is at all
times Eligible Contract Collateral;
(g) no bankruptcy or insolvency proceeding shall have been commenced
by or against the Obligor under such Contract or the lessee under a Third Party
Lease, such Obligor or lessee shall not have taken any corporate action relating
to any such proceeding and no foreclosure or similar proceeding shall have been
commenced by any holder of a Lien on the Equipment or Contract Collateral
related to or securing such Contract (whether such Lien is a Permitted Borrowing
Base Encumbrance or otherwise) and no such Contract has been classified by the
Applicable Company as "non-performing" (as determined by reference to such
Applicable Company's Credit Scoring Model, Emerging Growth Credit Scoring
Matrix, or Loan Scoring Model as delivered to the Agent);
(h) any Lease is a net-net-net lease with no more than 84 (but in
respect of any Contract proposed to be included as an Eligible Emerging Growth
Contract, 72) remaining months in the Initial Term; any Equipment Note, CSA or
Third Party Note has an original scheduled final maturity date not more than 84
(but in respect of any Contract proposed to be included as an Eligible Emerging
Growth Contract, 72) months in the future (computed as of the first date of
inclusion thereof in the computation of the Borrowing Base); in respect of
computation of Residual Value under clause (c) of the Borrowing Base, the
remaining useful life of the Eligible Leased Residual Property thereunder
exceeds the remaining minimum lease term; and any Finished Goods Inventory Note
or Receivables Note has an original scheduled final maturity date of not more
than 36 months in the future (computed as of the first date of inclusion thereof
in the computation of the Borrowing Base);
(i) the Agent has received or has available to it for inspection
pursuant to Section 2.25 hereof a photocopy of the file stamped "acknowledgment
copy" containing the recording information of Financing Statements filed with
respect to such Contract in all appropriate and necessary offices naming the
Obligor as debtor or lessee, the Applicable Company as Secured Party or lessor
and the Agent as assignee (or the equivalent in respect of each Foreign Leasing
Subsidiary);
(j) the Obligor under such Contract is not, and any lessee under a
Third Party Lease is not, the United States of America, any agency or
instrumentality of the United States of America, any entity entitled to full or
partial sovereign immunity or any entity as to which an assignment of claims is
subject to consent; provided that, so long as no consent to an assignment of
claims is required, the foregoing shall not preclude an Obligor or the lessee
under a Third Party Lease that has no right to terminate or discontinue making
payments in the event of nonappropriation of funds by any governmental agency or
body;
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(k) each Obligor under such Contract and each lessee under a Third
Party Lease is an entity duly organized and existing under the laws of its
jurisdiction of organization in, or an individual legally and permanently
residing in, the United States of America;
(l) payment under such Contract and under any Third Party Lease is to
be made in Dollars, and if such Contract is a Lease either (i) the rental
payments are not determined wholly or partly by the volume of use of the related
Equipment, or (ii) if the rental payments are determined partly by the volume of
use of the related Equipment, then only the guaranteed or fixed rental payments
are included in computing the Borrowing Base;
(m) no Applicable Company knows of any fact or circumstance that might
render such Contract less valuable than it purports to be, and no Applicable
Company has taken any action that will impair the value of such Contract, the
related Equipment or Contract Collateral, or the rights of any party with
respect to such Contract or the related Equipment or Contract Collateral, such
Contract has not in any event been rejected or refused as unacceptable for
inclusion in any securitization or under any warehousing loan agreement or under
any permanent financing except on the basis of concentration issues only
(including geographical, equipment type and Dollar amount);
(n) the Obligor under such Contract, any lessee under a Third Party
Lease and any Obligor Account Debtor are not Affiliates of any Applicable
Company, LINC Group or any of their Subsidiaries, except as and to the extent
otherwise permitted under subsection (7) of the definition of "Borrowing Base";
(o) in the case of a Lease, the Applicable Company holds good,
indefeasible and marketable title to the Contract, all related Contract Payments
and all Equipment covered by such Contract, and has granted to the Agent a valid
first priority perfected Lien on all of such Company's right, title and interest
in such Contract, Contract Payments and Equipment, subject to no Liens other
than Permitted Liens, and such Lease constitutes chattel paper;
(p) in the case of an Equipment Note, CSA, Finished Goods Inventory
Note or Receivables Note, the Applicable Company holds good and marketable title
to the Contract and all related Contract Payments, the Applicable Company has a
valid first priority perfected Lien on all Equipment or Contract Collateral
securing or covered by such Contract, and the Applicable Company has granted to
the Agent a first priority perfected Lien on all of the Applicable Company's
right, title and interest (including its rights of recourse) in such Contract,
Contract Payments, Equipment and Contract Collateral, subject to no Liens other
than Permitted Liens, and any CSA constitutes chattel paper;
(q) in the case of a Third Party Note, the Applicable Company holds
good and marketable title to the Contract and all related Contract Payments, the
Applicable Company has a valid first priority perfected Lien on the Third Party
Lease (including all payments to be made to the Obligor under the Third Party
Lease) and all Equipment covered by such Third Party Lease, and the Applicable
Company has granted to the Agent a valid first priority perfected
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Lien on all of the Applicable Company's right, title and interest in such Third
Party Note, Third Party Lease and Equipment, subject to no Liens other than
Permitted Liens, and the related Third Party Lease constitutes chattel paper;
(r) the Applicable Company's and Agent's Lien on the Equipment or
Contract Collateral related to any such Contract is created under and pursuant
to the UCC of an applicable jurisdiction, except that for motor vehicles the
appropriate endorsement on the certificate of title in favor of the Agent shall
have been effected if more than ten motor vehicles are included in computation
of the Borrowing Base at that time or, if ten or less motor vehicles are then
included in computation of the Borrowing Base, the Agent has requested in
writing that such endorsement be effected;
(s) the payment terms of such Contract shall not have been
restructured due to the Obligor's financial condition or inability to make
payment under the original Contract; provided however that any Contract which
has been so restructured shall not be disqualified as an Eligible Contract under
this subparagraph (s) from and after the 181st day following the date the first
payment is made under the restructured terms if the Obligor has remained current
with respect to all payments due under such restructured Contract for a period
of at least 180 consecutive days (for purposes of this subparagraph (s),
payments are "current" if made within ten (10) days following the scheduled date
when due);
(t) no potential or matured default or event of default under any
servicing agreement relating to the Leased Property subject to such Contract
shall have occurred and be continuing;
(u) prior to the execution of such Lease, the Lessee had no interest,
directly or indirectly, in the Equipment or the Lessee conveyed any such
interest or good title to or granted a first priority perfected security
interest in the Equipment to the applicable Borrower or applicable Foreign
Leasing Subsidiary;
(v) the Applicable Company has not and will not give or loan to any
Obligor, directly or indirectly, any unpaid rent or other amount due or to
become due under any Lease, Finished Goods Inventory Note or Receivables Note;
(w) such Contract constitutes the entire agreement of the parties
thereto and neither party thereto shall be bound except in accordance therewith;
(x) except with respect to amounts used to purchase Equipment from an
Obligor, and except indirectly as proceeds of any Finished Goods Inventory Loan
or Receivables Loan, no Obligor has received, nor will any Obligor receive
(except as directed by the applicable Borrower and agreed to by the Agent) from
or through the Applicable Company, directly or indirectly, any part of the
proceeds of the Loans;
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(y) if such Contract is a Finished Goods Inventory Note (i) such
Contract is secured by a valid and perfected first priority security interest
held by an Applicable Company in Eligible Contract Collateral owned by an
Obligor and created under and pursuant to the UCC of an applicable jurisdiction
which Eligible Contract Collateral is comprised, at least, of (A) all of such
Obligor's inventory and (B) all accounts receivable of such Obligor, (ii) the
face amount of such Note does not exceed 50% of the least of (A) the wholesale
value of Obligor Finished Goods Inventory securing such Note which Obligor
Finished Goods Inventory is Eligible Contract Collateral, (B) if such Obligor
Finished Goods Inventory was manufactured by the Obligor, the manufacturing cost
of such Obligor Finished Goods Inventory securing such Note which Obligor
Finished Goods Inventory is Eligible Contract Collateral, or (C) if such Obligor
Finished Goods Inventory was purchased by the Obligor from an unrelated third
party, such Obligor's purchase price for such Obligor Finished Goods Inventory
securing such Note which Obligor Finished Goods Inventory is Eligible Contract
Collateral, net of any taxes, delivery charges or discounts, and (iii) the
Obligor thereunder shall have also executed and delivered to the Applicable
Company a Receivables Note which is an Eligible Contract hereunder; and
(z) if such Contract is a Receivables Note (i) such Contract is
secured by a valid and perfected first priority security interest held by an
Applicable Company in Eligible Contract Collateral owned by an Obligor and
created under and pursuant to the UCC of an applicable jurisdiction, (ii) the
face amount of such Note does not exceed 85% of the aggregate value of the
Obligor Accounts Receivable securing such Note which Obligor Accounts Receivable
are Eligible Contract Collateral.
A Contract which initially was an Eligible Contract, but which
subsequently fails to meet any of the above requirements of paragraphs
(a) - (z), shall immediately cease to be an Eligible Contract.
"Eligible Contract Collateral" - any Contract Collateral which meets
each of the following requirements at all times:
(a) if such Contract Collateral consists of Obligor Accounts
Receivable:
(i) the Obligor is the direct related obligee and the related
Obligor Account Debtor is not an affiliate of such Obligor (i.e., the Obligor
originated and generated the Obligor Account Receivable and did not acquire it
by way of transfer or assignment of any kind, and such Account Receivable was
not a fee in connection with a brokered transaction);
(ii) if such Obligor Account Receivable arises from the sale of
equipment or inventory, such equipment or inventory has been shipped or
delivered to the Obligor Account Debtor under such Obligor Account Receivable;
(iii) such Obligor Account Receivable arises from a bona fide
agreement in an arm's-length transaction entered into in the ordinary course of
Obligor's business, and is a legal, valid, binding and enforceable obligation of
the Obligor Account Debtor, and is in full force
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and effect and complies with all applicable laws and regulations and the charter
and by-laws of such Obligor Account Debtor, and the payment by the Obligor
Account Debtor of such Obligor Account Receivable does not and will not conflict
with any agreement or other instrument binding upon or applicable to such
Obligor Account Debtor;
(iv) such Obligor Account Receivable represents the billed but
unpaid portion and is evidenced by an invoice sent to the Obligor Account Debtor
for the full purchase price dated not earlier than the date of shipment to such
Obligor Account Debtor and stating a due date for payment of all payments due
thereunder which date is prior to the expiration of ninety (90) days following
the date of invoice;
(v) the related Obligor is the lawful owner, free and clear of all
Liens (other than the Applicable Company's Lien), of such Obligor Account
Receivable and holds indefeasible title to such Obligor Account Receivable, and
such ownership interest is, except as aforesaid, protected against all Persons
whatsoever;
(vi) the Applicable Company's Lien with respect to such Obligor
Account Receivable is a first priority security interest in the Obligor's
interest therein, and such security interest is perfected against all Persons
whatsoever subject to no other Liens;
(vii) it is not evidenced by any negotiable or non-negotiable
instrument or chattel paper;
(viii) such Obligor Account Receivable meets the requirements of
clauses (e), (h), (i), (l), (m), (n), (o), and (q) of the definition of Eligible
Account Receivable; provided that for purposes of this clause (viii) (1) all
references therein (A) to "Account Debtor" shall be deemed to be to "Obligor
Account Debtor", (B) to "Accounts Receivable" shall be deemed to be to "Obligor
Accounts Receivable", (C) to "LCI" or "Quantum" shall be deemed to be to
"Obligor"; and (2) the proviso set forth in clause (l) shall not apply.
(ix) the Agent is the holder of a first priority security interest
in the Applicable Company's interest in such Obligor Account Receivable, and
such security interest is perfected against all Persons whatever subject to no
other Liens except for (1) Permitted Borrowing Base Encumbrances and (2)
Permitted Liens;
(x) if the Contract Collateral consists of Obligor Accounts
Receivable that are Healthcare Receivables, then such Healthcare Receivables
meet, in addition to other applicable requirements set forth in this Agreement,
each of the following requirements:
(A) it is a liability of a commercial insurance company, Blue
Cross/Blue Shield plan, health maintenance organization, preferred provider
organization or hospital corporation organized under the laws of any
jurisdiction in, and having its principal office in, the United States of
America;
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(B) the Obligor in respect of such Healthcare Receivable is not an
Affiliate of its related Healthcare Provider or any Loan Party;
(C) it is not a receivable arising in whole or in part under or whose
payment is wholly or partially administered under (1) the health insurance
program for the aged and disabled established by Title XVIII of the Social
Security Act (42 U.S.C. ss. 1395 et seq.) and any succeeding statutes (i.e.,
Medicare), (2) the medical assistance program established by Title XIX of the
Social Security Act (42 U.S.C. ss. 1396 et seq.) and any succeeding statutes
(i.e., Medicaid), or (3) the Civilian Health and Medical Program of the
Uniformed Services established by 10 U.S.C ss. 1071 et seq. (i.e., CHAMPUS);
(D) it is a Healthcare Receivable in which a Healthcare Provider
granted a first priority perfected security interest and assigned all of its
rights and interests to LCI pursuant to a Receivables Note, and notice of such
assignment to LCI has been duly and properly delivered by the Healthcare
Provider and LCI and received by the payor referred to in subsection (A) above;
and
(E) it has not been satisfied, has not been and is not subject to
being compromised, adjusted, modified, subordinated or rescinded and is net of
contractual allowances;
(b) if such Contract Collateral consists of Obligor Finished Goods
Inventory:
(i) such Obligor Finished Goods Inventory is personalty and does
not constitute fixtures;
(ii) such Obligor Finished Goods Inventory is located at all times
in one of the states of the United States of America or Washington, D.C.;
(iii) such Obligor Finished Goods Inventory is located at the related
Obligor's premises;
(iv) such Obligor Finished Goods Inventory is not installed in or
affixed to other equipment or inventory which is not Contract Collateral;
(v) such Obligor Finished Goods Inventory is in good condition,
repair and working order, is not obsolete and is insured in accordance with the
terms of the applicable Finished Goods Inventory Note and the security documents
related thereto;
(vi) if such Obligor Finished Goods Inventory consists in whole or
in part of software, the Applicable Company has or will have after foreclosure
against the related Obligor the right to remarket such Finished Goods Inventory
with the associated software remaining in place without obtaining any consent or
approval from the licensor of such software;
(vii) such Obligor Finished Goods Inventory does not constitute a
Non-UCC Asset;
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(viii) the Agent is the holder of a first priority security interest
in the Applicable Company's interest therein, and such security interest is
perfected against all Persons whatever subject to no other Liens except for (1)
Permitted Borrowing Base Encumbrances and (2) Permitted Liens;
The foregoing notwithstanding, any Contract Collateral which initially
was Eligible Contract Collateral, but which subsequently fails to meet any of
the requirements set forth above with respect to such Contract Collateral shall
immediately cease to be Eligible Contract Collateral.
"Eligible Emerging Growth Contract" - a Contract which (a) meets all
of the requirements of the definition of Eligible Contract and (b) which is
scored or rated using the Applicable Company Emerging Growth Credit Scoring
Matrix and the Obligor under such Contract is an Emerging Growth Company as of
the date of effectiveness under the certificate of delivery and acceptance
relating to a Contract or on the date of funding of an Equipment Note, Third
Party Note, CSA, Finished Goods Inventory Note or Receivables Note.
"Eligible Equipment" - any item of Equipment that meets each of the
following requirements at all times:
(a) such Equipment is personalty and does not constitute fixtures
except for fixtures that are immaterial in type or quantity;
(b) such Equipment is not used or intended for use primarily for
personal, family or household purposes and is not consumer goods, and does not
constitute gaming equipment;
(c) such Equipment is located at all times in one of the United States
of America or Washington, D.C.;
(d) such Equipment is located at either the Applicable Company's
premises (if it constitutes inventory) or the related Obligor's premises, except
for Equipment with a Net Book Value of up to $1,000,000 at any time that is
covered by a UCC-1 Financing Statement filed by the Applicable Company against
the warehouseman, manufacturer or other Person in possession of such Equipment;
(e) such Equipment is not installed in or affixed to other equipment
which is not Collateral;
(f) such Equipment is in good condition, repair and working order and
is insured in accordance with this Agreement and the Security Documents;
(g) if such Equipment includes software, the Applicable Company has or
will have after foreclosure against the related Obligor the right to remarket
such Equipment with the associated software remaining in place without obtaining
any consent or approval from the
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licensor of such software and such software is covered by a Contract that also
covers Equipment (other than software) related to the use of such software;
(h) if such Equipment is a motor vehicle, it has an appropriate
endorsement on the certificate of title and perfected lien in favor of the Agent
pursuant to the applicable motor vehicle laws and regulations in the State in
the United States of America in which such motor vehicle is registered, except
as and to the extent otherwise permitted under subsection (5) of the Borrowing
Base;
(i) if such Equipment is a Non-UCC Asset other than a motor vehicle,
the Agent shall have received notice from the Applicable Company not less than
ten (10) Business Days prior to the proposed date of inclusion of such Non-UCC
Asset in the Borrowing Base, which notice shall describe the subject Equipment,
its location and the legal requirements for perfection of the Applicable
Company's interest and Agent's lien thereon, and such Non-UCC Asset shall not be
deemed to be Eligible Equipment unless and until each of the Applicable
Company's Lien thereon and the Agent's Lien thereon have been created and
perfected to the satisfaction of the Agent (including, if required by the Agent,
the rendering of legal opinions) prior to inclusion in the Borrowing Base and
unless the Agent is satisfied in its sole discretion that enforcement of and
practical realization of the benefits of, the Agent's Lien are not subject to
consent, approval or other requirements or restrictions more onerous or
materially different in nature than are applicable in respect of assets included
in the Borrowing Base which do not constitute Non-UCC Assets;
(j) the Agent is the holder of a first security interest in the
Applicable Company's interest therein, and such security interest is perfected
against all Persons whatever subject to no other Liens except for (A) Permitted
Borrowing Base Encumbrances and (B) Permitted Liens; and "related Equipment"
shall mean, when used with reference to any Contract, the Eligible Equipment
covered by or securing the repayment of obligations under such Contract.
"Eligible Equipment Note" - an Eligible Contract which is an Equipment
Note.
"Eligible Foreign Lease" - a Contract (a) which is a Lease that meets
all of the requirements of the definition of Eligible Contract except for clause
(l) so long as the lessee is duly organized and existing under the laws of one
of the Foreign Locations; (b) the lessee under which meets all of the
requirements of the definition of Lessee; (c) which is a Lease of Equipment that
meets all of the requirements of Eligible Equipment other than the requirements
of clause (c) thereof; (d) which is a Lease of Equipment located in a Foreign
Location; (e) the lessor under which is a Foreign Leasing Subsidiary or LCI;
provided, however, that in respect of amounts included under clause (c) (i.e.,
Residual Values) of the Borrowing Base in respect of Eligible Foreign Leases,
the Lessor under such Eligible Foreign Lease need not be a Foreign Leasing
Subsidiary of LCI; (f) for which the applicable Foreign Leasing Subsidiary or
LCI has made arrangements pursuant to a currency swap agreement or similar
currency hedge agreement, in each case in form and substance satisfactory to the
Agent, providing, among other things, for the exchange of Contract Payments
thereunder into Dollars to the extent such Contract Payments are
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made in a foreign currency, and (g) the Equipment covered thereunder which shall
not be deemed to be Eligible Equipment unless and until the Agent's Lien thereon
has been created and perfected. The terms of this definition of Eligible Foreign
Lease constitute the exclusive terms under which a Lease entered into by a
Foreign Leasing Subsidiary or LCI may be eligible for inclusion in the Borrowing
Base, and in the event of any inconsistency between any portions of any
definitions used in this definition of Eligible Foreign Lease, including,
without limitation, the terms "Eligible Equipment" and "Eligible Lease", and
this definition of Eligible Foreign Lease, the terms of this definition of
Eligible Foreign Lease shall govern, and no Lease entered into by a Foreign
Leasing Subsidiary or LCI shall be eligible for inclusion under the Borrowing
Base unless such Lease satisfies the requirements of this definition in full.
"Eligible Lease" - an Eligible Contract which is a Lease.
"Eligible Residual Leased Property" - for purposes of computations
under the definition of "Residual Value", Leased Property which meets each of
the following requirements: (a) it is and continues to be subject to an Eligible
Contract or Eligible Emerging Growth Contract; (b) it meets all of the
requirements of the definition of Eligible Equipment except that the Applicable
Company's interest in the Equipment may be subject, and the security interest of
the Agent's Lien on the Equipment may be subordinate to a security interest
granted in connection with the incurrence of Indebtedness (but only if and to
the extent the incurrence of such Indebtedness shall have been consistent with
the terms of this Agreement) and constituting a Permitted Borrowing Base
Encumbrance; (c) it was purchased by the Applicable Company but in any event was
purchased for not more than its fair market value; (d) it has been delivered to
and accepted by the Lessee thereof; (e) the Initial Term of such Lease covering
such Leased Property has commenced and is continuing or has been renewed or
extended. Any Leased Property which is at any time Eligible Residual Leased
Property, but which subsequently fails to meet any of the foregoing
requirements, shall immediately cease to be Eligible Residual Leased Property.
"Eligible Rental Agreement" - a Rental Agreement between Quantum as
lessor and a Lessee, in each case, which meets all of the requirements of the
definition of Eligible Contract (other than the requirements of clauses (c),
(e)(i) and (v), and (h) except that such Rental Agreement shall satisfy the
requirements of Section 6.17 of this Agreement) or meets all of the requirements
of an Eligible Account Receivable. Any Rental Agreement which initially was an
Eligible Rental Agreement but subsequently fails to meet any of the foregoing
requirements shall immediately cease to be an Eligible Rental Agreement.
"Emerging Growth Company" - as of any date, a company which has less
than two consecutive years of earnings as reported in its most recent financial
statements.
"Equipment" - any equipment which, in the case of Equipment subject to
a Lease, is owned by an Applicable Company and rented, leased or refinanced by
an Applicable Company as lessor or lender in the ordinary course of its
business.
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"Equipment Note" - a loan agreement, security agreement and any
related agreement setting forth (i) an Obligor's agreement either to purchase
Equipment from a Borrower or to repay a loan from a Borrower, the proceeds of
which were used to purchase Eligible Equipment from such Borrower or refinance
such Eligible Equipment and all other obligations of such Obligor in connection
with such purchase or repayment, and (ii) granting to such Borrower a security
interest in such Eligible Equipment to secure all such obligations.
"Excludable Amounts" - in respect of the Borrowers and the Foreign
Leasing Subsidiaries in the aggregate: (a) all accrued but unpaid federal, state
and local taxes (not including deferred taxes or taxes which are reimbursable by
a Lessee or other Obligor); and (b) recourse liabilities, contingent or
otherwise (including accounts payable) in respect of acquisitions, purchases and
financing of or relating to Equipment which Equipment is included in any clause
of the Borrowing Base, including, without limitation (but without duplication):
(i) in respect of any such Equipment included in clause (c) (i.e., Residual
Value Clause) amounts equal to the amounts excluded under Section 3 of the
definition of Borrowing Base (which amounts the parties hereto intend shall not
in the first instance have been included in computation of the Borrowing Base);
provided, however, that except as set forth in the preceding terms of this
definition, "Excludable Amounts" shall not include recourse liabilities
comprised of the permanent financing obtained by the Borrowers or Foreign
Leasing Subsidiaries for lease receivables (which lease receivables are not
included in the Borrowing Base) generated by leases of Equipment which Equipment
is included as Eligible Residual Leased Property under the Residual Value
Clause; and (ii) in respect of any such Equipment included in clause (e) (i.e.,
Inventory Clause) of the Borrowing Base.
"Finished Goods Inventory Loan" - a loan made by an Applicable Company
to an Obligor which is in an industry satisfactory to the Majority Banks in the
ordinary course of such Applicable Company's Loan Business, which Loan is
evidenced by a Finished Goods Inventory Note.
"Finished Goods Inventory Note" - a loan agreement, security agreement
and any related agreement, in substantially the same form as one of the forms
delivered to the Agent prior to inclusion of any Finished Goods Inventory Notes
in computation of the Borrowing Base and satisfactory to the Agent, (a) setting
forth an Obligor's agreement to repay a Finished Goods Inventory Loan and all
other Obligations of such Obligor in connection with such agreement and (b)
granting to the Applicable Company a security interest in, among other things,
Obligor Finished Goods Inventory.
"Healthcare Provider" - a Person that has provided services or sold
merchandise to an Obligor and granted a security interest in the resulting
Healthcare Receivable to LCI.
"Healthcare Receivable" - (a) an account receivable billed by a
Healthcare Provider arising from the provision of health care services (and any
services or sales ancillary thereto) by the Healthcare Provider or physicians or
other professionals employed thereby including
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the right to payment of any interest or finance charges and other obligations
with respect to such account receivable;
(b) all security interests or liens and the property subject thereto
from time to time purporting to secure payment of such account receivables;
(c) all guarantees, indemnities and warranties and proceeds thereof,
proceeds of insurance policies, financing statements and other agreements or
arrangements of whatever character from time to time supporting or securing
payment of such account receivable;
(d) all cash collections with respect to any of the foregoing;
(e) all books and records with respect to any of the foregoing; and
(f) all proceeds of any of the foregoing.
"Initial Term" - with respect to a Lease, the period commencing on the
date specified in the Lease as the "Commencement Date" and ending on the last
day of the term thereof which is non-cancelable by the Lessee, and with respect
to any other Contract, the date on which a sum first becomes outstanding for the
principal or time sale price (but not before, in the case of an Equipment Note,
CSA or Third Party Note, the Obligor accepts the related Equipment as evidenced
by a certificate of delivery and acceptance or by a similar document) and ending
on the scheduled final payment date thereunder which is non-cancellable by the
Obligor.
"Invoiced Cost" - of any item of Eligible Equipment, the cost of such
Eligible Equipment to the applicable Borrower or applicable Foreign Leasing
Subsidiary, including sales and excise taxes, and all installation and delivery
costs, as evidenced by invoice(s) of the vendor(s) of such Eligible Equipment,
and, without duplication and in respect only of computations under clause (f) of
the Borrowing Base (i.e., Rental Equipment NBV Clause) and the Rental Payments
portion of the Accounts Receivable Clause with respect to Eligible Rental
Agreements under which Quantum is the lessor, the cost of refurbishment of the
related Eligible Equipment.
"Lease" - any document evidencing an agreement (including any
amendments, addenda, or supplements thereto) pursuant to which a Borrower, as
lessor, or a Foreign Leasing Subsidiary, as lessor, leases Leased Property to a
Lessee. Such term includes in its meaning both unitary leases and individual
lease schedules which incorporate into such schedules all terms and conditions
of a master lease pursuant to which such schedule is executed.
"Leased Property" - any item of Eligible Equipment which is at any
time covered by or leased under a Lease, and all replacements and substitutions
thereof, and additions, parts and accessories thereto, and all proceeds thereof.
"Lessee" - the party leasing Leased Property from a Borrower or a
Foreign Leasing Subsidiary under a Lease (including a Rental Agreement) and any
successors thereto;
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provided, however, that Affiliates of LINC Group or any Borrower may not
constitute Lessees for purposes of computation of the Borrowing Base, except as
otherwise permitted under the definition of Borrowing Base.
"Non-UCC Asset" - as defined in Section (5) of the definition of
Borrowing Base.
"Obligor" - any Lessee or other Person obligated in respect of a
Lease, any maker of an Equipment Note, any vendee under a CSA, any maker of a
Third Party Note or any other Person obligated in respect of a Contract
including any maker of a Finished Goods Inventory Note or Receivables Note, or
obligated under any other asset included in the Borrowing Base other than a
Company and, in each case, any successors thereto; provided, however, that
Affiliates of LINC Group or any Borrower may not constitute Obligors for
purposes of computation of the Borrowing Base, except as otherwise permitted
under the definition of Borrowing Base.
"Obligor Account Debtor" - the party who is obligated to an Obligor on
or under or with respect to any Obligor Accounts Receivable.
"Obligor Accounts Receivable" - trade receivables originated by and
owing to an Obligor and which are Contract Collateral under a Receivable Note.
"Obligor Creditor Participation Agreement" - for purposes, inter alia,
of determining compliance with the terms of subsection (3) of the definition of
"Permitted Borrowing Base Encumbrances", an agreement under which a Person, not
a Borrower, acquires an undivided percentage ownership interest in certain
Equipment and Contracts, in form and substance satisfactory to the Agent and
delivered to the Agent prior to inclusion under any Contract Receivable Clause
in the Borrowing Base of any asset subject to any such agreement, which
agreement shall in any event provide, among other things, that: (a) the
applicable Borrower has retained and shall continue to have exclusive and sole
control and authority as to servicing, collections and enforcement of rights and
remedies in respect of the entire Contract (and not solely in respect of the
Borrower's interest therein) which control and authority are not subject to the
need to obtain consent, waiver or approval from any other Person and are not
subject to veto or disapproval by any other Person, including, without
limitation, the holder of the balance of any interest in or rights in or under
such Contract; and (b) any Person who holds the balance of any rights and
interest in respect of Contracts or Equipment covered thereby to which the
Borrower has granted a participating interest shall have waived any right to
take any enforcement action or to exercise rights or remedies in relation
thereto.
"Obligor Finished Goods Inventory" - inventory owned by an Obligor
which has completed the manufacturing process of an Obligor or its supplier, is
in a state of readiness for delivery and shipment to a customer of such Obligor
except for packaging and crating and which is Contract Collateral under a
Finished Goods Inventory Note.
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"Permitted Borrowing Base Encumbrances" - Liens or encumbrances as and
to the extent (but only as and to the extent) described below on or affecting
the following respective assets included in the Borrowing Base under the
respective clauses referred to below or otherwise described:
(1) Residual Value Clause: with respect to the priority of the Agent's
Lien on Eligible Equipment covered by clause (c) (i.e., Residual Values), the
Agent's Lien may be junior and subject to a Lien in favor of a Permanent Lender
but only during the Initial Term and not thereafter, i.e., following release of
a Lien by a Permanent Lender on any assets included under a Residual Value
Clause, no other Liens may be imposed on such assets without the consent of the
Agent;
(2) Motor Vehicles, Fixtures and other Non-UCC Assets: with respect to
the perfection and priority of the Agent's Lien on Eligible Equipment
constituting motor vehicles, fixtures and other Non-UCC Assets, the Agent's Lien
shall be subject to the conditions stated in Section (5) of the definition of
Borrowing Base; and
(3) Assets included under the Contracts Receivable Clause and Emerging
Growth Contract Receivables Clause: with respect to the assets included under
the Contracts Receivables Clause and Emerging Growth Contract Receivables
Clause, but only relating to a Pre-Computation Amount included in the Borrowing
Base not to exceed Five Million ($5,000,000) Dollars in the aggregate at any one
time, the Agent's Lien may attach only to the extent of LCI's undivided
percentage ownership interest in such assets, the balance of such ownership
interest being held by an unaffiliated third party which may have granted to
another entity a security interest in its own ownership interest but only if and
so long as an Obligor Creditor Participation Agreement is in effect with respect
to such asset; provided that any Obligor Creditor Participation Agreement
otherwise in effect shall be deemed no longer to be in effect upon cessation or
termination of a Borrower's status as servicer, and accordingly the Borrower's
rights in the Contract(s) covered thereby shall cease to be eligible for
inclusion under the Borrowing Base.
(4) Assets included under the Contract Receivables Clause, Emerging
Growth Contract Receivables Clause, and Finished Goods Inventory and Receivables
Note Clause: Assets included in the Contract Receivables Clause, Emerging
Growth Contract Receivables Clause of the Finished Goods Inventory and
Receivables Note Clause of the Borrowing Base (but not in any event in respect
of Leases) may be subject to the Lien of a creditor of the Obligor which is
expressly subordinate to the Lien of the applicable Company and which pursuant
to an intercreditor agreement in substantially a form approved in advance by the
Agent require such creditor to stand still in the enforcement of its Lien until
the indebtedness of the Obligor to the applicable Borrower has been satisfied in
full.
"Post-Computation Amount" - as to any asset included in the Borrowing
Base and as of any date of recomputation, the net amount of such asset expressed
in Dollars following, as applicable, discounting to Present Value and
calculation based on any relevant percentage for
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inclusion set forth in the respective clause of the Borrowing Base, and thus
representing the amount that could actually be advanced in respect of such
asset.
"Pre-Computation Amount" - as to any asset to be included in the
Borrowing Base, the gross amount of such asset expressed in Dollars prior to, as
applicable, discounting and calculations based on any relevant percentage for
inclusion set forth in the respective clause of the Borrowing Base.
"Present Value" - at any time, with respect to the Balance of Payments
under Unfunded Leases, Unfunded Account Receivables, Eligible Residual Leased
Property (i.e., in respect of Residual Values), Unfunded Equipment Notes,
Unfunded CSAs or Unfunded Third Party Notes, the Present Value thereof,
determined by discounting at the rate per annum equal to the interest rate which
then applies to the Prime Rate Loans (or, if none are then outstanding, the
interest rate which would then apply) as it is in effect on the first Business
Day of the calendar month immediately preceding the date of any computation of
Present Value required to be made under this Agreement.
"Quantum Yield" - for any fiscal quarter as of any date of
determination, a quotient (expressed as a percentage) obtained by dividing (a)
as numerator, the aggregate net rental payment revenues during such quarter from
Lessees pursuant to Rental Agreements of Quantum as such revenues are shown in
the financial statements required to be delivered pursuant to Section 5.1 or 5.2
hereof, by (b) as denominator, the average net book value for such quarter of
the related Equipment that generated such rental revenues.
"Receivables Loan" - a loan made by an Applicable Company to an
Obligor which is in an industry satisfactory to the Majority Banks in the
ordinary course of an Applicable Company's Loan Business, which Loan is
evidenced by a Receivables Note.
"Receivables Note" - a loan agreement, promissory note, security
agreement and any related agreement, in form and substance substantially the
same as one of the forms delivered to the Agent prior to inclusion of any
Receivable Note in computation of the Borrowing Base and satisfactory to the
Agent, (a) setting forth an Obligor's agreement to repay a Receivables Loan and
all other obligations of such Obligor in connection with such agreement and (b)
granting to the Applicable Company a security interest in, among other things,
Obligor Accounts Receivable.
"Rental Agreement" - a Lease (a) which is an "operating lease" (as
such term is defined in FASB Statement No. 13), (b) in the case of Quantum has
an original term of less than one year, and (c) does not constitute any of the
following: a "sales type lease," a "direct financing lease," a "leveraged
lease"; in each case in accordance with applicable Financial Accounting
Standards Board Statements.
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"Rental Equipment Clauses" - individually or collectively, as the
context may require, clause (f) (i.e., Rental Equipment NBV Clause), of the
Borrowing Base and the Rental Payments portion of the Accounts Receivable Clause
of the Borrowing Base.
"Rental Equipment NBV Clause" - as defined in the definition of
Borrowing Base.
"Rental Payments" - rental payments made by a Lessee or due or to
become due from a Lessee under or pursuant to an Eligible Rental Agreement.
"Residual Realization Schedule" - a schedule to be delivered to the
Banks and the Agent on an annual basis entitled "Estimated Residual Value or Net
Book Value of Equipment at Lease Termination" which schedule shall be in form
and coverage acceptable to the Agent.
"Residual Value" - with respect to Eligible Residual Leased Property
covered under an Eligible Lease, an Eligible Foreign Lease or an Eligible
Emerging Growth Contract which is a Lease, the amount recorded on the applicable
Borrower's or applicable Foreign Leasing Subsidiary's books in accordance with
GAAP (subject to any qualifications set forth in this Agreement) as the
estimated residual value (meaning expected net proceeds from re-lease or sale
after the repayment of any related Indebtedness) of such Eligible Residual
Leased Property at the end of the Initial Term of such Lease, as the same may be
reduced from time to time to reflect any write downs; provided that, (A) without
duplication, there shall be deducted therefrom an amount equal to the sum of (1)
repayment of associated Indebtedness and (2) depreciation, all as recorded on
the applicable Borrower's or applicable Foreign Leasing Subsidiary's books in
accordance with GAAP; (B) in any event no Residual Value in respect of an item
of Equipment may, so long as it is subject to a particular Lease, be rewritten
to be recognized earlier; and (C) no residual value shall be attributed to
software or to fixtures.
"Single Lessee Cross-Collateralized Financing" - as defined in Section
3.24 hereof.
"Third Party Lease" - any document evidencing an agreement (including
any amendments, addenda, or supplements thereto) pursuant to which an Obligor,
as lessor, leases Eligible Equipment to another Person. Such term includes in
its meaning both unitary leases and individual lease schedules which incorporate
into such schedules all terms and conditions of a master lease pursuant to which
such schedule is executed.
"Third Party Note" - a recourse or a non-recourse loan and security
agreement, and all related agreements, setting forth obligations of an Obligor
to a Borrower to repay a loan from such Borrower, the proceeds of which were
used to finance Eligible Equipment subject to a Third Party Lease and as
collateral for which such Borrower has a first priority perfected Lien (that has
been assigned to the Agent) on all right, title and interest of the Obligor in
such Eligible Equipment and such Third Party Lease.
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"Unfunded" - with respect to any Lease, Equipment Note, CSA, Third
Party Lease, Finished Goods Inventory Note, Receivables Note or Contract Payment
or other obligation of any Obligor, such Contract, Contract Payment or other
obligation of any Obligor has not been sold, discounted or otherwise financed by
a Borrower or a Foreign Leasing Subsidiary or granted as a Lien by a Borrower or
Foreign Leasing Subsidiary to secure any obligations (whether with or without
recourse) to or with any Person (other than under this Agreement and the
Security Documents).
Section 1.3 Accounting Terms and GAAP.
(a) Any accounting terms used in this Agreement which are not
specifically defined shall have the meanings customarily given to them in
accordance with GAAP as in effect on the date of this Agreement, except that
references in Article 5 to such principles shall be deemed to refer to such
principles as in effect on the date of the financial statements delivered
pursuant thereto. Notwithstanding the foregoing, in the event of any
modification after the date hereof of GAAP or any applicable accounting terms
which modification results in a more conservative interpretation or approach
than obtained prior to such modification, then the term "GAAP" and such
accounting terms shall be deemed used herein in their modified forms.
(b) All terms used in Article 9 of the UCC and not specifically
defined in this Agreement are used in this Agreement as defined in Article 9 of
the UCC.
(c) The term "including", when used in this Agreement, means
"including without limitation" and "including but not limited to".
(d) Unless otherwise indicated, any agreement defined or referred to
in this Agreement is intended to mean or refer to such agreement as amended or
supplemented from time to time or as the terms of such agreement are waived or
modified in accordance with its terms.
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Article 2. Commitments; Loans; Collateral.
Section 2.1 Loans; Credit Period; Term Conversion.
(a) Each Bank hereby agrees, on the terms and subject to the
conditions of this Agreement, to make loans (individually, a "Loan" and,
collectively, the "Loans") to the Borrowers during the Credit Period to (but not
including) the Commitment Termination Date in an aggregate principal amount at
any one time outstanding up to, but not exceeding, the lesser of the Commitment
of such Bank as then in effect or such Bank's pro rata share of the Borrowing
Base based on the proportion that such Bank's Commitment as then in effect bears
to the Total Commitment (such lesser amount in the aggregate with respect to all
of the Banks is hereinafter referred to as the "Borrowing Capacity"); provided,
however, that no Loan shall be made hereunder if, after giving effect to the
making of such Loan, the sum of the aggregate amount of all Loans (including
Temporary Loans) and the L/C Obligations then outstanding would exceed the
Borrowing Capacity. The Borrowers shall be jointly and severally liable for any
and all indebtedness, liabilities and obligations hereunder. Subject to the
terms of this Agreement, during the Credit Period the Borrowers may borrow,
prepay (as provided in Section 2.8 hereof) and reborrow the amount of the Total
Commitment by means of Prime Rate Loans or Eurodollar Loans, and during the
Credit Period and following the Term Conversion Date, the Borrowers may convert
Loans of one type into Loans of another type (as provided in Section 2.7
hereof).
(b) On or before the then-current Commitment Termination Date the
Banks, jointly or severally, may approve or disapprove, in their respective sole
and absolute discretion, an extension of the then-current Commitment Termination
Date which has been requested by the Borrowers, and each Bank may condition its
respective approval on the participation of any or all of the other Banks or the
Agent. If such an extension of the Credit Period is not granted by all of the
Banks, (i) the Credit Period will end on the then-current Commitment Termination
Date subject to the terms and conditions of this Agreement and (ii) the
Borrowers shall have the option, so long as no Default or Event of Default then
exists, to (A) convert the principal balance of the Loans outstanding on the
Commitment Termination Date (but not in excess of the Borrowing Base) to a term
loan on the then-current Commitment Termination Date, in which event such
Commitment Termination Date shall be the Term Conversion Date, and the remaining
balance shall be repaid in accordance with the terms of Sections 2.8 and 2.10
hereof or (B) repay in full all of the Obligations on the then-current
Commitment Termination Date. In the event that the Borrowers elect to convert
the outstanding principal balance of the Loans to a term loan in accordance with
clause (ii)(A) immediately above, the Borrowers shall execute and deliver to the
Agent such documents and instruments as the Agent shall require in its sole
discretion to effect the purposes of this Agreement.
Section 2.2 Optional and Mandatory
Changes in Commitment.
(a) The Borrowers jointly shall be entitled at their option, not more
than two times during each calendar year, to permanently reduce the Total
Commitment provided that
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the Borrowers shall give notice of such reduction to the Banks as provided in
Section 2.3 hereof and that any partial reduction of the Commitment shall be in
an amount equal to an integral multiple of Five Million ($5,000,000) Dollars.
The Borrowers jointly shall be entitled at their option to terminate the Total
Commitment provided that the Banks shall be given 30 days prior notice by the
Borrowers of such termination. Any such termination or reduction shall be
permanent and irrevocable.
(b) On the Term Conversion Date, the Total Commitment shall be
automatically and permanently reduced to an amount equal to the principal
balance of the Loans outstanding on the Term Conversion Date, which amount shall
not, in any event, exceed the Borrowing Base.
Section 2.3 Borrowing Notice;
Borrowing Computation.
(a) The Borrowers shall give the Agent written notice of each
reduction of the Total Commitment, each borrowing, conversion and prepayment of
each Loan and of the duration of each Interest Period applicable to each
Eurodollar Loan (in each case, a "Borrowing Notice"). Each such written notice
shall be effective only if received by the Agent not later than 11 a.m., New
York City time, on the date which is:
(i) In the case of each notice of reduction and each notice of
borrowing or prepayment of, or conversion into, Prime Rate Loans, two (2)
Business Days prior to the date of the related reduction, borrowing, prepayment
or conversion;
(ii) In the case of each notice of borrowing or prepayment of or
conversion into, Eurodollar Loans or the duration of an Interest Period for
Eurodollar Loans, three (3) Eurodollar Business Days prior to the date of the
related borrowing, prepayment, or conversion or the first day of such Interest
Period.
Each such notice of borrowing, conversion or prepayment shall specify the amount
(subject to Section 2.1 hereof) and type of the Loans to be borrowed, converted
or prepaid (and, in the case of a conversion, the type of Loans to result from
such conversion), the date of borrowing, conversion or prepayment (which shall
be a Business Day in the case of each borrowing or prepayment or conversion of
or into Prime Rate Loans, and a Eurodollar Business Day in the case of each
borrowing or prepayment of or conversion into Eurodollar Loans). Each such
notice of the duration of an Interest Period shall specify the Loans to which
such Interest Period is to relate.
(b) Each Borrowing Notice requesting a Loan shall be accompanied by a
Borrowing Computation which shall include a representation by the Borrower that
the borrowing requested shall not on the date of borrowing exceed the Borrowing
Availability, as measured by the most recent Monthly Borrowing Base Report
delivered to the Banks and the Agent in accordance with the terms of this
Agreement; provided, however, that any Borrowing Notice requesting an amount
which exceeds such Borrowing Availability as a result of an increase in the
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Borrowing Base since the most recent Borrowing Base Report, shall be accompanied
by a new Borrowing Base Report containing the same information as a Monthly
Borrowing Base Report reflecting such increase.
Section 2.4 Fees.
The Borrowers shall pay to the Agent non-refundable fees
(collectively, together with the fees referred to in subsection 2.32(f)(iv) of
this Agreement, the "Fees") as follows:
(a) The Borrowers shall pay to the Agent for the account of each Bank
a commitment fee (the "Commitment Fee") on the daily average amount of such
Bank's Unused Commitment, for the period from the date of this Agreement to and
including the earlier of the date such Bank's Commitment is terminated or the
Commitment Termination Date, at the rate of (i) one-quarter of one (1/4 of 1%)
percent on that portion of the Unused Commitment equal to or less than, in
Dollar amount, twenty-five percent of the Total Commitment then in effect, and
(ii) one-half of one (1/2 of 1%) percent per annum on the balance of the Unused
Commitment. The accrued Commitment Fee shall be payable quarterly in arrears on
the last day of each calendar quarter and on the earlier of the date the
Commitments are terminated or the Commitment Termination Date, and, in the event
the Borrowers reduce the Commitment as provided in subsection 2.2(a) hereof, on
the effective date of such reduction. For purposes of computation of the
Commitment Fee, under this subsection 2.4(a), the amount of the Unused
Commitment of each Bank shall be determined without giving effect to the
outstanding principal balance of any Temporary Loan.
(b) The Borrowers shall pay to the Agent an administrative fee for
services rendered by the Agent in its capacity as Agent hereunder and a
structuring fee for structuring this Agreement and the transactions contemplated
hereby and a fee for certain temporary increases prior to the date hereof, each
as set forth in a separate written agreement among the Borrowers and the Agent.
(c) Simultaneously with the execution and delivery of this Agreement,
the Borrowers shall pay to the Agent, for delivery to the applicable Bank, a fee
in an amount equal to one-eighth of one percent (1/8%) of (i) the increased
portion of the Commitment of each Bank (excluding, however, the Agent) which is
increasing its Commitment since June 1, 1997, and (ii) the Commitment of each
new Bank becoming a party to this Agreement.
Section 2.5 Lending Offices.
The Loans of each type made by each Bank shall be made and maintained
at such Bank's Applicable Lending Office for Loans of such type.
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Section 2.6 Borrowings.
The Borrowers shall give the Agent notice of each borrowing hereunder
as provided in Section 2.3 hereof. Not later than 12:00 noon New York City time
(subject to the provisions of subsection 9.8(b) hereof), on the date specified
for each borrowing hereunder, each Bank shall transfer to the Agent, by wire
transfer or otherwise, but in any event in immediately available funds, the
amount of the Loan to be made by it on such date, and the Agent, upon its
receipt thereof, shall disburse such sum to the Borrowers by depositing it in an
account of the Borrowers designated by it maintained with the Agent.
Section 2.7 Conversions of Loans.
The Borrowers shall have the right to convert Loans of one type into
Loans of another type from time to time, provided that: (i) the Borrowers shall
give the Agent notice of each such conversion as provided in Section 2.3 hereof,
(ii) Eurodollar Loans may be converted only on the last day of an Interest
Period for such Loans; and (iii) except as required by Sections 2.16 or 2.19
hereof, no Prime Rate Loan may be converted into a Eurodollar Loan if on the
proposed date of conversion a Default or an Event of Default exists. The Agent
shall use its best efforts to notify the Borrowers of the effectiveness of such
conversion, and the new interest rate to which the converted Loans are subject,
as soon as practicable after the conversion; provided, however, that any failure
to give such notice shall not affect the Borrowers' obligations, or the Agent's
or any Bank's rights and remedies, hereunder in any way whatsoever.
Section 2.8 Mandatory and Optional Prepayments.
(a) Notwithstanding any other provisions of this Agreement but in
addition to the provisions of subsection 2.8(b) below and subject to the last
sentence of this subsection (a), in the event that at any time the sum of the
outstanding principal amount of the Loans (including the Temporary Loans) and
the L/C Obligations shall at any time exceed the Borrowing Base, the Borrowers
shall, within fifteen (15) days following the date on which such excess first
exists (or, if sooner than such fifteenth day concurrently with delivery of the
Monthly Borrowing Base Report next due to be delivered following such excess),
prepay the Loans in an amount sufficient to reduce the sum of the aggregate
principal amount of the Loans to an amount not greater than the difference
between the Borrowing Base less the then outstanding L/C Obligations (but the
foregoing shall not be deemed to modify the terms of Section 2.33 hereof
requiring the payment by the Borrowers on demand for any Unreimbursed Drawings
together with interest thereon); provided, however, that if no Default or Event
of Default shall then have occurred and be continuing, the Borrowers may, at
their option, within such fifteen (15) day period, substitute other assets which
comply with the requirements for inclusion in the Borrowing Base, in lieu of or
in reduction of any prepayment required to be made pursuant to this subsection
2.8(a), but only if the Borrowers shall have delivered to the Agent within such
fifteen (15) day period a Borrowing Computation evidencing compliance with the
provisions of this subsection (a), including computations showing that such
substitutions are in an amount or of a value under the Borrowing Base such that
the above-described excess shall no longer exist, together with all other
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documents which would be required to be delivered to the Banks and the Agent in
connection with a Borrowing Computation under subsection 2.3(b) hereof in
confirmation of the provisions of subsection 2.1(a) hereof and notwithstanding
the terms of the preceding sentence, in the event that at any time the sum of
the outstanding principal amount of the Loans (including the Temporary Loans)
and the outstanding L/C Obligations shall exceed the Total Commitment, the
Borrowers shall immediately prepay the Loans and/or the L/C Obligations in an
aggregate amount sufficient so that no such excess exists.
(b) From and after the Term Conversion Date:
(i) In the event of the sale of any Equipment whose Residual
Value is then included in the computation under clause (c) of the Borrowing Base
(or was so included but is then included in the computation under clause (e) of
the Borrowing Base), the Borrowers shall prepay the Loans in an amount equal to
one hundred (100%) percent of the Present Value of the Residual Value thereof as
computed as of the Term Conversion Date (i.e., without giving effect to the
relevant percentage fifty (50%) percent applied for purposes of determining the
advance rate under the Borrowing Base), net of the cost of disposition, such
prepayment to be made within eight (8) days after the applicable Borrower's or
applicable Foreign Leasing Subsidiary's (if such Foreign Leasing Subsidiary was
the owner of such Equipment) consummation of such sale.
(ii) In the event that any Equipment whose Residual Value is then
included in the computation under clause (c) of the Borrowing Base (or was so
included but is then included in computation under clause (e) of the Borrowing
Base) is re-leased by the Borrowers following the expiration or termination of
the Initial Term of the related Lease, the Borrowers shall:
(A) prepay the Loans on the last day of each calendar month
(commencing on the first such day following the commencement of the re-lease) in
an amount equal to one-hundred (100%) percent of the aggregate rentals received
by the Borrowers under all re-leases described in this subsection (ii) during
the calendar month then ended; and
(B) in addition, the Borrowers shall, within one hundred twenty
(120) days following commencement of the term of such re-lease, prepay the Loans
in an amount which is equal to one hundred (100%) percent of the Present Value
of the Residual Value of such Equipment as such Present Value of the Residual
Value thereof was computed on the Term Conversion Date (i.e., without giving
effect to the relevant percentage fifty (50%) percent applied for purposes of
determining the advance rate under the Borrowing Base), less the amounts
theretofore paid pursuant to the preceding clause (A); provided that the
Borrowers shall be obligated to prepay to the Banks the full amount described in
this clause (B) not later than simultaneously with the grant to any Person,
other than the Agent and the Banks, of a Lien on such Equipment or any related
Contract or in the event any such other Person has such a Lien.
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(iii) In the event of any sale, lease or other disposition of
assets included under any clause of the Borrowing Base other than clause (c)
(i.e., Residual Value Clause), the Borrowers shall, as soon as possible but in
any event within eight (8) days following consummation of any such transaction,
prepay the Loans in an amount equal to one hundred (100%) percent of the
proceeds of such transaction net of the cost of disposition.
(iv) In the event of any refinancing of any asset included under
any clause of the Borrowing Base, the Borrowers shall repay the Loans in the
respective amounts set forth in the preceding paragraphs of this subsection
2.8(b), but such repayment shall be made on the earlier of the date of any such
refinancing or the respective date referred to in the preceding paragraphs.
(c) From and after the Term Conversion Date, the Borrowers shall
prepay the Loans in an amount equal to any surplus proceeds remaining after
realization on or foreclosure by any holder of its Lien on Eligible Residual
Leased Property included under clause (c) of the Borrowing Base (i.e., Residual
Value Clause) such prepayment to be made simultaneously with receipt by any
Borrower or the Agent of any such surplus proceeds. The Agent shall apply any
such proceeds actually received to prepayment of the Loans.
(d) The Borrowers shall have the right to prepay the Loans from
time to time in whole or in part. Any amount repaid during the Credit Period
may, subject to the terms and conditions hereof, including the limitations
imposed by Section 2.8, be reborrowed hereunder during the Credit Period. Loans
prepaid after the Commitment Termination Date may not be reborrowed.
(e) All prepayments of Eurodollar Loans shall be made together
with payment of all interest accrued on the amount prepaid. No premium or
penalty shall be required to be made with any prepayment, except as otherwise
provided in Section 2.20 hereof, including, without limitation, in respect of
Eurodollar Loans repaid on a day other than the last day of the Interest Period
relating thereto.
(f) Prepayments shall be applied first to reduction of Prime Rate
Loans and then to Eurodollar Loans, and the Borrowers shall be liable for any
payments due under Section 2.20 hereof as a result of any prepayment.
Section 2.9 Use of Proceeds of Loans.
(a) The Loans outstanding as of the date hereof under the Second
Restated Agreement shall be deemed to be outstanding under this Agreement. The
proceeds of the Loans hereunder shall be used by the Borrowers solely for (1)
financing Eligible Equipment and the other assets described in the Borrowing
Base, including, without limitation, the making of Finished Goods Inventory
Loans and Receivables Loans in the ordinary course of the Loan Business; (2)
other working capital purposes; (3) conversion and refinancing of Temporary
Loans; (4) the making of loans to Foreign Subsidiaries to finance the leasing of
Leased Property under
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a Lease in a Foreign Location (each such loan individually is hereinafter
referred to as a "Foreign Subsidiary Loan" and collectively as the "Foreign
Subsidiary Loans"); provided, however, that the aggregate outstanding principal
balance of all Foreign Subsidiary Loans to Foreign Subsidiaries, together with
the proceeds of Loans used by any Borrower to finance the leasing of Leased
Property under a Lease in a Foreign Location, shall not exceed on any date of
determination an amount equal to Eight Million ($8,000,000) Dollars, and
provided, further, however, that such $8,000,000 amount shall be inclusive of
any Foreign Subsidiary Loans made to Foreign Leasing Subsidiaries to, and
proceeds used by any Borrower to, finance Eligible Foreign Leases the payments
under which are included in the Borrowing Base.
(b) The Loans hereunder which are used to make Foreign Subsidiary
Loans or used by any Borrower to finance the leasing of Leased Property in a
Foreign Location shall be subject to the following terms and conditions:
(i) each Foreign Subsidiary Loan shall be evidenced by a single
promissory note made by the respective Foreign Subsidiary payable to the order
of the applicable Borrower in a face amount and otherwise in form and substance
acceptable to the Agent;
(ii) the proceeds of each Foreign Subsidiary Loan or Loan used by
any Borrower to finance the leasing of Leased Property in a Foreign Location
shall be used solely for financing acquisitions of Equipment for purposes of
Leases entered into with Lessees by the respective Foreign Subsidiary or any
Borrower as applicable;
(iii) each Foreign Subsidiary Loan shall be payable on demand;
and
(iv) with respect to Foreign Subsidiary Loans made to Foreign
Leasing Subsidiaries, the aggregate outstanding principal amount of Foreign
Subsidiary Loans made to any Foreign Leasing Subsidiary shall not exceed at any
one time the Post-Computation Amount of the assets owned by such Foreign Leasing
Subsidiary then included in the Borrowing Base.
Section 2.10 Principal Repayment Schedule.
(a) Subject to Section 2.8 hereof, the Borrowers shall pay to the
Agent for the account of each Bank the principal of the Loans made by such Bank
outstanding at the close of business on the Term Conversion Date (i) either in
full, or pursuant to the terms of subsection 2.1(b) above, in twelve (12) equal
consecutive quarterly installments on the Payment Dates (provided that the last
such payment shall be in an amount sufficient to repay in full the Obligations);
and (ii) in addition on other dates and in the amounts otherwise required under
Section 2.8 hereof, provided, that any amounts paid under Section 2.8 in excess
of required quarterly payments shall be applied to the next succeeding quarterly
payment.
(b) Except as set forth in Sections 2.16, 2.17 and 2.18 hereof, all
payments and repayments made pursuant to the terms hereof shall be applied first
to Prime Rate
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Loans, and shall be applied to Eurodollar Loans only to the extent any such
payment exceeds the principal amount of Prime Rate Loans outstanding at the time
of such payment.
(c) The Borrowers may request a Eurodollar Loan only if compliance
with the schedule set forth in subsection 2.10(a) hereof (with the payments
provided for therein being applied in accordance with subsection 2.10(b) hereof
would not result in any portion of the principal amount of such Eurodollar Loan
being paid prior to the last day of the Interest Period applicable thereto.
Section 2.11 Interest.
(a) The Borrowers shall pay to the Agent for the account of each Bank
the interest on the unpaid principal amount of each Loan for the period
commencing on the date of such Loan until such Loan shall be paid in full, at
the following rates per annum:
(i) During such periods such Loan is a Prime Rate Loan, the Prime
Rate plus the Applicable Margin; and
(ii) During such periods such Loan is a Eurodollar Loan, for each
Interest Period relating thereto, the Eurodollar Rate for such Loan for such
Interest Period plus the Applicable Margin; provided that notwithstanding
anything contained herein or in any Note to the contrary, any Eurodollar Rates
for Loans outstanding on the date hereof the Interest Periods in respect of
which commenced prior to the date hereof under the Second Restated Agreement
shall continue in effect until the expiration or earlier termination of any such
Interest Period, respectively.
(b) Notwithstanding the foregoing, the Borrowers shall pay interest on
any Loan or any installment thereof, and on any other amount payable by the
Borrowers hereunder (other than interest) which shall not be paid in full when
due (whether at stated maturity, by acceleration or otherwise), and at any time
after an Event of Default shall have been declared and be continuing, for the
period commencing on the due date thereof or on the date of declaration of the
Event of Default, as applicable, until the same is paid in full or the Event of
Default has been cured, as applicable, at the applicable Post-Default Rate.
Except as provided in the next sentence, accrued interest on each Loan shall be
payable (i) monthly in arrears on the last day of each calendar month commencing
on the next such day following the making of the initial Loan hereunder and (ii)
upon the payment (other than a conversion of a Loan of one type into a Loan of
another type) or prepayment thereof (but only on the principal paid, prepaid or
converted). Interest which is payable at the Post-Default Rate shall be payable
from time to time on demand of the Agent.
(c) Promptly after the establishment of any interest rate provided for
herein or any change therein, the Agent will notify the Banks and the Borrowers
thereof, provided that the failure of the Agent to so notify the Borrowers or
the Banks shall not affect the obligations of the Borrowers hereunder or under
any of the Notes in any respect.
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(d) Anything in this Agreement or any of the Notes to the contrary
notwithstanding, the obligation of the Borrowers to make payments of interest
shall be subject to the limitation that payments of interest shall not be
required to be made to any Bank to the extent that such Bank's receipt thereof
would not be permissible under the law or laws applicable to such Bank limiting
rates of interest which may be charged or collected by such Bank. Any such
payments of interest which are not made as a result of the limitation referred
to in the preceding sentence shall be made by the Borrowers to such Bank on the
earliest interest payment date or dates on which the receipt thereof would be
permissible under the laws applicable to such Bank limiting rates of interest
which may be charged or collected by such Bank. Such deferred interest shall
not bear interest. Any payment actually received by any Bank (and not returned
to the Borrowers) which, if considered interest the receipt of which would not
be permissible under the law or laws applicable to such Bank limiting rates of
interest which may be charged or collected by such Bank, shall be treated as a
principal payment hereunder (provided, however, that such application shall not
discharge the Borrowers' obligation set forth hereinabove to make interest
payments on the earliest permissible interest payment date) and if all principal
payments shall have been made, refunded to the Borrowers.
Section 2.12 Note.
The Loans made by each Bank shall be evidenced by a single joint and
several promissory note of the Borrowers in substantially the form of Exhibit
B-1 hereto (each, as amended, modified or supplemented including by any
endorsement thereto, together with any replacement or substitute therefor, a
"Note" and collectively, the "Notes") (other than Temporary Loans, which shall
be evidenced by a Temporary Loan Note as provided in Section 2.32 hereof, each
dated the date hereof, payable to the order of such Bank in a principal amount
equal to such Bank's Commitment as originally in effect and otherwise duly
completed. The Notes shall be subject to repayment as provided in Sections 2.1,
2.10, and 2.11 hereof. All Loans made by each Bank hereunder and all payments
and prepayments made on account of the principal thereof, and all conversions of
such Loans shall be recorded by each Bank on the schedule attached to its Note
(provided that any failure by any Bank to make any such endorsement shall not
affect the obligations of the Borrowers hereunder to repay the loans in
accordance with their respective terms as set forth herein).
Section 2.13 Payments.
All payments of principal, interest, fees and other charges (including
indemnities) payable by the Borrowers hereunder shall be made in Dollars, in
immediately available funds, to the Agent at the Principal Office not later than
12:00 p.m., New York City time (subject to Section 9.8(b) hereof), on the date
on which such payment shall become due (and the Agent or any Bank for whose
account any such payment is to be made, may but shall not be obligated to, debit
the amount of any such payment which is not made by such time to any ordinary
deposit account of the Borrowers with the Agent or such Bank, as the case may
be). Additional provisions relating to payments are set forth in Section 10.3
hereof. Each payment received by the Agent for the account of a Bank shall be
paid promptly to such Bank, in like
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funds, for the account of such Bank's Applicable Lending Office for the Loan in
respect to which such payment is made.
Section 2.14 Computations.
Interest on all (a) Eurodollar Loans and each Fee shall be computed on
the basis of a year of 360 days and actual days elapsed (including the first day
but excluding the last) occurring in the period for which payable and (b) Prime
Rate Loans shall be computed on the basis of a year of 365 days and actual days
elapsed (including the first day but excluding the last) occurring in the period
for which payable.
Section 2.15 Minimum Amounts of Borrowings,
Conversions, Prepayments and Interest Periods.
Except for borrowings, conversions and prepayments which exhaust the
full remaining amount of the Total Commitment (in the case of borrowings) or
result in the conversion or prepayment of all Loans of a particular type (in the
case of conversions or prepayments) or conversions made pursuant to Section 2.19
hereof, and except for mandatory prepayments, each borrowing, each conversion of
Loans of one type into Loans of another type and each repayment and prepayment
of principal of Loans hereunder shall be in an amount at least equal to One
Million ($1,000,000) Dollars (borrowings, conversions and prepayment of
different types of Loans at the same time hereunder to be deemed separate
borrowings, conversions and prepayments for purposes of the foregoing, one for
each type).
Section 2.16 Additional Costs.
(a) In the event that any existing or future law or regulation or
guideline or interpretation thereof by any court or administrative or
governmental authority charged with the administration thereof, or compliance by
any Bank with any request or directive (whether or not having the force of law)
of any such authority shall impose, modify or deem applicable or result in the
application of, any capital maintenance, capital ratio or similar requirement
against loan commitments made by any Bank, and the result of any event referred
to above is to impose upon any Bank or increase any capital requirement
applicable as a result of the making or maintenance of, such Bank's Commitment
or the obligation of the Borrowers hereunder with respect to such Commitment
(which imposition of capital requirements may be determined by each Bank's
reasonable allocation of the aggregate of such capital increases or
impositions), then, upon demand made by such Bank as promptly as practicable
after it obtains knowledge that such law, regulation, guideline, interpretation,
request or directive exists and determines to make such demand, the Borrowers
shall immediately pay to such Bank from time to time as specified by such Bank
additional commitment fees which shall be sufficient to compensate such Bank for
such imposition of or increase in capital requirements together with interest on
each such amount commencing five (5) days from the date payment of such
additional costs is demanded until payment in full thereof at the Post-Default
Rate. A certificate setting forth in reasonable detail the amount necessary to
compensate such Bank as a result of an imposition of or increase in capital
requirements submitted
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by such Bank to the Borrowers shall be conclusive, as to the amount thereof.
For purposes of this Section 2.16, all references to any "Bank" shall be deemed
to include any participant in such Bank's Commitment.
(b) In the event that any Regulatory Change shall: (A) change the
basis of taxation of any amounts payable to any Bank under this Agreement or the
Notes in respect of any Loans including, without limitation, Eurodollar Loans
(other than taxes imposed on the overall net income of such Bank for any such
Loans by the United States or the jurisdiction in which such Bank has its
principal office); or (B) impose or modify any reserve, Federal Deposit
Insurance Corporation premium or assessment, special deposit or similar
requirements relating to any extensions of credit or other assets of, or any
deposits with or other liabilities of, such Bank (including any of such Loans or
any deposits referred to in the definition of "Eurodollar Rate" in Article I
hereof); or (C) impose any other conditions affecting this Agreement in respect
of Loans, including, without limitation, Eurodollar Loans (or any of such
extensions of credit, assets, deposits or liabilities); and the result of any
event referred to in clause (A), (B) or (C) above shall be to increase such
Bank's costs of making or maintaining any Loans, including, without limitation,
Eurodollar Loans, or its Commitment, or to reduce any amount receivable by such
Bank hereunder in respect of any of its Eurodollar Loans, or its Commitment
(such increases in costs and reductions in amounts receivable are hereinafter
referred to as "Additional Costs") in each case, only to the extent that such
Additional Costs are not included in the Eurodollar Rate applicable to such
Eurodollar Loans, then, upon demand made by such Bank as promptly as practicable
after it obtains knowledge that such a Regulatory Change exists and determines
to make such demand (a copy of which demand shall be delivered to the Agent),
the Borrowers shall pay to such Bank from time to time as specified by such
Bank, additional commitment fees or other amounts which shall be sufficient to
compensate such Bank for such increased cost or reduction in amounts receivable
by such Bank from the date of such change, together with interest on each such
amount from the date demanded until payment in full thereof at the Post-Default
Rate. All references to any "Bank" shall be deemed to include any participant
in such Bank's Commitment.
(c) Without limiting the effect of the foregoing provisions of this
Section 2.16, in the event that, by reason of any Regulatory Change, any Bank
either: (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
such Bank which includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Bank which includes Eurodollar
Loans, or (ii) becomes subject to restrictions on the amount of such a category
of liabilities or assets which it may hold, then, if such Bank so elects by
notice to the Borrowers (with a copy to the Agent), the obligation of such Bank
to make, and to convert Loans of any other type into, Loans of such type
hereunder shall be suspended until the date such Regulatory Change ceases to be
in effect (and all Loans of such type then outstanding shall be converted into
Prime Rate Loans or into Eurodollar Loans of another duration, as the case may
be, in accordance with Sections 2.7 and 2.19 hereof).
(d) Determinations by any Bank for purposes of this Section 2.16 of
the effect of any Regulatory Change on its costs of making or maintaining Loans
or on amounts
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receivable by it in respect of Loans, and of the additional amounts required to
compensate such Bank in respect of any Additional Costs, when set forth in a
written notice to the Borrowers, shall be conclusive, absent manifest error.
Section 2.17 Limitation on Types of Loans.
Anything herein to the contrary notwithstanding, if, on or prior to
the determination of an interest rate for any Eurodollar Loans for any Interest
Period therefor, the Majority Banks determine (which determination shall be
conclusive):
(a) by reason of any event affecting the money markets in the United
States or the interbank Eurodollar market, quotations of interest rates for the
relevant deposits are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining the rate of interest for such
Loans under this Agreement: or
(b) the rates of interest referred to in the definition of "Eurodollar
Base Rate" in Article I hereof upon the basis of which the rate of interest on
any Eurodollar Loans for such period is determined do not accurately reflect the
cost to the Bank of making or maintaining such Loans for such period;
then the Agent shall give the Borrowers and each Bank prompt notice thereof (and
shall thereafter give the Borrowers and each Bank prompt notice of the
cessation, if any, of such condition), and so long as such condition remains in
effect, the Banks shall be under no obligation to make new Loans of such type or
to convert Loans of any other type into Loans of such type and the Borrowers
shall, on the last day(s) of the then current Interest Period(s) for the
outstanding Loans of the affected type either prepay such Loans in accordance
with Section 2.8 hereof or convert such Loans into Loans of another type in
accordance with Section 2.7 hereof
Section 2.18 Illegality.
Notwithstanding any other provision in this Agreement, in the event
that it becomes unlawful for any Bank or its Applicable Lending Office to (1)
honor its obligation to make new Eurodollar Loans hereunder, or (ii) maintain
existing Eurodollar Loans hereunder, then the Bank shall promptly notify the
Borrowers thereof (with a copy to the Agent), describing such illegality in
reasonable detail (and shall thereafter promptly notify the Borrowers and the
Agent of the cessation, if any, of such illegality), and such Bank's obligation
to make new Eurodollar Loans and to convert other types of Loans into Eurodollar
Loans hereunder shall, upon written notice given by such Bank to the Borrowers,
be suspended until such time as such Bank may again make and maintain Eurodollar
Loans and to the extent that such Bank's maintaining existing outstanding
Eurodollar Loans has become unlawful, such Eurodollar Loans shall be converted
into Prime Rate Loans in accordance with Sections 2.7 and 2.19 hereof, provided
that to the extent that such illegality may be avoided by changing such Bank's
Applicable Office with respect to Eurodollar Loans, such Bank shall, if not
otherwise disadvantageous to said Bank in the sole judgment of said Bank, effect
such change.
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Section 2.19 Certain Conversions pursuant to Sections 2.16 and 2.18.
If the Loans of any Bank of a particular type are to be converted
pursuant to Section 2.16 or 2.18 hereof, such Loans shall be converted into
Prime Rate Loans, or Eurodollar Loans, as the case may be, on the last day(s) of
the then current Interest Period(s) for such Loans (prior to conversion) (or, in
the case of a conversion required by Section 2.16(b) or 2.18 hereof, on such
earlier date as such Bank may specify to the Borrowers) and, until the Bank
gives notice as provided below that the circumstances specified in Section 2.16
or 2.18 hereof which gave rise to such conversion no longer exist:
(a) to the extent that such Bank's Loans have been so converted, all
payments and prepayments of principal which would otherwise be applied to such
Loans prior to conversion shall be applied instead to its post-conversion Loans;
and
(b) all Loans which would otherwise be made by the Bank as Loans prior
to such conversion shall be made instead as Loans of the type into which such
Loans shall have been converted, and all Loans of such Bank which would
otherwise be converted into Loans of the type prior to conversion shall be
converted instead into (or shall remain as) Loans of the type into which the
Loans shall have been converted.
Section 2.20 Indemnification.
The Borrowers shall pay to the Agent, upon the request of each Bank,
such amount or amounts as shall compensate such Bank for any loss (including
loss of profit), cost or expense incurred by such Bank (as reasonably determined
by such Bank) as a result of-
(a) any payment or prepayment or conversion of a Eurodollar Loan held
by such Bank on a date other than the last day of an Interest Period for such
Eurodollar Loan; or
(b) any failure by the Borrowers to borrow a Eurodollar Loan held by
such Bank on the date for such borrowing specified in the relevant Borrowing
Notice under Section 2.3 hereof,
such compensation to include, without limitation, an amount equal to: (i) any
loss or expense suffered by such Bank during the period from the date of receipt
of such early payment or prepayment or the date of such conversion or date of
intended borrowing to the last day of such Interest Period if the rate of
interest obtainable by such Bank upon the redeployment of an amount of funds
equal to such payment, prepayment or conversion or failure to borrow or convert
is less than the rate of interest applicable to such Eurodollar Loan for such
Interest Period, or (ii) any loss or expense suffered by such Bank in
liquidating Eurodollar or other deposits prior to maturity which correspond to
the payment, prepayment, conversion, failure to borrow or failure to convert.
The determination by each Bank of the amount of any such loss or expense, when
set forth in a written notice to the Borrowers, containing such Bank's
calculation thereof in reasonable detail, shall be presumed correct, in the
absence of manifest error.
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Section 2.21 Guaranties and Collateral.
In order to secure the due payment and performance by the Borrowers of
all of the Indebtedness, liabilities and obligations of the Borrowers to the
Banks (including Fleet in its capacity as Temporary Lender) and the Agent,
whether now existing or hereafter arising, under this Agreement and the other
Loan Documents (collectively, all of the Indebtedness, liabilities and
obligations of the Borrowers to the Banks and the Agent, whether now existing or
hereafter arising, whether or not currently contemplated, arising under the Loan
Documents, including, without limitation, the L/C Obligations, are herein
referred to, collectively, as the "Obligations"):
(a) LCI shall:
(i) by execution and delivery of the Confirmation Agreement
simultaneously with the execution and delivery of this Agreement confirm under
the Amended and Restated Borrower Security Agreement dated September 28, 1994
between LCI and the Agent (as amended, modified and supplemented from time to
time, the "Amended and Restated LCI Security Agreement") and the existing and
continuing grant to the Agent for the ratable benefit of the Banks of a Lien on
substantially all personal properties and assets of LCI whether now owned or
hereafter acquired and wherever located, of every kind and description, tangible
and intangible, 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;
(ii) amend and restate the Amended and Restated Borrower
Assignment of Leases dated September 28, 1994 between LCI and the Agent by
executing and delivering a Second Amended and Restated Assignment of Contracts
(as amended, modified and supplemented from time to time, the "Amended and
Restated LCI Assignment of Contracts";
(iii) by execution and delivery of the Confirmation Agreement
confirm (A) under the Amended and Restated Borrower Pledge Agreement dated
September 28, 1994 between, inter alia, LCI and the Agent (as amended, modified
and supplemented from time to time, the "Amended and Restated LCI Pledge
Agreement") the existing and continuing grant to the Agent for the ratable
benefit of the Banks of a first Lien on and pledge with the Agent for the
ratable benefit of the Banks of, and the grant of certain other liens with
respect to, the issued and outstanding shares of the capital stock now or
hereafter owned by it of each of its Subsidiaries other than LFC; and (B) under
the Pledge Agreement dated September 28, 1994 between, inter alia, LCI, the
Agent and Newcourt (as amended, modified and supplemented from time to time, the
"LCI-LFI Pledge Agreement") the existing and continuing grant to the Agent for
the ratable benefit of the Banks of a lien on the issued and outstanding shares
of the capital stock now or hereafter owned by it of LFC;
(iv) not later than simultaneously with the inclusion in the
Borrowing Base of any assets relating to an Eligible Foreign Lease or Residual
Values in respect of Equipment in a Foreign Location, execute and deliver all
assignment and security documents
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and other agreements, instruments and documents as the Agent may reasonably
require, in form and substance satisfactory to the Agent to grant a first
priority perfected security interest in the assets relating to the Eligible
Foreign Lease or such Residual Values sought to be included in the Borrowing
Base and agree to maintain documents relating to the Collateral to the extent
required by the Agent upon terms comparable to the terms of subsection 2.25(c)
hereof, provided, however, that no assets relating to an Eligible Foreign Lease
or such Residual Values shall be included in the Borrowing Base unless and until
the Agent's lien on such assets has been created and perfected to the
satisfaction of the Agent (which may include the rendering of legal opinions),
and unless and until the Agent is satisfied in its sole discretion that the
enforcement of and practical realization of the benefits of the Agent's Lien are
not subject to any consent, approval or other requirements or conditions to
enforcement more burdensome than are applicable in respect of other assets
included in the Borrowing Base; and
(v) execute and deliver or cause to be executed and delivered
such other agreements, instruments and documents as the Agent may reasonably
require in order to effect the purposes of the Amended and Restated LCI Security
Agreement, the Amended and Restated LCI Assignment of Contracts, the Amended and
Restated LCI Pledge Agreement, all of the agreements, instruments and documents
referred to in subsection (a)(iii) above, Section 2.21 and this Agreement.
(b) LES shall:
(i) by execution and delivery of the Confirmation Agreement
simultaneously with the execution and delivery of this Agreement confirm under
the Amended and Restated LES-Subsidiary Security Agreement dated September 28,
1994 between LES and the Agent (as amended, modified and supplemented from time
to time, the "Amended and Restated LES Security Agreement") and the Amended and
Restated LES-Subsidiary Assignment of Leases dated September 28, 1994 between
LES and the Agent (as amended, modified and supplemented from time to time, the
"Amended and Restated LES Assignment of Leases") the existing and continuing
grant to the Agent of a Lien on substantially all personal property and assets
of LES, whether now owned or hereafter acquired and wherever located, of every
kind and description, tangible and intangible; and
(c) Quantum shall:
(i) by execution and delivery of the Confirmation Agreement
confirm under the Amended and Restated Quantum-Subsidiary Security Agreement
dated September 28, 1994 between Quantum and the Agent (as amended, modified or
supplemented from time to time, the "Amended and Restated Quantum Security
Agreement") and the Amended and Restated Quantum-Subsidiary Assignment of Leases
dated September 28, 1994 between Quantum and the Agent (as amended, modified or
supplemented from time to time, the "Amended and Restated Quantum Assignment of
Leases") the existing and continuing grant to the Agent of a Lien on
substantially all personal property and assets of Quantum, whether now owned or
hereafter acquired and wherever located, of every kind and description, tangible
and intangible; and
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(ii) execute and deliver or cause to be executed and delivered
such other agreements, instruments and documents as the Agent may reasonably
require in order to effect the purposes of the Amended and Restated Quantum
Security Agreement, the Amended and Restated Quantum Assignment of Leases, this
Section 2.21 and this Agreement.
(d) Each of the Quantum Shareholders shall:
(i) by execution and delivery of the Confirmation Agreement
simultaneously with the execution and delivery of this Agreement, confirm under
the Amended and Restated Quantum Shareholder Pledge Agreements dated September
28, 1994, respectively executed by each of the Quantum Shareholders
(collectively, as amended, modified or supplemented from time to time, the
"Amended and Restated Quantum Shareholder Pledge Agreements") the existing and
continuing grant of a first lien on and security interest in, and pledge with
the Agent of, all of the issued and outstanding capital stock of Quantum owned
by each Quantum Shareholder (with the shares previously owned by Jack W. Davis
having been transferred, subject to the Agent's Lien, to LCI); and
(ii) execute and deliver such other agreements, instruments and
documents as the Agent may reasonably require in order to effect the purposes of
each Amended and Restated Quantum Shareholder Pledge Agreement, this Section
2.21 and this Agreement.
(e) With respect to each Foreign Leasing Subsidiary, not later than
simultaneously with the making of any Foreign Subsidiary Loan to such Foreign
Leasing Subsidiary:
(i) the applicable Borrower and each other holder of capital
stock of such Foreign Leasing Subsidiary shall pledge and assign to the Agent,
for the ratable benefit of the Banks, and grant to the Agent, for the ratable
benefit of the Banks, a lien on and security interest in all of the issued and
outstanding capital stock of such Foreign Leasing Subsidiary, whether then or
thereafter issued to such Borrower or any other entity (which entity such
Borrower shall cause to execute such documents as the Agent may require in
respect of such pledge), by the execution and delivery to the Agent of a pledge
agreement and such other agreements, instruments and documents as the Agent may
require, provided that if and to the extent so agreed to by the Agent in its
sole discretion, fewer than all of the issued and outstanding shares of capital
stock of such Foreign Subsidiary shall be pledged to the Agent; and
(ii) such Foreign Leasing Subsidiary shall (1) execute and
deliver or cause to be executed and delivered such security and assignment
documents and other agreements, instruments, guaranties and documents as the
Agent may reasonably require, in form and substance satisfactory to the Agent,
to guaranty the obligations of the Foreign Leasing Subsidiary and to grant a
first priority perfected security interest in, and pledge and assignment of,
substantially all of the assets of such Foreign Leasing Subsidiary (including
but not limited to its leases) to the Agent, and (2) (A) agree to have and
maintain documents relating to the Collateral to the extent required by the
Agent upon terms comparable to the terms of subsection 2.25(c)
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hereof, (B) if required at any time by the Agent, enter into any subordination
agreements comparable to the Subordination Agreement referred to in Section 2.22
hereof, and (C) enter into any lock-box arrangements as provided in Section 2.26
and as otherwise reasonably requested by the Agent; and
(iii) the applicable Borrower shall pledge and assign to the
Agent all promissory notes issued by any Foreign Leasing Subsidiary to such
Borrower and Security Documents required by the Agent to be executed in favor of
such Borrower in respect of such notes, all upon terms and conditions
satisfactory to the Agent.
All of the foregoing agreements, instruments and documents referred to
in subsection (e) above, together with the agreements, instruments and documents
referred to in subsection 2.21 (a)(iii) hereof, collectively, the "Foreign
Security Documents", and no assets of any Foreign Leasing Subsidiary shall be
included in the Borrowing Base unless and until the Agent's lien on such assets
has been created and perfected to the satisfaction of the Agent (which may
include the rendering of legal opinions), and unless and until the Agent is
satisfied in its sole discretion that the enforcement of and practical
realization of the benefits of the Agent's Lien are not subject to any consent,
approval or other requirements or conditions to enforcement more burdensome than
are applicable in respect of other assets included in the Borrowing Base and
located in the United States.
(f) With respect to each Applicable Company making Finished Goods
Inventory Loans or Receivables Loans, not later than the date of inclusion in
the Borrowing Base of the related Finished Goods Inventory Note or Receivables
Note:
(i) such Applicable Company shall pledge and assign to the Agent,
for the ratable benefit of the Banks, and grant to the Agent, for the ratable
benefit of the Banks, a lien on and security interest in such Finished Goods
Inventory Note or Receivables Note by the delivery to the Agent of such Note
duly endorsed "Pay to the order of [the Agent]" and such other agreements,
instruments and documents as the Agent may require with respect thereto;
(ii) such Applicable Company shall (A) execute and deliver or
cause to be executed and delivered such security and assignment documents and
other agreements and instruments, as the Agent may reasonably require, in form
and substance satisfactory to the Agent, to assign to the Agent for the ratable
benefit of the Banks all of such Applicable Company's liens and security
interests in any Contract Collateral securing such Finished Goods Inventory Note
or Receivables Note pledged hereunder; and (B) prior to inclusion in computation
of the Borrowing Base of such Finished Goods Inventory Loans and Receivables
Loans, enter into lock-box arrangements with respect thereto as provided in
Section 2.26 and may be otherwise reasonably requested by the Agent;
(g) LINC Group shall:
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(i) by execution and delivery of the Confirmation Agreement
simultaneously with the execution and delivery of this Agreement, confirm under
the Guaranty dated June 15, 1990 in favor of the Banks and the Agent (a
"Guaranty") the guarantee to the Banks and the Agent by LINC Group (in such
capacity, a "Guarantor") of the due payment and performance of all of the
Obligations;
(ii) by execution and delivery of the Confirmation Agreement
simultaneously with the execution and delivery of this Agreement, confirm under
the Second Amended and Restated LINC Group Pledge Agreement dated September 28,
1994 (as amended, modified and supplemented from time to time, the "Second
Amended and Restated LINC Group Pledge Agreement") the existing and continuing
grant by LINC Group to the Agent, for the ratable benefit of the Banks, of a
first lien on and security interest in and pledge with the Agent of, and the
grant of certain other liens with respect to, all of the issued and outstanding
shares of capital stock of LCI;
(iii) execute and deliver such other agreements, instruments and
documents as the Agent may reasonably require in order to effect the purposes of
the Amended and Restated LINC Group Pledge Agreement, this Section 2.21 and this
Agreement;
(h) The due payment and performance of the Obligations shall be
guaranteed to the Banks and the Agent by each of LES and any other guarantor
referred to in the Confirmation Agreement which guarantor executed a guaranty on
June 15, 1990 in favor of the Agent (hereinafter referred to individually
together with LINC Group as a "Guarantor" and collectively as the "Guarantors"),
by the execution and delivery to the Agent, simultaneously with the execution
and delivery of this Agreement, (i) by each of such other guarantors, of the
Confirmation Agreement, and (ii) by LES of a guaranty in form and substance
satisfactory to the Agent (all of the foregoing guaranties, hereinafter referred
to individually, together with the Guaranty referred to in the preceding
subsection (g), as a "Guaranty" and collectively as the "Guaranties) which
Guaranty made by LES shall be in replacement and substitution for, and shall
constitute a restatement of, its direct obligations under the promissory notes
issued pursuant to the Second Restated Agreement.
The Guaranties, the Security Agreements, the Pledge Agreements, and the other
aforesaid agreements, instruments, and documents described in this Section 2.21
and the Foreign Security Documents are sometimes hereinafter referred to
collectively as the "Security Documents", and the collateral covered thereby is
sometimes referred to as the "Collateral".
Section 2.22 Subordination.
Simultaneously with the execution and delivery of this Agreement, by
execution and delivery of a Subordination Agreement Confirmation in form and
substance satisfactory to the Agent (the "Subordination Agreement Confirmation")
the Borrowers shall confirm and acknowledge the terms of:
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(a) the Subordination and Intercreditor Agreement dated September 28,
1994 (as amended, modified or supplemented from time to time, the "Intercreditor
Agreement") by and among LCI, each of the Quantum Shareholders, the Agent on
behalf of the Banks and Newcourt as successor to Anthem Financial relating to
the first liens of the Agent on behalf of the Banks, and the second liens of
Newcourt on the capital stock of Quantum and other Subsidiaries of LCI;
(b) the Subordination and Intercreditor Agreement dated September 28,
1994 by and among LCI, the Agent, Newcourt and LFC (as amended, modified or
supplemented from time to time, the "LFC Intercreditor Agreement") relating to
the first lien of Newcourt and the second lien of the Agent on behalf of the
Banks on the capital stock of LFC;
(c) the Intercreditor Agreement dated September 28, 1994 by and among
LCI, LINC, the Agent and Newcourt (as amended, modified or supplemented from
time to time, the "LINC Group Intercreditor Agreement") relating to the first
lien of the Agent on behalf of the Banks and the second lien of Newcourt on the
capital stock of LCI; and
(d) the Subordination Agreement dated June 15, 1990 by and among LCI,
LINC Group and certain Affiliates of LINC Group relating to intercompany
obligations (the "Intercompany Subordination Agreement").
Section 2.23 Release of Agent's Lien.
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(a) In the ordinary course of its business, a Borrower or a Foreign
Leasing Subsidiary may seek to finance specific assets with Indebtedness to be
incurred after the date of this Agreement. In the event that on any date the
Borrowing Base exceeds the outstanding principal amount of the Loans, then,
subject to the other terms and conditions of this Agreement, the Agent shall at
its election either subordinate or release the Agent's and the Banks' lien on
and security interest in certain properties and assets of the Borrower or
applicable Foreign Leasing Subsidiary proposed to be used as collateral for such
indebtedness and such assets and properties so subordinated or released shall be
deemed excluded from the Borrowing Base (or, if applicable, shall continue to be
included in the appropriate clause of the Borrowing Base subject to Permitted
Borrowing Base Encumbrances), but only upon and subject to the following
conditions:
(i) the Agent shall have received the Borrowing Base Report
most recently required to have been delivered hereunder together with a
representation and warranty by each of the Borrowers or an officer thereof
acceptable to the Agent to the effect that there exists excess in the Borrowing
Base after giving effect to the exclusion of the assets and properties in which
the Agent's Lien is then to be subordinated or released;
(ii) no Default or Event of Default then exists hereunder or
would exist after giving effect to the proposed subordination or release (except
if and to the extent otherwise permitted by the Agent under Section 7.7 hereof);
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(iii) the Borrowers shall provide the Agent with at least five
(5) Business Days' prior written notice of any such proposed Indebtedness and
shall provide the Agent with the following pertaining to such proposed
Indebtedness:
(A) the identity of the lender of the Indebtedness;
(B) the amount and terms of the proposed Indebtedness;
(C) the specific assets being financed by the Indebtedness; and
(D) such other information as the Agent may reasonably request;
(iv) the Borrowers shall cause to be delivered to the Agent, not
later than five (5) Business Days prior to any proposed subordination or release
of the Agent's Lien, all Uniform Commercial Code amendment statements (if
appropriate) and any other agreements, instruments and documents necessary or
desirable in connection with such subordination or release, and such other
agreements, instruments and documents relating to such Indebtedness as the Agent
may request, including a letter substantially in the form of Annex A to the
Security Agreements, and all of the foregoing shall be satisfactory in form and
substance to the Agent; and
(v) the Borrowers shall bear and pay on demand all costs and
expenses incurred by the Agent and the Banks (including legal fees) in
connection with the review, preparation and filing of any and all of the
foregoing; and
(b) Simultaneously with any prepayment by the Borrowers pursuant to
and made in accordance with the provisions of subsection 2.8(b) hereof and
Section 7.8 hereof which prepayment results in receipt by the Banks of the
maximum balance that could be represented by the Loan made on the basis of the
assets so sold and released, so long as no Default or Event of Default then
exists hereunder (except if and to the extent otherwise permitted by the Agent
under Section 7.8 hereof), the Agent shall release the Agent's Lien on the
assets so sold or re-leased as described in such subsection 2.8(b). The
Borrowers shall prepare all Uniform Commercial Code or comparable release
statements and documents as necessary or desirable in connection with such
release, all in form and substance satisfactory to the Agent, and the Borrowers
shall bear and pay on demand all costs and expenses incurred by the Agent and
the Banks (including legal fees) in connection with the review, preparation and
filing of any and all of the foregoing.
Section 2.24 Rights of the Agent and the
Banks as Second Lienholder.
Whether or not an Event of Default then exists or the Banks and the
Agent have accelerated the maturity of the Loans, the Agent shall be entitled to
take such actions as may
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be appropriate from time to time in regard to Collateral included under Clause
(c) of the Borrowing Base.
Section 2.25 Required Borrowing Documentation.
(a) Each of the Borrowers and each applicable Foreign Leasing
Subsidiary, on or prior to the date of delivery of each Borrowing Computation,
shall have taken the following actions and shall have and maintain at all times
on its premises full and complete records relating to assets included in the
Borrowing Base, including, without limitation, the borrowing agreements,
instruments and documents, in each case with respect to the assets to be
included in the respective clauses of the Borrowing Base referred to below:
(i) Contract Receivables Clauses and Residual Value Clause: Each
applicable Borrower and each applicable Foreign Leasing Subsidiary shall have
(with respect to the Borrowers, in each case by means of actual possession in
its Chicago, Illinois office referred to in Section 10.9 hereof or Foster City,
California office, and with respect to each applicable Foreign Leasing
Subsidiary, by means of actual possession in the Borrowers' Chicago, Illinois
office referred to in Section 10.9 hereof or an office of the applicable Foreign
Leasing Subsidiary located in the United Kingdom and approved by the Agent), and
maintain possession of: counterpart number 1 of each Eligible Contract and
Eligible Emerging Growth Contract (other than an Eligible Contract or an
Eligible Emerging Growth Contract which is an Equipment Note or a Third Party
Note) (and each other executed original of such Eligible Contract or Eligible
Emerging Growth Contract other than the counterpart held by the Lessee) included
under the Contract Receivables Clauses, such counterpart number 1 bearing in
each case a legend acceptable to the Agent relating to the financing hereunder;
the original or a counterpart copy of the Certificate of Delivery and Acceptance
relating thereto; an original of each Eligible Contract or Eligible Emerging
Growth Contract which is an Equipment Note or Third Party Note; in the case of a
Lease, the applicable Borrower's or Foreign Leasing Subsidiary's, as the case
may be, purchase order, manufacturer's or other vendor's invoice and evidence of
payment thereof and any bill of sale covering the related Equipment (reflecting
title to the Equipment in the name of the applicable Borrower or applicable
Foreign Leasing Subsidiary) and bills of sale from the manufacturer of the
Equipment and all owners thereof prior to the applicable Borrower or applicable
Foreign Leasing Subsidiary;
(ii) Accounts Receivable Clause: Each applicable Borrower shall have
(in each case by means of actual possession in its Chicago, Illinois office
referred to in Section 10.9 hereof or its Foster City, California office) and
maintain possession of (a) with respect to Accounts Receivable arising from
sales of Equipment by the applicable Borrower, such Borrower's copy of the bill
of sale and invoice covering the Equipment; and (b) with respect to Accounts
Receivable comprised of Rental Payments, the documents required under subsection
(iv) below;
(iii) Inventory Clause: LCI shall have (by means of actual possession
in its Chicago, Illinois office referred to in Section 10.9 hereof) and maintain
possession of written
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evidence of the presence or return of Equipment to a location under the control
of LCI, as applicable; and
(iv) Rental Equipment Clauses: Quantum shall have (in each case by
means of actual possession in its Chicago, Illinois office referred to in
Section 10.9 hereof, or its Foster City, California office) and maintain
possession of: counterpart number 1, if any, of each Rental Agreement (and each
of the executed originals, if any, of such Rental Agreement other than the
counterpart held by the Lessee), such counterpart number 1 bearing in each case
a legend acceptable to the Agent relating to the financing thereunder;
(v) Finished Goods Inventory Note and Receivables Note Clause: Each
Applicable Company shall have delivered possession of each original Finished
Goods Inventory Note and Receivables Note to the Agent, duly endorsed "Pay to
the order of [The Agent], as Agent", and shall have (by means of actual
possession in its Chicago, Illinois office referred to in Section 10.9 hereof) a
fully executed original of each security agreement related thereto.
(b) With respect to each of the foregoing, the applicable Borrower or
Foreign Leasing Subsidiary shall have (in each case by means of actual
possession in its Chicago, Illinois office referred to in Section 10.9 hereof,
or its Foster City, California office) and maintain together with the foregoing
documents, respectively, all exhibits, schedules, annexes, amendments and
supplements relating thereto including, without limitation, original executed
copies thereof.
(c) (i) With respect to the Contract Receivables Clauses, Accounts
Receivable Clause, Rental Equipment NBV Clause and Finished Goods Inventory Note
and Receivables Note Clause, each Applicable Company (with respect to the
Borrowers, by means of actual possession in the Chicago, Illinois office
referred to in Section 10.9 hereof or the Foster City, California office and
with respect to each applicable Foreign Leasing Subsidiary, by means of actual
possession in the Borrowers' Chicago, Illinois office referred to in Section
10.9 hereof or an office of the applicable Foreign Leasing Subsidiary located in
the United Kingdom and approved by the Agent) shall maintain photocopies (and
acknowledgment copies when received) of the Financing Statements (informational
or otherwise) filed by the Applicable Company as lessor/secured party against
the Lessee, Account Debtor or other Obligor, as the case may be, relating to the
underlying item(s) of Equipment, Obligor Finished Goods Inventory or Obligor
Accounts Receivable and other assets as appropriate, and, in each case, assigned
to the Agent. All of such Financing Statements shall have been filed in the
appropriate filing offices as necessary for perfection of a security interest in
favor of the Applicable Company (and the Agent as assignee) prior to the date of
inclusion of any related asset in the Borrowing Base; provided however, that
unless and until otherwise required by the Majority Banks and the Agent from and
after notice to such effect given to the Borrowers: (A) Quantum shall not be
obligated to file Financing Statements naming the Lessee as debtor and Quantum
as secured party with respect to Rental Agreements having an original term of
fewer than seven (7) months; and (B) notwithstanding the foregoing terms of
clause (A), no such Financing Statements shall be required to be filed in
respect of any Rental Agreement under which the aggregate amount of Accounts
Receivable arising pursuant thereto is less than One Hundred Thousand ($100,000)
Dollars; and
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(ii) with respect to clause (a) of the Borrowing Base (i.e., Contract
Receivables Clause), each applicable Foreign Leasing Subsidiary shall maintain
possession of all documents and take all other actions necessary to maintain the
perfection and first priority security interest of the Agent in any underlying
items of Equipment and other assets as appropriate.
(d) Each of the Borrowers and applicable Foreign Leasing Subsidiaries
shall during all business hours provide the Banks, the Agent and the Agent's
representatives full access to all of the agreements, instruments and documents
referred to in this Section 2.25.
(e) From and after the date of occurrence of any Event of Default
under any of Sections 8.1, 8.2, 8.5, 8.6, 8.7 or 8.10, the Agent may in the
exercise of its sole discretion, require any of the Borrowers and, if
applicable, Foreign Leasing Subsidiaries, to deliver to the Agent originals, or
if permitted by the Agent, photocopies of all of the agreements, instruments and
documents referred to in this Section 2.25.
(f) Whether or not specific reference is made in this Section 2.25 to
a Foreign Leasing Subsidiary, the foregoing obligations shall be applicable to
each applicable Foreign Leasing Subsidiary in respect of its assets included in
the Borrowing Base.
Section 2.26 Lock-box Arrangements.
(a) Simultaneously with the execution and delivery of this Agreement
in the case of the Borrowers, and prior to the making of any Foreign Subsidiary
Loan in the case of any Foreign Leasing Subsidiary, each of the Borrowers and
each Foreign Leasing Subsidiary, as applicable, at its own expense, will: (i)
establish and maintain at all times with (A) in the case of the Borrowers, the
Agent or, subject to the terms of subsection (b) below, LaSalle National Bank,
The First National Bank of Chicago or CoreStates Bank, N.A., and (B) in the case
of the Foreign Leasing Subsidiaries, with Fleet Bank, N.A. or such other bank as
is acceptable to the Agent, lock-box arrangements separately (with respect to
each of the Borrowers and each applicable Foreign Leasing Subsidiary) into which
the Borrowers and applicable Foreign Leasing Subsidiaries, respectively, shall
deposit all payments made under contracts included under the Contract
Receivables Clause, Accounts Receivable Clause, Residual Value Clause, Rental
Equipment Clause, Finished Goods Inventory Note and Receivables Note Clause
except that in respect of the Residual Value Clause, payments shall be required
to be deposited only from and after the date of realization of a Residual Value
that remains included under any clause of the Borrowing Base and in any event
from and after the Term Conversion Date; and (ii) notify forthwith all obligors
who have obligations which initially arise after the date of this Agreement in
respect of assets included under the above-referenced clauses of the Borrowing
Base, and notify all Lessees or other Obligors under existing Eligible
Contracts, Eligible Foreign Leases, Eligible Emerging Growth Contracts,
Equipment Notes, CSAs, Third Party Notes or Finished Goods Inventory Note and
Receivables Note Clause, as applicable, to be included in the Borrowing Base, to
make payments only to the above-mentioned lock-box accounts; except that in the
event that there were in effect prior to the date of this Agreement lock-box
arrangements between any of the Borrowers or Foreign Leasing Subsidiaries and
any Bank which lock-box accounts have not been assigned to or assumed by LFC
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with respect to specific Contracts, Foreign Leases, as applicable, such
arrangements may continue in effect (subject to modification as required in
connection with the provisions of this Agreement) so that payments are made by
the aforementioned obligors to such other Bank in lieu of redirection of such
payments to the lock-box maintained with the Agent as aforesaid. Amounts
deposited in the lock-box accounts shall be disbursed for the applicable
Borrower or applicable Foreign Leasing Subsidiary on request (A) except from and
after the date of occurrence of an Event of Default until said Event of Default
is cured to the satisfaction of the Majority Banks, and (B) except that from and
after the Term Conversion Date no such amounts shall be disbursed to any
Borrower or Foreign Leasing Subsidiary unless the obligations of the Borrowers
under Section 2.8 hereof shall then be satisfied in full, whether from amounts
deposited in the lock-box or otherwise.
(b) Each of the Borrowers, each Foreign Leasing Subsidiary and each
Bank hereby confirms and acknowledges that (1) any payments received by any Bank
pursuant to lock-box arrangements existing prior to the date hereof and any
payments received by LaSalle National Bank or The First National Bank of Chicago
or CoreStates Bank, N.A. pursuant to arrangements made as of the date of this
Agreement shall be received by each such Bank as agent for the Agent to be held
in escrow for application and direction exclusively pursuant to the terms and
conditions of this Agreement (including, for application to repayment of the
Loans as directed from time to time by the Agent in a manner not inconsistent
with the provisions of this Agreement), and (ii) the terms and conditions of
this Agreement shall govern and control in the event of any inconsistency
between this Agreement and any agreements, instruments and documents entered
into between any Bank and any Borrower or Foreign Leasing Subsidiary relating to
lock-box arrangements. Notwithstanding the provisions of subsection (a) above,
at the request of the Agent, all such payments shall be turned over to the Agent
from and after the date of notice to such effect given by the Agent in its sole
discretion following the occurrence of any Event of Default hereunder, and each
Borrower, each Foreign Leasing Subsidiary and each Bank, if so required by the
Agent's notice, shall forthwith deliver notices to all obligors under assets
included in the Borrowing Base that all payments shall be delivered directly to
the lock-box accounts maintained with the Agent. Each Borrower, each Foreign
Leasing Subsidiary and each Bank shall, from time to time at the request of the
Agent, execute and deliver such documentation as the Agent may reasonably
request in order to confirm the terms and conditions of this Section 2.26.
Section 2.27 Pro Rata Treatment Among Banks.
Except as otherwise provided herein: (i) each borrowing from the Banks
under Section 2.1 hereof will be made from the Banks and each payment of each
Fee (other than the administrative fee and the structuring fee referred to in
Section 2.4(b) hereof and the fee provided for in subsection 2.32(f) hereof)
shall be made for the account of the Banks pro rata according to their
respective Unused Commitments; (ii) each partial reduction of the Total
Commitment shall be applied to the Commitments of the Banks pro rata according
to each Bank's respective Commitment; (iii) each conversion of Loans of a
particular type under Section 2.21 hereof (other than conversions provided for
by Section 2.18 or 2.19 hereof) will be made pro rata among the Banks holding
Loans of such Type according to the respective principal amounts of
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such Loans held by such Banks; (iv) each payment and prepayment of principal of
or interest on Loans (including of a particular Type) will be made to the Agent
for the account of the Banks holding Loans (and, if relevant, of such Type pro
rata in accordance with the respective unpaid principal amounts of such Loans
held by such Banks; and (v) Interest Periods for Loans of a particular Type
shall be allocated among the Banks holding Loans of such Type pro rata according
to the respective principal amounts of such Loans held by such Banks.
Notwithstanding the foregoing provisions of this Section 2.27, in order to
reflect the assignments of Loans and Commitments being made concurrently with
the execution and delivery of this Agreement, the Banks shall, as of the date
hereof, make appropriate adjustments among themselves in order that the amount
of Loans outstanding to the Borrowers from each Bank under the Second Restated
Agreement are in principal amounts, as of the date hereof, which are in the same
proportion to the outstanding principal amount of all Loans that each Bank's
Commitment, respectively, bears to the aggregate Commitment of all the Banks,
after giving effect to any changed amount of the Commitments of any Bank and the
inclusion of new Banks hereunder; provided, however, that (except in respect of
the outstanding Loans assigned by The Northern Trust Company to European
American Bank and to CoreStates Bank, N.A.) the foregoing adjustments shall not
be made as of the date hereof in respect of Loans bearing interest at a rate
subject to an Interest Period outstanding immediately prior to the date hereof
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 adjustments shall be made as
of the date hereof only in respect of borrowings from and after the date hereof
or borrowings that are not subject to an Interest Period (except in respect of
the outstanding Loans assigned by The Northern Trust Company to European
American Bank and CoreStates Bank, N.A. as to which the pro rata shares of such
assigned Banks shall be based on the respective portions assigned to them of the
Loans outstanding from The Northern Trust Company).
Section 2.28 Non-Receipt of Funds by the Agent.
Unless the Agent shall have been notified by a Bank or the Borrowers
(the "Payor") prior to the date on which such Bank is to make payment to the
Agent of the proceeds of a Loan to be made by it hereunder or the Borrowers are
to make a payment to the Agent for the account of one or more of the Banks, as
the case may be (such payment being herein called the "Required Payment"), which
notice shall be effective upon receipt, that the Payor does not intend to make
the Required Payment to the Agent, the Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption (but shall not
be required to), make the amount thereof available to the intended recipient on
such date and, if the Payor has not in fact made the Required Payment to the
Agent, the recipient of such payment shall, on demand, repay to the Agent the
amount made available to it together with interest thereon in respect of each
day during the period commencing on the date such amount was so made available
by the Agent until the date the Agent recovers such amount at a rate per annum
equal to the Federal Funds Rate for such day (when the recipient is a Bank) or
equal to the rate of interest applicable to such Loan (when the recipient is the
Borrowers).
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Section 2.29 Sharing of Payments and Set-Off Among Banks.
Each of the Borrowers hereby agrees that, in addition to (and without
limitation to any right of set-off, banker's lien or counterclaim a Bank may
otherwise have, each Bank shall be entitled, at its option, to offset balances
held by it at any of its offices (including, without limitation, under any lock-
box arrangements) against any principal of or interest on any of its Loans
hereunder, or any Fee payable to it, which is not paid when due (regardless of
whether such balances are then due to the Borrowers), in which case it shall
promptly notify the Borrowers and the Agent thereof, provided that its failure
to give such notice shall not affect the validity thereof. If a Bank shall
effect payment of any principal of or interest on Loans held by it under this
Agreement through the exercise of any right of set-off, banker's lien,
counterclaim or similar right, it shall promptly purchase from the other Banks
participation in the Loans held by the other Banks in such amounts, and make
such other adjustments from time to time as shall be equitable, to the end that
all the Banks shall share the benefit of such payment pro rata in accordance
with the unpaid principal and interest on the Loans held by each of them, each
of which Banks shall have a Lien on its ratable portion of the amounts described
hereinabove received from the Borrowers. To such end all the Banks shall make
appropriate adjustments among themselves (by the resale of participation sold or
otherwise) if such payment is rescinded or must otherwise be restored. Each of
the Borrowers agrees that any Bank so purchasing a participation in the Loans
held by the other Banks may exercise all rights of set-off, banker's lien,
counterclaim or similar rights with respect to such participation as fully as if
such Bank were a direct holder of Loans in the amount of such participation.
Nothing contained herein shall require any Bank to exercise any such right or
shall affect the right of any Bank to exercise and retain the benefits of
exercising, any such right with respect to any other indebtedness or obligation
of any of the Borrowers.
Section 2.30 Lending Offices.
The Loans of each type made by each Bank shall be made and maintained
at such Bank's Applicable Lending Office for Loans of such type.
Section 2.31 Several Obligations.
The failure of any Bank to make any Loan to be made by it on the date
specified therefor shall not relieve the other Banks of their respective
obligations to make their Loans on such date, but no Bank shall be responsible
for the failure of the other Banks to make Loans to be made by such other Banks.
Section 2.32 Temporary Loans.
(a) Temporary Commitment; Borrowings.
(i) Intent. The obligations of the Banks hereunder shall be absolute
and unconditional and shall not be affected by any circumstance including,
without limitation, (A) any setoff, counterclaim, recoupment, defense or other
right which such Bank may have against the
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Temporary Lender or any Loan Party; (B) the occurrence or continuance of a
Default or Event of Default (unless, during any period while the Temporary
Lender continues to be the same entity as the Agent, the Agent has knowledge of
the existence of a Default not theretofore communicated in writing to all of the
Banks and not cured or waived; "knowledge" being deemed exclusively to mean the
receipt by the Agent of a notice from a Bank or the Borrowers specifying such
Default and stating that such notice is a "Notice of Default"); (C) any adverse
change in the business, condition (financial or otherwise), operations,
performance, properties or prospects of any Loan Party; (D) any breach of any
Loan Document by any of the Borrowers or any other Loan Party; or (E) any other
circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing.
(ii) Conditions of Commitment. Subject to the terms and conditions of
this Agreement, the Temporary Lender may make advances (each, a "Temporary
Loan", and collectively, the "Temporary Loans") to the Borrowers from time to
time from the date of execution and delivery of this Agreement to the Commitment
Termination Date (exclusive of the last day thereof) in an aggregate principal
amount for all Temporary Loans at any time outstanding not to exceed the
Temporary Commitment as then in effect; provided, however, that no Temporary
Loan shall be made without the consent of the Majority Banks if the Temporary
Lender shall have received notice from any of the Borrowers pursuant to Section
5.7 hereof or from the Majority Banks that a Default or an Event of Default
shall then exist. Subject to the terms of this Agreement, during the Credit
Period, the Borrowers may borrow, repay and reborrow Temporary Loans in
accordance with and subject to the terms and conditions of this Section 2.32.
Except as otherwise expressly set forth in this Section 2.32 or elsewhere in
this Agreement, Temporary Loans: (A) shall be subject to and governed by and
entitled to all of the benefits of all terms and conditions of this Agreement
applicable to Loans, and (B) shall constitute Loans for all purposes of the Loan
Documents, except where the context otherwise indicates.
(iii) Borrowings. Minimum borrowings of Temporary Loans shall be in a
principal amount of not less than One Hundred Thousand ($100,000) Dollars or
such lesser amount as shall exhaust the remaining amount of the Temporary
Commitment. All Temporary Loans shall be Prime Rate Loans, and no Temporary Loan
may be a Eurodollar Loan.
(b) Use of Proceeds.
The proceeds of the Temporary Loans shall be used by the Borrowers
solely for such purposes as are permitted for all Loans under Section 2.9
hereof.
(c) Conversion.
Each Temporary Loan shall be refinanced by conversion into a Loan made
pursuant to the provisions of Section 2.1 hereof, the proceeds of which Loan
shall be used to refinance such Temporary Loan. Each such conversion and
refinancing shall be made, all without demand on or notice to any of the
Borrowers on the earliest of the following: (1) the Commitment Termination Date
or any earlier termination of the Commitments or the Temporary Commitment;
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or (ii) upon occurrence of the earlier of a Default or an Event of Default under
this Agreement; (iii) at such time or times as the aggregate outstanding
principal amount of the Temporary Loans has exceeded Five Million ($5,000,000)
Dollars for ten (10) consecutive Business Days with the conversion to occur
within two (2) Business Days thereafter and the Agent shall have delivered
prompt telephonic notice (confirmed thereafter by telecopy or otherwise in
writing) to the Banks so stating the basis for the conversion; (iv) at the
election of the Temporary Lender as set forth in subsection 2.32(h) hereof, or
(v) at the election of the Borrowers by means of delivery of a Borrowing Notice
in accordance with the applicable provisions of this Loan Agreement. Each such
conversion and refinancing shall be for the full outstanding principal amount of
the Temporary Loans, unless otherwise elected by the Temporary Lender or the
Borrowers pursuant to clauses (iv) or (v), respectively. The advances to be
made respectively by the Banks under this subsection (c) shall be in the amounts
set forth in subsection 2.32(h) hereof and such amounts shall be advanced to the
Agent for the account of the Temporary Lender. All such advances by the Banks
pursuant to this subsection 2.32 (including under subsection 2.32(h)) shall
constitute Loans under the Total Commitment. Any Temporary Loan not converted
and refinanced as set forth in this Section 2.32 (despite the obligations of
conversion and refinancing set forth herein) shall be due and payable in full by
the Borrowers on demand by the Temporary Lender, and shall, if the Loans are
then due and payable, be repaid to the Temporary Lender prior to repayment of
the Loans to the Banks.
(d) Temporary Loan Note; Temporary Loan Records.
(i) The Temporary Loans made by the Temporary Lender shall be
evidenced by a single joint and several promissory note of the Borrowers (the
"Temporary Loan Note") in substantially the form of Exhibit B-2 hereto, dated
the date hereof payable to the order of the Temporary Lender in the principal
amount of Five Million ($5,000,000) Dollars and otherwise duly completed.
(ii) The Temporary Lender will maintain a record in which appropriate
entries will be made from time to time showing the unpaid principal of the
Temporary Loans made, the interest accrued thereon and payments made in respect
of the principal of and interest on such Loans and debits and credits in respect
of other amounts payable by the Borrowers from time to time to the Temporary
Lender pursuant to this Agreement. The entries made by the Temporary Lender in
such record shall constitute prima facie evidence of (a) the Borrowers'
obligations in respect of the Temporary Loans made hereunder, (b) payments of
principal and interest made by the Borrowers in respect of such Loans and (c)
any other amounts owing by the Borrowers to the Temporary Lender hereunder and
payments made thereon. Notwithstanding the foregoing, the failure by the
Temporary Lender to make such entries shall not affect the rights of the
Temporary Lender or the obligations of the Borrowers hereunder.
(e) Application for Temporary Loan.
Application for a Temporary Loan (each, a "Temporary Loan Borrowing
Notice") shall be made to the Temporary Lender by telecopy notice which must be
received by the Temporary Lender before 12:00 noon, New York City time, on the
Business Day of the
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requested date for borrowing (a) setting forth the amount then to be borrowed,
and (b) otherwise being in compliance with the requirements of a Borrowing
Notice under subsection 2.3(b) hereof. On the date for borrowing proposed in
such application, subject to satisfaction of the applicable conditions precedent
set forth in Article 4 hereof, the Temporary Lender will advance to the
Borrowers, and the Borrowers will borrow from the Temporary Lender, the amount
specified in such Temporary Loan Borrowing Notice and the Borrowers will then be
indebted to the Temporary Lender in such principal amount. The Temporary Lender
will credit the amount of the Temporary Loan to an account on its books in the
name of the Borrowers or will transmit such amount upon the Borrowers' order.
(f) Interest Rates on Temporary Loans; Interest Payment Dates; Fees.
(i) Subject to subsection (f)(ii) below, the Borrowers shall pay to
the Temporary Lender interest on the unpaid principal amount of each Temporary
Loan for the period commencing on the date of such Temporary Loan until such
Temporary Loan shall be paid in full, at the rate per annum equal to the Prime
Rate plus the Applicable Margin.
(ii) Notwithstanding the foregoing, the Borrowers shall pay interest
on the Temporary Loans or any installment or portion thereof, and on any other
amount payable by the Borrowers under this Section 2.32 (other than interest)
which shall not be paid in full when due (whether at stated maturity, by
acceleration or otherwise), and at any time after an Event of Default shall have
been declared and be continuing, for the period commencing on the due date
thereof or on the date of declaration of the Event of Default, as applicable,
until the same is paid in full at the applicable Post-Default Rate.
(iii) Interest on each Temporary Loan shall be payable monthly in
arrears commencing on the last day of the first calendar month following the
making of each Temporary Loan and on the date of payment in full, except that
unpaid interest accrued on a Temporary Loan through any date of conversion into
a Loan shall be payable on the last day of the calendar month during which any
such conversion occurs.
(iv) The Borrowers shall pay to the Temporary Lender for its own
account a commitment fee on the daily average unused amount of the Temporary
Commitment for the period from the date of this Agreement to and including the
earlier of the date on which the Temporary Commitment is terminated or the
Commitment Termination Date, at the rate of three-eighths of one percent (3/8 of
1%) per annum on the unused Temporary Commitment. Such fee shall be payable
quarterly in arrears on the first day of each calendar quarter and on the
earlier of the date the Temporary Commitment is terminated or the Commitment
Termination Date. Each of the Borrowers acknowledges that the foregoing fee is
payable notwithstanding the provisions of this Agreement limiting the
outstanding principal amount of all loans, inclusive of Temporary Loans, to the
Total Commitment.
(g) Prepayments of Temporary Loans.
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(i) Subject to the provisions of this subsection (g), the Borrowers
shall be permitted to repay and prepay Temporary Loans in whole at any time or
in part from time to time without premium or penalty. Partial prepayments
hereunder may not be in an amount which is less than Fifty Thousand ($50,000)
Dollars and which is not a whole multiple of Fifty Thousand ($50,000) Dollars or
such lesser amount as shall prepay the Temporary Loan or Loans in full.
(ii) The Borrowers shall prepay the Temporary Loans in any event upon
which, and in the manner in which, such prepayment is required by Section 2.8
hereof
(iii) All prepayments shall be made to the Temporary Lender and shall
be made together with interest accrued on the amount prepaid and any additional
amount which is payable pursuant to Section 2.16 or 2.20 hereof or otherwise.
(iv) The Borrowers may not prepay the whole or any part of the
Temporary Loan Obligations except in accordance with the specific provisions of
this Agreement.
(h) Conversion and Refinancing by Banks at Election of Temporary
Lender.
At any time (whether or not a Default or an Event of Default exists)
the Temporary Lender may, in its sole discretion, determine that it desires to
convert the Temporary Loans into Loans under Section 2.1 hereof and desires the
Banks to refinance the Temporary Loans. At such time, the Temporary Lender
shall notify the Borrowers and the Agent of such fact, the Agent shall then
notify the Banks of such determination and, unless any of the events described
in Section 8.6 have occurred (in which event the procedures of subparagraph (1)
immediately below shall apply), thereafter the Banks shall on the second
Business Day after the giving of such notice by the Temporary Lender, advance
funds to the Agent for the account of the Temporary Lender in an amount equal to
the product of (i) the percentage that such Bank's Commitment represents of the
Total Commitment multiplied by (ii) the aggregate outstanding principal balance
of the Temporary Loans to be refinanced by the Banks, which funds shall be
remitted by the Agent to the Temporary Lender to be applied by the Temporary
Lender to refinance the Temporary Loans; provided, however, that no Bank shall
be required to advance funds to the Agent in an aggregate amount in excess of
the amount of such Bank's Unused Commitment as in effect on such date.
(i) Participation in Temporary Loans. If, prior to the conversion of
Temporary Loans into Loans pursuant to Section 2.32(c) hereof, any of the events
described in Section 8.6 shall have occurred, then each Bank shall, on the date
such Loan was to have been made, purchase from the Temporary Lender an undivided
participating interest in the Temporary Loan in an amount equal to (i) the
percentage that such Bank's Commitment represents of the Total Commitment
multiplied by (ii) the aggregate outstanding principal balance of the Temporary
Loans. Upon request, each Bank will immediately transfer to the Temporary
Lender, in immediately available funds, the amount of its participation and upon
receipt thereof the
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Temporary Lender will deliver to such Bank a Temporary Loan Participation
Certificate dated the date of receipt of such funds and in such amount.
Section 2.33 L/Cs.
(a) Amount and Expiration.
(i) Subject to the terms and conditions of this Agreement, any of the
Banks may issue one or more Standby L/Cs (in such capacity, each Bank which
issues an L/C is sometimes hereinafter referred to as an "Issuing Bank" in
respect of such L/Cs issued by it) for the account of an Account Party,
provided, however, that no L/C shall be issued if, after giving effect to the
issuance of such L/C (i) the aggregate amount of all L/C Obligations and the
aggregate amount of all Loans (including Temporary Loans) then outstanding would
exceed the lesser of the Borrowing Base or the Total Commitment, and (ii) the
aggregate amount of all L/C Obligations then outstanding would exceed Five
Million ($5,000,000) Dollars. Subject to the foregoing, the Borrowers may
request the issuance of L/Cs under this Section 2.33, repay any drawings
thereunder and request the issuance of additional L/Cs under this Section 2.33.
The Borrowers shall be jointly and severally liable for any indebtedness,
liabilities and obligations of any Account Party under or arising in connection
with any L/C. For all purposes of this Agreement, reference to the "Issue" or
"issuance" of any L/C or any L/C being "issued" shall include the amendment,
supplement or modification of any L/C, including, without limitation, any
increase in the amount thereof, or any extension or renewal thereof
(ii) No L/C shall have an expiration date later than the date which is
sixty (60) days prior to the then-scheduled Commitment Termination Date. No L/C
may by its terms be automatically renewable, unless consented to in writing by
the Agent in the exercise of its sole discretion, subject to the foregoing
restriction regarding expiration dates.
(b) Notice and Issuance, Use of L/Cs.
(i) The Borrowers shall give notice to the Issuing Bank that wishes to
issue the L/C and to the Agent of a request for issuance of any L/C not less
than four (4) Business Days prior to the proposed issuance date (which
prescribed time period may be waived at the option of the Issuing Bank and the
Agent in the exercise of their sole discretion). Each such notice (a "Notice of
Issuance") shall specify the requested (A) date of such issuance (which shall be
a Business Day), (B) maximum amount of such L/C, (C) expiration date of such
L/C, (D) purpose of such L/C, (E) name and address of the beneficiary of such
L/C, (F) account party which shall be an Account Party and (G) form of such L/C
(which shall be acceptable to both of the Issuing Bank and the Agent in their
respective sole discretion). Upon acceptance of the form of the proposed L/C by
the Issuing Bank and the Agent and upon fulfillment of the applicable conditions
set forth in Article 4 hereof, and subject to execution by the Account Party of
any customary Standby L/C application or agreement or other documents required
by the Issuing Bank (in each case, and collectively, the "Application
Documents"), the Issuing Bank shall make such Standby L/C available to the
Borrowers at its office referred to in Section 10.9 hereof or as otherwise
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agreed with the Borrowers in connection with such issuance. The Agent shall
promptly notify each Bank of the stated amount and the expiration of each L/C.
(ii) Each Notice of Issuance shall be accompanied by a Borrowing
Computation which shall include a representation that the issuance of the L/C
requested shall not on the date of issuance exceed the Borrowing Availability,
as measured as provided (in respect of Loans) in subsection 2.3(b) hereof, and
the proviso set forth in such subsection 2.3(b) shall be applicable as well to
any Notice of Issuance.
(iii) The L/Cs shall be requested and issued solely for the purpose of
facilitating the purchase of Equipment acquired from the beneficiaries of such
L/Cs and for other purposes in each case in the ordinary course of business of
the applicable Account Party's Basic Business.
(c) Reimbursement Obligations.
The respective account party under each L/C, and the Borrowers,
jointly and severally in respect of each and every L/C, shall be obligated to
reimburse the Agent, for the account of the Issuing Bank, in immediately
available funds at the Principal Office upon demand for drafts drawn and all
amounts paid or disbursed under each such L/C (all such amounts so drawn, paid
or disbursed until reimbursed are hereinafter referred to as "Unreimbursed
Drawings"), with interest on the amount so paid or disbursed from and including
the date paid or disbursed until reimbursement in full at the Post-Default Rate.
All such interest shall be payable on demand, and shall be computed on the basis
of a year of 360 days and actual days elapsed (including the first day but
excluding the last) occurring in the period for which payable.
(d) General Unconditional Obligations.
The obligations of the Borrowers and each Account Party under this
Agreement and the Application Documents and any other agreement, instrument or
document relating to reimbursement or payment of L/C Obligations shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement and the Application Documents, under
all circumstances whatsoever, including, without limitation, the following
circumstances, whether relating to any one or more L/Cs:
(i) any agreement between the Borrowers or any Account Party and
any beneficiary or any agreement or instrument relating thereto (the
"Beneficiary Documents") proving to be forged, fraudulent, invalid,
unenforceable or insufficient in any respect;
(ii) any amendment or waiver of or any consent to departure from
all or any of the Beneficiary Documents;
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(iii) the existence of any claim, set off, defense or other
rights which any Borrower or any Account Party may have at any time against any
beneficiary or any transferee of any L/C (or any persons or entities for whom
any beneficiary or any such transferee may be acting), the Issuing Bank, any
other Bank, the Agent or any other person or entity, whether in connection with
the Agreement, the Beneficiary Documents or any unrelated transaction;
(iv) any demand presented under any L/C (or any endorsement
thereon) proving to be forged, fraudulent, invalid, unenforceable or
insufficient in any respect or any statement therein being inaccurate in any
respect whatsoever;
(v) payment by the Issuing Bank under any L/C against
presentation of a demand which does not comply with the terms of such L/C,
including, without limitation, the circumstances referred to in clause (iv)
above or the failure of any document to bear reference or to bear adequate
reference to such L/C;
(vi) the use to which any L/C may be put or any acts or omission
of any beneficiary in connection therewith; or
(vii) any other circumstances or happening whatsoever, whether or
not similar to any of the foregoing.
(e) Participation by Banks.
(i) On the date of issuance of each L/C the Issuing Bank shall be
deemed irrevocably and unconditionally to have sold and transferred to each Bank
(excluding, for all purposes of this subsection (e), the Issuing Bank, which
shall retain a portion equal to its pro rata share of the Total Commitment)
without recourse or warranty, and each Bank shall be deemed to have irrevocably
and unconditionally purchased and received from the Issuing Bank (in each case
subject to subsection 2.33(i) hereof), an undivided interest and participation,
to the extent of such Bank's pro rata share of the Total Commitment in effect on
the date of such issuance, in such L/C, the related Application Documents and
all L/C Obligations relating to such L/C and all Loan Documents securing,
guaranteeing, supporting, or otherwise benefitting the payment of such L/C
Obligation. The Issuing Bank shall furnish to any Bank, upon request, copies of
any L/C and any Application Documents as may be requested by such Bank.
(ii) In the event that any reimbursement obligation under subsection
2.33(c) hereof is not paid when due to the Issuing Bank with respect to any L/C,
the Issuing Bank shall promptly notify the Agent to that effect, and the Agent
shall promptly notify the Banks of the amount of such reimbursement obligation
and each such Bank shall immediately pay to the Agent, for immediate payment to
the Issuing Bank, in lawful money of the United States and in immediately
available funds, an amount equal to such Bank's ratable portion of the amount of
such unpaid reimbursement obligation. The obligation of each Bank to make
payments hereunder shall be absolute and unconditional and irrevocable and shall
be made under all circumstances (except as otherwise expressly provided in
subsection (i) above), including, without limitation, any of the
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circumstances referred to in Section 2.33(i)(B) and shall not be subject to any
conditions set forth in Article 4 hereof or otherwise affected by any
circumstance including, without limitation, (A) the occurrence or continuance of
a Default or Event of Default (unless, during any period while the Issuing Bank
continues to be the same entity as the Agent, a new L/C is issued while the
Agent has knowledge of the existence of a Default not theretofore communicated
in writing to all of the Banks and not cured or waived, "knowledge" being deemed
exclusively to mean the receipt by the Agent of a notice from a Bank or any of
the Borrowers specifying such Default and stating that such notice is a "Notice
of Default"); (B) any adverse change in the business condition (financial or
otherwise), operations, performance, properties or prospects of any Loan Party;
(C) any breach of this Agreement by any of the Borrowers or any other Loan Party
or Bank; (D) any set-off, counterclaim, recoupment, defense or other right which
such Bank may have against the Issuing Bank or any Loan Party; or (E) any other
circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing. Each Borrower and each Account Party agrees that any Bank
purchasing a participation in any L/C from the Issuing Bank hereunder may, to
the fullest extent permitted by law, exercise all of its rights of payment with
respect to such participation as fully as if such Bank were the direct creditor
of such Borrower or Account Party in the amount of such participation.
(iii) Promptly after the Issuing Bank receives a payment on account of
a reimbursement obligation with respect to any L/C as to which any other Bank
has funded its participation pursuant to subsection 2.33(e)(ii) above, the
Issuing Bank shall promptly pay to the Agent, and the Agent shall promptly pay
to each Bank which funded its participation therein, in lawful money of the
United States and in the kind of funds so received, an amount equal to such
Bank's ratable share thereof.
(iv) If any payment received on account of any reimbursement
obligation with respect to a L/C and distributed to a Bank as a participant
under subsection 2.33(e)(iii) is thereafter recovered from the Issuing Bank in
connection with any bankruptcy or insolvency proceeding relating to any Borrower
or any Account Party or otherwise, each Bank which received such distribution
shall, upon demand by the Agent, repay to the Issuing Bank such Bank's ratable
share of the amount so recovered together with an amount equal to such Bank's
ratable share (according to the proportion of (i) the amount of such Bank's
required repayment to (ii) the total amount so recovered) of any interest or
other amount paid or payable by the Issuing Bank in respect of the total amount
so recovered.
(f) Fees.
The Borrowers shall pay to the Agent for the pro rata account of each
Bank (computed ratably on the basis of each Bank's Commitment hereunder) a non-
refundable letter of credit fee on the face amount of each L/C as in effect on
its date of issuance (collectively "L/C Fees", and such shall be deemed included
within the term "Fee" as used in this Agreement), which fee shall be at the rate
of two and one-quarter (2-1/4%) percent per annum on such face amount of each
Standby L/C payable quarterly in advance, in respect of each Standby L/C,
commencing on the date of issuance of such L/C and continuing on the last day of
each calendar quarter
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thereafter. In addition, the Borrowers shall pay on demand to the Issuing Bank
for the account exclusively of the Issuing Bank (notwithstanding the provisions
of subsection 2.27(i) of this Agreement), such standard fees, charges and
expenses as are customarily charged or incurred by the Issuing Bank from time to
time in connection with the issuance, amendment, transfer, administration or
cancellation of or payment under any or all L/Cs.
(g) Collateral.
The L/C Obligations shall constitute a portion of the Obligations, and
all L/C Obligations of the Borrowers or of any Account Party shall be secured by
the Security Documents.
(h) Additional Costs; Capital Requirements.
(i) ln the event that any existing or future law or regulation or
guideline or interpretation thereof by any court or administrative or
governmental authority charged with the administration thereof, or compliance by
any Bank with any request or directive (whether or not having the force of law)
of any such authority shall impose, modify or deem applicable or result in the
application of, any capital maintenance, capital ratio or similar requirement
against letters of credit or guaranties issued by or participation therein of,
or assets held by or deposits in or for the account of, any Bank or any
corporation controlling such Bank or impose on any Bank any other condition
regarding this Agreement or any L/C or participation therein or the issuance or
acquisition of or participation in such Bank's Commitment relating to L/Cs or
similar contingent obligations or the obligation of the Borrowers hereunder with
respect to such Commitment (which imposition of capital requirements may be
determined by each Bank's reasonable allocation of the aggregate of such capital
increases or impositions), then, upon demand made by such Bank as promptly as
practicable after it obtains knowledge that such law, regulation, guideline,
interpretation, request or directive exists and determines to make such demand,
the Borrowers shall immediately pay to such Bank from time to time as specified
by such Bank additional commitment fees which shall be sufficient to compensate
such Bank in light of such circumstances together with interest on each such
amount commencing five (5) days from the date payment of such additional costs
is demanded until payment in full thereof at the Post-Default Rate. A
certificate setting forth in reasonable detail the amount necessary to
compensate such Bank as aforesaid submitted by such Bank to the Borrowers shall
be conclusive, as to the amount thereof. For purposes of this subsection (h)
all references to any "Bank" shall be deemed to include any participant in such
Bank's Commitment.
(ii) In the event that any Regulatory Change shall: (A) change
the basis of taxation of any amounts to any Bank under this Agreement in respect
of L/Cs or L/C Obligations (other than taxes imposed on the overall net income
of such Bank for any such Loans by the United States or the jurisdiction in
which such Bank has its principal office); or (B) impose or modify any reserve,
Federal Deposit Insurance Corporation premium or assessment, special deposit or
similar requirements relating to any extensions of credit, letters of credit or
guaranties issued by or participation therein of, or other assets of, or any
deposits with or other liabilities of, such Bank; or (C) impose any other
conditions affecting this Agreement in respect of L/Cs or L/C
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Obligations (or any of such extensions of credit, assets, deposits or
liabilities); and the result of any event referred to in clause (A), (B) or (C)
above shall be to increase such Bank's costs of issuing, maintaining,
participating in, or acquiring L/Cs and other Commitments of similar type, or
its Commitment, or to reduce any amount receivable by such Bank hereunder in
respect of any of the foregoing or its Commitment (such increases in costs and
reductions in amounts receivable are hereinafter referred to as "Additional
Costs"), then, upon demand made by such Bank as promptly as practicable after it
obtains knowledge that such a Regulatory Change exists and determines to make
such demand (a copy of which demand shall be delivered to the Agent), the
Borrowers shall pay to such Bank from time to time as specified by such Bank,
additional commitment fees or other amounts which shall be sufficient to
compensate such Bank for such increased cost or reduction in amounts receivable
by such Bank from the date of such change, together with interest on each such
amount from the date demanded until payment in full thereof at the Post-Default
Rate. All references to any "Bank" shall be deemed to include any participant
in such Bank's Commitment.
(i) Non-Liability.
Each Borrower and each Account Party assumes all risks of the acts or
omissions of any beneficiary or transferee of any L/C with respect to its use of
such L/C. Neither the Agent, the Issuing Bank nor any other Bank, nor any of
their respective officers or directors, shall be liable or responsible for: (A)
the use that may be made of any L/C or any acts or omissions of any beneficiary
or transferee in connection therewith; (B) the validity, sufficiency or
genuineness of documents, or of any endorsement thereon, even if such documents
should prove to be in any or all respects invalid, insufficient, fraudulent or
forged; (C) payment by the Issuing Bank against presentation of documents that
do not comply with the terms of a L/C, including failure of any documents to
bear any reference or adequate reference to a L/C, except that the Borrowers and
the respective Account Party shall have a claim against the Issuing Bank, and
such Issuing Bank shall be liable to the Borrowers and such Account Party, to
the extent of any direct, but not consequential, damages suffered by the
Borrowers or such Account Party that the Borrowers or such Account Party proves
were caused by (1) the Issuing Bank's willful misconduct or gross negligence in
determining whether documents presented under any L/C comply with the terms of
the L/C or (2) the Issuing Bank's willful failure to make lawful payment under a
L/C after the presentation to it of a draft and certificates strictly complying
with the terms and conditions of the L/C. In furtherance and not in limitation
of the foregoing, the Issuing Bank may accept documents that appear on their
face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary. The Uniform Customs
and Practice for Documentary Credits as most recently published by the
International Chamber of Commerce shall be deemed a part of this Section 2.33 as
if incorporated herein in all respects and shall apply to the L/Cs.
(j) Indemnification.
The Borrowers jointly and severally agree to indemnify and save
harmless the Agent and each Bank including the Issuing Bank, from and against
any and all claims,
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demands, liabilities, damages, losses, costs, charges and expenses (including
reasonable attorneys' fees) which such Agent or Bank may incur or be subject to
as a consequence, direct or indirect, of the issuance of any L/C or any action
or proceeding relating to a court order, injunction, or other process or decree
restraining or seeking to restrain the Issuing Bank or the Agent from paying any
amount under any applicable L/C except that no such Person shall be entitled to
indemnification for matters caused solely by such Person's gross negligence or
willful misconduct.
(k) Cash Collateralization.
If any Event of Default shall have been declared and be continuing,
the Borrower shall on the Business Day it receives notice from the Agent or the
Majority Banks, deposit in an account with the Agent, for the ratable benefit of
the Banks, an amount in cash equal to the L/C Obligations as of such date. Such
deposit shall be held by the Agent as collateral for the payment and performance
of the Obligations. The Agent shall have exclusive dominion and control,
including the exclusive right of withdrawal over such account. Other than any
interest earned on the investment of such deposits in investments permitted
under subsection 7.9(a) hereof, which investments shall be made at the option
and sole discretion of the Agent, such deposit shall not bear interest. Interest
or profits, if any, on such investment shall accumulate in such account. Moneys
in such account shall (a) automatically be applied by the Agent to reimburse the
Issuing Bank for L/C disbursements, (b) to be held for the satisfaction of the
reimbursement obligations of the Borrowers for the L/C Obligations at such time
and (c) if the maturity of the Loans has been accelerated, be applied to satisfy
the Obligations.
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Article 3. Representations and Warranties.
Each of the Borrowers hereby represents and warrants to the Banks and
the Agent that:
Section 3.1 Organization.
(a) Each Borrower and each other Corporate Loan Party 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. Exhibit D annexed
hereto accurately and completely lists the state of incorporation of the
Borrowers and each Corporate Loan Party, the authorized and outstanding shares
of common stock of each such corporation, and the owners of the outstanding
shares of common stock of each of the Borrowers and each Corporate Loan Party,
and the business in which each of such entities is engaged. All of the shares
which are issued and outstanding have been duly and validly issued and are fully
paid and non-assessable, and are owned by the Persons referred to on Exhibit D,
free and clear of any Lien except as stated on Exhibit D or otherwise provided
for herein. Except as set forth on Exhibit D, there are not outstanding any
warrants, options, contracts or commitments of any kind entitling any Person to
purchase or otherwise acquire any shares of capital stock of any Borrower or any
Corporate Loan Party nor are there outstanding any securities which are
convertible into or exchangeable for any shares of capital stock of, the
Borrowers or any Corporate Loan Party. Except as set forth on Exhibit D,
neither any Borrower nor any Corporate Loan Party has any Subsidiary.
(b) Except as set forth on Exhibit E annexed hereto, each Borrower and
each other Corporate Loan Party 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 other than as set forth on Exhibit E hereto in which the
character of the properties owned by any Borrower or any of the Subsidiaries or
in which the transaction of the business of either any Borrower or any of the
Subsidiaries as now conducted requires or will require any Borrower or any of
the Subsidiaries 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 or any of the Subsidiaries.
Section 3.2 Power, Authority, Consents.
Each Borrower and each Loan Party has the power to execute, deliver
and perform the Loan Documents and the Transaction Documents to be executed by
it or him; each Borrower has the power to borrow hereunder and has taken all
necessary corporate action to authorize the borrowing hereunder on the terms and
conditions of this Agreement, and each Borrower and each Loan Party has taken
all necessary action, corporate or otherwise, to authorize the execution,
delivery and performance of the Loan Documents and the Transaction Documents to
be executed by it or him. 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
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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,
delivery or performance by any Borrower or any other Loan Party, or the
validity, enforcement or priority, of the Loan Documents or any Lien created and
granted thereunder, or the Transaction Documents, except as set forth on Exhibit
F annexed hereto, each of which either has been duly and validly obtained on or
prior to the date of this Agreement and is now in full force and effect, or is
designated on Exhibit F as waived by the Agent, provided, however, that waiver
with respect to any consent which individually is material shall require the
approval of the Majority Banks.
Section 3.3 No Violation of Law or Agreements.
The execution and delivery by each Borrower and each other Loan Party
of each Loan Document and Transaction Document to which it is a party and
performance by it or him hereunder and thereunder, 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, except as set forth on
Exhibit G annexed hereto, conflict with or result in a breach of any order,
writ, injunction, ordinance, resolution, 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 such
other Loan Party, or partnership agreement of any Loan Party or create (with or
without the giving of notice or lapse of time, or both) a default under or
breach of any agreement, instrument, document, bond, note or indenture to which
any Borrower or any other Loan Party 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.
Section 3.4 Due Execution, Validity, Enforceability.
This Agreement and each other Loan Document and Transaction Document
to which any Loan Party is a party has been duly executed and delivered by the
Loan Party which is a party thereto and each constitutes the valid and legally
binding obligation of each Borrower or such Loan Party which is a party thereto,
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; but
such laws shall not materially interfere with the practical benefits of the
Security Documents or the security interests or Liens created thereby, except
for (a) possible delay, (b) situations which may arise under Chapter 11 of the
Bankruptcy Code and (c) equitable orders of the Bankruptcy Court.
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Section 3.5 Properties, Priority of Liens.
All of the properties and assets owned by each Borrower and each of
the Subsidiaries and all of the properties and assets owned by any other Loan
Party which properties or assets are covered by a Security Document executed by
such Loan Party are owned by each of them, respectively, free and clear of any
Lien of any nature whatsoever, except as provided for in the Security Documents
and as permitted by Section 7.2 hereof. The Liens which have, simultaneously
with the execution and delivery either of the Loan Agreement dated June 15,
1990, as amended, by and among, inter alia, LCI, certain lenders and the Agent
or of the First Amended and Restated Loan Agreement dated as of December 23,
1992, as amended, by and among, inter alia, the Borrowers, certain lenders and
the Agent, the Second Restated Agreement, this Agreement or any amendment of any
of them, been created and granted by the Security Documents constitute valid
perfected Liens on the properties and assets covered by the Security Documents,
subject to no prior or equal Lien except as permitted by Section 7.2 hereof.
Section 3.6 Judgments, Actions, Proceedings.
Except as set forth on Exhibit H annexed hereto, there are no
outstanding judgments, actions or proceedings pending before any court or
governmental authority, bureau or agency, with respect to or, to the best of
each Borrower's knowledge, threatened against or affecting any Borrower, any
Corporate Loan Party or any of the Subsidiaries, involving, in the case of any
court proceeding, a claim in excess of One Hundred Thousand ($100,000) Dollars
individually or Two Hundred and Fifty Thousand ($250,000) Dollars in the
aggregate, nor, to the best of each Borrower's knowledge, is there any
reasonable basis for the institution of any such action or proceeding which is
probable of assertion, nor are there any such actions or proceedings in which
any Borrower, any Corporate Loan Party or any of the Subsidiaries is a plaintiff
or complainant, other than actions instituted by or on behalf of any Borrower
for collection of overdue amounts payable to any Borrower in each case in an
amount less than $250,000 but not exceeding in respect of all such actions in
the aggregate $750,000.
Section 3.7 No Defaults, Compliance With Laws.
Except as set forth on Exhibit I annexed hereto, neither any Borrower,
any Corporate Loan Party nor any of the Subsidiaries is in material default
under any agreement, ordinance, resolution, decree, bond, note, indenture, order
or judgment to which it is a party or by which it is bound, or any other
agreement or other instrument by which any of the properties or assets owned by
it or used in the conduct of its business is affected, and each Borrower, each
Corporate Loan Party and each of the Subsidiaries has complied and is in
compliance in all respects with all applicable laws, ordinances and regulations
non-compliance with which could have a material adverse effect on the business,
operations, financial condition or properties of any Borrower, any Corporate
Loan Party or any Subsidiary or on the ability of any Borrower or any other Loan
Party to perform its obligations under the Loan Documents to which it is a
party.
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Section 3.8 Burdensome Documents.
Except as set forth on Exhibit J annexed hereto, neither any Borrower
nor any of the other Loan Parties is a party to or bound by, nor are any of the
properties or assets owned by any Borrower or any of the Subsidiaries used in
the conduct of their respective businesses affected by, any agreement,
ordinance, resolution, decree, bond, note, indenture, order or judgment which
materially and adversely affects its business, assets or condition, financial or
otherwise.
Section 3.9 Financial Statements.
(a) Each of the Financial Statements is correct and complete and
presents fairly the consolidated financial position of LCI or LINC Group,
respectively, and their respective Subsidiaries, as at its date, and has been
prepared in accordance with generally accepted accounting principles (provided
that unaudited quarterly financial statements are subject to year-end audit
adjustments). Neither LCI nor LINC Group, nor any of their respective
Subsidiaries, has any material obligation, liability or commitment, direct or
contingent, which is not reflected in the Financial Statements. There has been
no material adverse change in the financial position or operations of LCI, LINC
Group or any of their Subsidiaries since the date of the latest balance sheet
included in the Financial Statements (the "Latest Balance Sheet"). Each of
LCI's and LINC Group's fiscal year is the twelve-month period ending on December
31 in each year.
(b) The Projections have been prepared in conformity with GAAP. The
assumptions made in preparing the Projections are reasonable and all material
assumptions with respect to the Projections are set forth therein. The
Projections present fairly LCI's estimate of the financial position and results
of operations of LCI and its Subsidiaries as of the dates and for the periods
indicated.
Section 3.10 Tax Returns.
Each Corporate Loan Party and each of the Borrowers and its
Subsidiaries has filed all federal, state and local tax returns required to be
filed by it and has not failed to pay any taxes, or interest and penalties
relating thereto, on or before the due dates thereof, except for certain amounts
which may have been overdue but have since been paid although the Borrowers are
not aware of any such overdue amounts. Except to the extent that reserves
therefor are reflected in the Financial Statements, (a) there are no material
federal, state or local tax liabilities of any Borrower or the Subsidiaries due
or to become due for any tax year ended on or prior to the date of the Latest
Balance Sheet relating to such entity, whether incurred in respect of or
measured by the income of such entity, which are not properly reflected in the
Latest Balance Sheet, and (b) there are no material claims pending or, to the
knowledge of any Borrower, proposed or threatened against any Corporate Loan
Party or any Borrower or its Subsidiaries for past federal, state or local
taxes, except those, if any, as to which proper reserves are reflected in the
Financial Statements.
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Section 3.11 Intangible Assets.
Each Corporate Loan Party and each of the Borrowers and its
Subsidiaries possesses, owns or has rights to use all necessary patents,
trademarks and service marks, trademark and service mark rights, trade names,
trade name rights and copyrights to conduct its business as now conducted and as
proposed to be conducted, without any conflict with the patents, trademark and
service mark rights, trade names, trade name rights and copyrights of any other
Person, a complete listing of which is set forth on Exhibit K attached hereto.
None of the Borrowers or any of the Foreign Leasing Subsidiaries has used any
trade names or assumed names except in connection with advertising and in any
event, not in connection with the incurrence of any obligations or liabilities
of any kind.
Section 3.12 Regulation U.
The proceeds received by the Borrowers or any Subsidiary from the
Loans have been and will be used in part for payment of Indebtedness which was
incurred for the purpose of purchasing margin stock as such term is defined in
(S) 221.3 of Regulation U of the Board of Governors of the Federal Reserve
System, 12 C.F.R., Chapter II, Part 221, but the Loans are not secured directly
or indirectly by margin stock and accordingly the Loans do not constitute a
regulated credit under Regulation U.
Section 3.13 Name Changes.
Except as set forth on Exhibit L annexed hereto, neither any Borrower
nor any of the Subsidiaries has within the six-year period immediately preceding
the date of this Agreement changed its name, been the surviving entity of a
merger or consolidation, or acquired all or substantially all of the assets of
any Person.
Section 3.14 Full Disclosure.
None of the Financial Statements nor any certificate, opinion, or any
other statement made or furnished in writing to the Agent or any Bank by or on
behalf of any Borrower or any of the Subsidiaries in connection with this
Agreement or the transactions contemplated herein, contains any untrue statement
of a material fact, or omits to state a material fact necessary in order to make
the statements contained therein or herein not misleading, as of the date such
statement was made. There is no fact known to any Borrower, any Corporate Loan
Party which has, or would in the now foreseeable future have, a material adverse
effect on the business, prospects or condition, financial or otherwise, of any
Borrower or any of the Subsidiaries, which fact has not been set forth herein,
in the Financial Statements, or a certificate, opinion, or other written
statement so made or furnished to the Agent and the Banks.
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Section 3.15 Employee Grievances.
-------------------
Except as set forth on Exhibit M annexed hereto, there are no actions
or proceedings pending or, to the best of the knowledge of each of the
Borrowers, threatened against the Borrowers or any of the Subsidiaries, by or on
behalf of, or with, its employees, other than employee grievances arising in the
ordinary course of business which are not, in the aggregate material.
Section 3.16 Condition of Assets.
-------------------
(a) All of the assets and properties of the Borrowers and the
Subsidiaries, which are reasonably necessary for the operation of their
respective businesses, are in good working condition, ordinary wear and tear
excepted, and are able to serve the function for which they are currently being
used.
(b) Each of the Borrowers has no current knowledge and no reason to
believe that any of the assets and properties of the Borrowers and the
Subsidiaries subject to a Contract are not in good working condition, ordinary
wear and tear excepted, or are not able to serve the function for which they are
currently being used.
Section 3.17 ERISA.
-----
(a) Except as set forth on Exhibit N annexed hereto, each of the
Borrowers do not have and has never had, any Plan in connection with which there
could arise a direct or contingent liability of each of the Borrowers to the
Pension Benefit Guaranty Corporation ("PBGC"), the Department of Labor or the
Internal Revenue Service ("IRS"). Each of the Borrowers is not a participating
employer (i) in any Plan under which more than one employer makes contributions
as described in Section 4063 and 4064 of ERISA, or (ii) in a multiemployer plan
as defined in Section 4001(a)(3) of ERISA.
(b) Each of the Plans is operated and administered in all respects in
accordance with applicable laws including, but not limited to, all applicable
provisions of ERISA and the Code, and each of the Borrowers has made all
requisite premium payments to the PBGC. Each of the Borrowers is and at all
times has been in full compliance with all applicable provisions of ERISA.
(c) Except as set forth on Exhibit N hereto, no "Reportable Event", as
defined in Section 4043(b) of ERISA in respect of any of the Plans has occurred.
Each of the Borrowers has not received any notice from the PBGC that any of the
Plans is being involuntarily terminated or from the Secretary of the Treasury
that any partial or full termination of any of the Plans has occurred and no
event shall have occurred, and except as set forth on Exhibit N there exists as
of the date of this Agreement no condition or set of circumstances which present
a risk of the involuntary termination of any of the Plans. Except as set forth
on Exhibit N no termination proceedings with respect to any of the Plans have
been commenced.
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(d) No unpaid or contingent liability to the PBGC has been or is
expected to be incurred, directly or indirectly, by any Borrower (other than for
payment of PBGC premiums in the ordinary course). No event has occurred and
there exists no condition or set of circumstances which presents a risk of the
termination or partial termination of any Plan which could result, directly or
indirectly, in a liability on the part of any Borrower to the PBGC.
(e) No "prohibited transaction" as defined in Section 406 of ERISA or
Section 4975 of the Code has occurred with respect to any of the Plans.
(f) Each of the Borrowers has made all required contributions under
the Plans for all periods through and including December 31, 1996 or adequate
accruals therefor have been provided for in the Financial Statements. No
"accumulated funding deficiency" (as defined in Section 302 of ERISA) whether or
not waived has occurred with respect to any of the Plans.
(g) The actuarial value of vested benefits required to be funded under
or with respect to the Plans did not as of the last valuation date, which in the
case of any individual Plan was not earlier than December 31, 1996, exceed the
actuarial value of the assets of the Plans allocable to such vested and non-
vested benefits by more than $10,000.
(h) Each of the Borrowers is not a participating employer (i) in any
Plan under which more than one employer makes contributions as described in
Section 4063 and 4064 of ERISA, or (ii) in a multiemployer plan as defined in
Section 4001 (a)(3) of ERISA.
(i) For the purposes of this Agreement, all references to "ERISA"
shall be deemed to refer to the Employee Retirement Income Security Act of 1974,
as heretofore amended and as it may hereafter be amended or modified, and all
regulations promulgated thereunder, and all references to any of the Borrowers
in this Section 3.17 or in any other Section of this Agreement relating to
ERISA, shall be deemed to refer to any of the Borrowers and all other entities
which are part of a controlled or affiliated group or under common control with
any of the Borrowers within the meaning of Sections 414(b), 414(c) and 415(h) of
the Internal Revenue Code of 1986, and Section 4001(a)(2) of ERISA.
Section 3.18 The Convertible Subordinated Debt Document.
------------------------------------------
The copies of the Convertible Subordinated Debt Indenture dated as of
June 15, 1983 between LCI and United States Trust Company of New York, as
trustee and all agreements, instruments and documents executed and delivered in
connection therewith, including all exhibits, annexes, and schedules annexed
thereto, and all amendments, modifications and supplements heretofore made to
any of the foregoing (collectively, all of the foregoing are referred to as the
"Convertible Subordinated Debt Documents") heretofore delivered by the Borrowers
to the Agent are true, complete and accurate copies thereof. None of the
parties to the Convertible Subordinated Debt Documents waived compliance by any
of the 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 and no event of default or potential event of
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default now exists thereunder or will exist after giving effect to the
transactions contemplated hereby and by the Transaction Documents.
Section 3.19 Transaction Documents.
---------------------
The copies of the Transaction Documents and all agreements,
instruments and documents executed and delivered in connection therewith,
including all exhibits, annexes, and schedules annexed thereto, and all
amendments, modifications and supplements heretofore made to any of the
foregoing heretofore delivered by the Borrowers to the Agent are true, complete
and accurate copies thereof. None of the parties to the Transaction Documents
and all other documents described in this Section 3.19 waived compliance by any
of the 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 and no event of default or potential event of default
now exists thereunder or will exist after giving effect to the transactions
contemplated hereby and by the Transaction Documents. The "Collaboration
Agreement" referred to in the Transaction Documents has been terminated.
Section 3.20 Intentionally Omitted.
---------------------
Section 3.21 Intentionally Omitted.
---------------------
Section 3.22 Finders or Brokers.
------------------
Neither LINC Group nor any of the Borrowers nor any of their
respective Affiliates has employed or agreed to employ or made use of the
services of any investment banker, broker, finder, intermediary or similar
Person in connection with the transactions contemplated by the Loan Documents
who might be entitled to a fee or any commission in connection with or upon
consummation of any thereof which fee or commission has not yet been paid.
Section 3.23 Investment Company Act; Public
Utility Holding Company Act.
---------------------------
Neither the LINC Group nor any of the Borrowers nor any Subsidiary of
either of them is (i) an "investment company" or a company controlled by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended or (ii) a "public utility holding company" or a "holding company" or
a "subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
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Section 3.24 Non-Recourse Debt;
Cross-Collateralization.
-----------------------
(a) There is no Non-Recourse Debt evidenced by loan documents that
provide that (i) the Non-Recourse Lender's security interest in any specific
item of equipment, Contract, replacement lease and receivables financed under
such Non-Recourse Debt will not be released until the applicable Borrower has
fully repaid Indebtedness owed to the Non-Recourse Lender not incurred to
finance such specific equipment, Contracts, and receivables or (ii) a default
under the Non-Recourse Debt loan documents will also constitute a default for
the benefit of said Non-Recourse Lender under other loan documents made or
entered into by any Borrower.
(b) From and after the date of execution and delivery of the Loan
Agreement, the representations and warranties made in each letter delivered to
and accepted by the Agent pursuant to subsection 2.23(a)(iv) hereof, including
each letter substantially in the form of Annex A to the Security Agreements,
shall be deemed to supersede the foregoing provisions of subsection (a) in
respect of the assets and financing agreements described in each such Annex A
letter respectively. The letter dated on or about the date hereof (replacing
the letter dated November 13, 1990) from Allen Palles to the Banks (annexed
hereto as Schedule 4) regarding the meaning of Non-Recourse Debt shall be deemed
a representation and warranty by each of the Borrowers made under this Agreement
and shall be deemed incorporated herein.
(c) Notwithstanding the foregoing or any other provisions contained in
this Agreement to the contrary, financing provided to any Borrower by any
lending entity which entity (i) finances the purchase and leasing of specific
equipment by such Borrower to a particular Lessee and (ii) requires that such
equipment and the lease and lease receivables relating thereto serve as
collateral not only for such financing but also for financing provided by such
entity for the purchase and leasing of other specific equipment by any Borrower
to the same Lessee (i.e., cross-collateralization with respect to equipment and
leases relating to the same Lessee financed by the same lender), shall not, in
and of itself, be deemed to contravene the terms of the foregoing subsections
(a) or (b) (any and all financing provided by a single lending entity which
substantially conforms with the foregoing description is herein sometimes
referred to collectively with any and all financing provided by an affiliate of
such lending entity which financing substantially conforms with the foregoing
description, as "Single Lessee Cross-Collateralized Financing"), nor to preclude
such equipment and leases, if otherwise eligible in all respects, from being
included under such clause of the Borrowing Base as may be applicable, subject
to the limitations set forth in respect of Residual Values associated with
Single Lessee Cross-Collateralized Financing as set forth in Section (3) of the
definition of "Borrowing Base".
(d) The letter dated on or about the date hereof (replacing the letter
dated October 31, 1990) from the Borrowers to the Agent (annexed hereto as
Schedule 5) regarding the "Form of Request for Acknowledgment of Subordination
to Lender and Release ("Annex A") and Form of Acknowledgment of Subordination to
New Lender and Release ("Annex B") (which letter describes the circumstances
under which the replacement or substitution of equipment may occur)
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shall be deemed a representation and warranty by each of the Borrowers made
under this Agreement and shall be deemed incorporated herein.
Section 3.25 Borrowing Base Reports.
----------------------
The information set forth in each Borrowing Base Report is true,
correct and complete and each asset included in the Borrowing Base conforms with
and satisfies the requirements for such item set forth in this Agreement,
including, without limitation, under the respective definitions applicable to
such assets.
Section 3.26 Licenses and Approvals.
-----------------------
Each Borrower and each of the Subsidiaries has all necessary licenses,
permits and governmental authorizations, including, without limitation,
licenses, permits and authorizations relating to Environmental Matters, to own
and operate its properties and to carry on its business as now conducted.
Section 3.27 No Material Adverse Change from Projections.
-------------------------------------------
There has been no material adverse change from the facts on which the
most recently delivered Projections were based.
Section 3.28 Obligations.
-----------
After giving effect to the transactions contemplated by the Loan
Documents: (a) neither any Borrower nor any Foreign Leasing Subsidiary (i) will
be a party to or be bound by any franchise, agreement, deed, contract or other
instrument, or be subject to any corporate restriction, which is so unusual or
burdensome, so as to cause, in the foreseeable future, a material and adverse
effect upon, or impair the financial condition, operations, business, prospects,
assets or property of such Borrower or such Foreign Leasing Subsidiary or (ii)
intends to incur or believes that it will incur debts beyond the ability of such
Borrower or such Foreign Leasing Subsidiary to pay such debts as they become due
and (b) each Borrower and each Foreign Leasing Subsidiary (i) owns and will own
assets and property, the fair saleable value of which are (A) greater than the
total amount of liabilities (including contingent liabilities) of each Borrower
or such Foreign Leasing Subsidiary respectively (B) greater than the amount that
will be required to pay the probable liabilities of such Borrower's or Foreign
Leasing Subsidiary's then existing debts as they become absolute and matured
considering all financing alternatives and potential asset sales reasonably
available to such Borrower or such Foreign Leasing Subsidiary, respectively and
(ii) has and will have capital that is not unreasonably small in relation to its
business as presently conducted or as proposed to be conducted. Each Borrower
presently anticipates that future expenditures needed to meet the provisions of
federal or state statutes, orders, rules or regulations will not be so
burdensome as to affect or impair in a materially adverse manner the financial
condition, operations, business, prospects, assets or property of any Borrower
or any Foreign Leasing Subsidiary.
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Section 3.29 Corporate Structure of LINC Group.
---------------------------------
The corporate structure of LINC Group and its Subsidiaries is as set
forth on Exhibit P.
Section 3.30 Advertising, Origination and Servicing.
--------------------------------------
The form and content of each Eligible Contract and all documents
related to the transaction evidenced thereby, including without limitation, the
security related thereto, and all advertising, origination and servicing
activities, procedures and materials used in connection therewith comply fully
with any and all applicable laws, ordinances, rules and regulations, federal,
state and/or local, with respect to the extension of credit and charging of
interest, including without limitation, as applicable, the Federal Consumer
Credit Protection Act, the Federal Fair Credit Reporting Act, the Federal Trade
Commission Act, the Federal Equal Credit Opportunity Act, any state or local
consumer credit protection act or statute, and all federal, state and local laws
related to licensing, usury, truth in lending, consumer protection, equal credit
opportunity, fair debt collection, unfair and deceptive trade practices,
rescission rights and disclosures, and with all rules and regulations
thereunder, all as amended, and any disclosures required with respect to any
such transaction were and will continue to be made properly and in a timely
manner.
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Article 4. The Closing; Conditions to the Loans.
---------- -------------------------------------
Section 4.1 Conditions Precedent.
---------------------
The effectiveness of this Agreement and the obligation of each Bank to
make and continue to maintain its Loans hereunder shall be subject to the
fulfillment (to the satisfaction of the Banks and the Agent) of the following
conditions precedent:
(a) Each of the Borrowers shall have executed and delivered to each
Bank its Note including to the Temporary Lender, the Temporary Note.
(b) LCI shall have executed and delivered to the Agent (i) the
Confirmation Agreement and the Agent shall continue to have possession of the
certificates evidencing the capital stock pledged by LCI, accompanied by stock
powers endorsed in blank and irrevocable proxies relating thereto, (ii) the
Subordination Agreement Confirmation, (iii) the Foreign Security Documents
required to be delivered pursuant to subsection 2.21(a)(iii), if applicable,
which documents shall be satisfactory to the Agent in its sole discretion, and
(iv) all other Loan Documents or Transaction Documents to which it is a party.
(c) LINC Group shall have executed and delivered to the Agent (i) the
Confirmation Agreement, and the Agent shall continue to have possession of the
certificates evidencing the capital stock pledged by LINC Group, accompanied by
stock powers endorsed in blank and irrevocable proxies relating thereto, and
(ii) the Subordination Agreement Confirmation and all other Loan Documents to
which it is a party.
(d) Quantum shall have executed and delivered to the Agent (i) the
Confirmation Agreement, (ii) evidence satisfactory to the Agent of the transfer
by Jack Davis of his shareholdings in Quantum to LCI (subject to the Agent's
Lien) and (iii) all other Loan Documents or Transaction Documents to which it is
a party.
(e) Each of the Quantum Shareholders shall have executed and delivered
to the Agent (i) the Confirmation Agreement and (ii) the Subordination Agreement
Confirmation.
(f) LES shall have executed and delivered to the Agent (i) its
Guaranty, (ii) the Confirmation Agreement, and (iii) the Subordination Agreement
Confirmation.
(g) Each of the Foreign Leasing Subsidiaries shall have executed and
delivered to the Agent the Foreign Security Documents required to be delivered
pursuant to subsection 2.21 (e)(ii) hereof, if applicable, which documents shall
be satisfactory to the Agent in its sole discretion.
(h) Each of the Borrowers shall have:
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(i) duly executed and delivered to the Agent appropriate Uniform
Commercial Code financing statements in order to enable the Agent to perfect and
preserve its security interest in the Collateral covered by the Security
Documents executed by it, including Uniform Commercial Code financing or
assignment statements naming each Lessee or other Obligor included in the
Borrowing Base as debtor, the applicable Borrower as secured party and the Agent
as assignee;
(ii) delivered to the Agent the evidence of insurance on the
Collateral and such Borrower's liability insurance policies, naming the Agent as
loss payee or additional insured as required by the Security Documents;
(iii) delivered to the Agent each of the other
documents and instruments required to be delivered in connection with a
Borrowing Computation;
(iv) delivered to the Agent all fixture filings in form and
substance satisfactory to the Agent and in appropriate form for filing relating
to all Equipment included in computation of the Borrowing Base which constitutes
or may constitute fixtures (except as may otherwise be provided in the
definition of the Borrowing Base), which filings shall conform with the list of
all locations in which such filings must be made set forth on the schedules to
the Security Documents or otherwise; and
(v) otherwise duly complied with all of the terms and conditions
of the Security Documents.
(i) No event of default or potential event of default exists or will
exist with respect to the Convertible Subordinated Debt or under the LFC
Subordinated Debt Documents as a result of the execution and delivery of the
Loan Documents and performance thereunder.
(j) The Banks and the Agent shall have received, all in form and
substance satisfactory to the Banks and the Agent, the Projections for calendar
years 1997 and 1998 certified as true and complete by the Borrowers.
(k) The Banks and the Agent shall have received a Borrowing
Computation, Borrowing Base Report and all other documents required to be
delivered together with a Borrowing Computation, and the Borrowing Base shall be
sufficient to enable the Borrowers to maintain the Loans.
(l) Allen Palles, counsel to the Borrowers and Subsidiaries, shall
have delivered his opinion with respect to the transactions contemplated by this
Agreement to, and in form and substance satisfactory to, the Agent.
(m) The Borrowers, LINC Group and the Subsidiaries of LINC Group
shall have executed and delivered to the Agent the Subordination Agreement
Confirmation and the
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Agent shall have received a copy of all promissory notes and other instruments,
if any, evidencing the subordinated debt covered by the Intercompany
Subordination Agreement.
(n) The Agent shall have received the list of insurance required to
be in effect under Section 6.8 hereof to the extent different from the list
previously delivered to the Agent and the Banks.
(o) The Agent shall have received the following:
(i) Copies of the Convertible Subordinated Debt Documents and
LFC Subordinated Debt Documents, certified as true and complete by the
Borrowers;
(ii) All of the consents, approvals and waivers referred to on
Exhibit F annexed hereto, except only those which, as stated on Exhibit F, shall
not be delivered;
(iii) The certificate of incorporation or similar organizational
document of each of the Borrowers and each Foreign Leasing Subsidiary, certified
as of a recent date by the Secretary of State of their respective states of
incorporation or appropriate authority;
(iv) Certificates certified by the Secretary of State of
Illinois reflecting the Borrowers' qualification to do business under their
assumed names in the State of Illinois, and any assumed name certificates from
other states listing names under which the Borrowers may transact business;
(v) The by-laws or similar document of each of the Borrowers and
each Foreign Leasing Subsidiary, certified as true and complete by their
respective secretaries or assistant secretaries or appropriate authorities;
(vi) All corporate action taken by each Corporate Loan Party
(including the shareholders of each Corporate Loan Party) to authorize the
execution, delivery and performance of this Agreement and each of the other Loan
Documents to which it is a party and which it is executing simultaneously
herewith;
(vii) Good standing certificates or telegrams as of dates not
more than sixty (60) days and two (2) days, respectively, prior to the date of
this Agreement, with respect to each of the Borrowers from the Secretary of
State of each of their respective states of incorporation and from such other
states of qualification as the Agent may request and similar certificates from
the appropriate authorities with respect to the Foreign Leasing Subsidiaries;
(viii) An incumbency certificate (with specimen signatures) with
respect to each of the Borrowers and LINC Group;
(ix) The forms of Contract and related documents, security
agreement, purchase orders and documents used in connection with all of the
foregoing used by
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any Borrower or any Foreign Leasing Subsidiary in connection with its business,
including, without limitation, any form of documents used by LINC Capital
Partners Division;
(x) A copy of the Quantum Shareholders' Agreement, certified as
true and complete by the Borrowers; and
(xi) A copy of the Credit Policy Manual, the Credit Scoring
Model and the Emerging Growth Credit Scoring Matrix.
(p) The Agent shall have received results of lien searches, audits,
analysis, surveys, reviews and inspections with respect to the Collateral in
form and substance satisfactory to the Agent including, without limitation, a
field examination (at the Borrowers' expense) by an outside accounting firm or
consulting firm, subject to approval by the Agent, of the operations of each
Borrower with results satisfactory to the Agent and the Lenders.
(q) The Agent shall have received the fees referred to in Section
2.4(b) hereof, pursuant to a separate agreement executed by the Borrowers and
the Agent, and the Agent shall be satisfied as to payment of all other fees and
expenses relating to the Loan Documents due on or before the date of this
Agreement.
(r) (i) The Borrowers and the Foreign Leasing Subsidiaries shall
have complied and shall then be in compliance with all of the terms, covenants
and conditions of this Agreement and the other Loan Documents;
(ii) There shall exist no Event of Default or Default hereunder;
and
(iii) The representations and warranties contained in Article 3
of this Agreement shall be true and correct on the date hereof,
and the Agent shall have received a certificate to the foregoing effect dated
the date of this Agreement, certifying, inter alia, that the conditions set
forth in this subsection are satisfied on such date.
(s) The Agent shall have received evidence that each of the Borrowers
shall have satisfied its obligations under Section 2.26(a) hereof.
(t) All legal matters incident to the effectiveness of this Agreement
shall be reasonably satisfactory to the Agent and counsel to the Agent.
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Section 4.2 Conditions to Subsequent Loans and L/Cs.
---------------------------------------
The obligation of each Bank to make each Loan subsequent to its
initial Loan and the obligation of the Issuing Bank to issue each L/C shall be
subject to the fulfillment (to the satisfaction of the Agent) of the following
conditions precedent:
(a) In respect of each requested Loan, the Agent shall have received
a Borrowing Notice in accordance with Section 2.3 hereof, together with a
Borrowing Computation with respect to such Loan and all other documents required
to be delivered in connection with a Borrowing Computation and Borrowing Notice.
(b) (i) The Borrowers and the Foreign Leasing Subsidiaries shall have
complied and shall then be in compliance with all the terms, covenants and
conditions of this Agreement and the other Loan Documents and no Default or
Event of Default shall have occurred and be continuing;
(ii) In respect of each requested L/C, the Issuing Bank and the
Agent shall have received a Notice of Issuance in accordance with Section 2.33
hereof together with (A) a Borrowing Computation with respect to such L/C, (B)
all other documents required to be delivered in connection with a Notice of
Issuance and Borrowing Computation, (C) all Application Documents, and the
Issuing Bank shall have been paid any and all fees then due in accordance with
the terms of Section 2.33 hereof,
(iii) None of the events described in subsection 8.1l(b)(i)
shall have occurred (provided that this clause (iii) shall be deemed of no force
or effect if the conditions of subsection 8.1l(b)(ii) shall have been satisfied
in full prior to the date of the proposed subsequent Loan or L/C (as the case
may be));
(iv) The representations and warranties contained in Article 3
hereof shall be true and with the same effect as though such representations and
warranties had been made at the time of the making of such Loan or L/C (as the
case may be) except for changes which were made in the ordinary course of
business, not material and not prohibited by this Loan Agreement; and
(v) The Agent shall have received a certificate to the foregoing
effect dated the date of such Loan or L/C (as the case may be) and effective as
of such date, certifying, inter alia that the conditions set forth in this
subsection (b) are satisfied as of such date (provided that such shall not be
required to be delivered in connection with a conversion of a Loan from one type
into another type which conversion does not result in an increase in the
outstanding principal amount of the Loans).
(c) All legal matters incident to such proposed Loan or L/C shall be
satisfactory to the Agent and counsel to the Agent.
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Article 5. Delivery of Financial Reports, Documents and Other
Information.
While the Commitments are outstanding and so long as any Loan
remains outstanding and so long as any L/C Obligations remain outstanding and so
long as the Borrowers are indebted to the Banks or the Agent and until payment
in full of the Notes and full and complete performance of all of its other
obligations arising hereunder, LINC Group and each of the Borrowers, as
applicable, shall deliver to each Bank the following, provided, however, that
documents under Sections 5.3, 5.6, 5.7 and 5.8 shall be required to be delivered
only to the Agent:
Section 5.1 Annual Financial Statements and Budgets.
(a) Annually, as soon as available, but in any event within one
hundred five (105) days after the last day of each of LINC Group's or the
Borrowers' (as applicable) fiscal years, consolidated and consolidating balance
sheets of LINC Group, each of the Borrowers (the consolidating balance sheet of
LCI shall set forth separately the financial information for LINC Capital
Partners Division), respectively, in each case together with their respective
Subsidiaries, as at such last day of the fiscal year applicable to such entity,
and consolidated and consolidating statements of operations or income, cash
flows, and stockholders' equity (such consolidating statements of LCI shall set
forth separately the financial information for LINC Capital Partners Division),
for such fiscal year, each prepared in accordance with GAAP and, as to the
consolidated statements, certified without qualification by KPMG Peat Marwick or
another firm of independent certified public accountants satisfactory to the
Agent (provided that any of the "Big Six" accounting firms, or their successors
by merger, shall be deemed satisfactory), as fairly presenting the financial
position and the results of operations of LINC Group and the Borrowers,
respectively, in each case together with their respective Subsidiaries, as at
and for the year ending on each of its respective dates and as having been
prepared in accordance with generally accepted accounting principles as to such
consolidating statements;
(b) Annually, as soon as available, but in any event within one-
hundred twenty (120) days after the last day of each of the Borrowers' fiscal
years, a Residual Realization Report for the Borrowers in form acceptable to the
Agent, and a Borrowing Base Report, each reviewed by KPMG Peat Marwick or
another firm of independent certified public accountants satisfactory to the
Agent (provided that any of the "Big Six" accounting firms, or their successors
by merger, shall be deemed satisfactory);
(c) Annually, as soon as available, but in any event within one
hundred twenty (120) days after the last day of each fiscal year of the
Borrowers and all in form and substance acceptable to the Agent: an analysis of
all Equipment owned and/or managed by the Borrowers; a list of the fifteen (15)
largest customers of each of the Borrowers and of LINC Capital Partners
Division; and a description of guarantees and contingent liabilities;
(d) Annually, as soon as available, but in any event within
ninety (90) days after the last day of each respective fiscal year of the
Borrowers and each of the Borrowers'
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Subsidiaries, the annual budget of the Borrowers and each such Subsidiary for
the then-current fiscal year and Projections for the then-current and the
immediately following fiscal year; and
(e) Promptly upon receipt thereof, copies of all other reports
submitted to any of the Borrowers by its independent accountants in connection
with any annual or interim audit or review of the books of such Borrowers made
by such accountants.
Section 5.2 Quarterly Financial Statements.
As soon as available, but in any event within sixty (60) days
after the end of the first three fiscal quarterly periods applicable to LINC
Group and each of the Borrowers, consolidated and consolidating balance sheets
of LINC Group and each of the Borrowers (the consolidating balance sheet of LCI
shall set forth separately the financial information for LINC Capital Partners
Division), in each case together with their respective Subsidiaries, as of the
last day of such applicable quarter and consolidated and consolidating
statements of income and changes in shareholders equity, and consolidated cash
flow (such consolidating statements of LCI shall set forth separately the
financial information for LINC Capital Partners Division), and on a comparative
basis with figures for the corresponding period of the immediately preceding
fiscal year, all in reasonable detail, each of such statements to be certified
in a certificate of the president, chief financial officer or treasurer of LINC
Group and each of the Borrowers, respectively, as fairly presenting the
financial position and the results of operations of LINC Group and each of the
Borrowers in each case together with their respective subsidiaries, as at its
respective date and for such Applicable Quarter and as having been prepared in
accordance with generally accepted accounting principles consistently applied
(subject to year-end audit adjustments), which certificates shall also contact a
detailed calculation indicating compliance with the covenants contained in
Section 6.9 and Article 7 hereof and shall be accompanied by the delinquency
certificates described in Section 5.11.
Section 5.3 Other Information.
Promptly after a written request therefor, such other financial
data or information evidencing compliance with the requirements of this
Agreement, the Notes and the other Loan Documents, or otherwise relating to the
business, affairs and conditions of the Borrowers and its Subsidiaries as the
Agent may reasonably request from time to time.
Section 5.4 No Default Certificate.
At the same time as it delivers the financial statements required
under the provisions of Sections 5.1 and 5.2, a Compliance Certificate
(including financial covenant calculations) of the president, chief executive or
financial officer or treasurer of the Borrowers.
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Section 5.5 Certificate of Accountants.
At the same time as it delivers the financial statements required
under the provisions of Section 5.1, a certificate of the independent certified
public accountants of LINC Group and the Borrowers to the effect that during the
course of their audit of the operations of LINC Group and the Borrowers and
their respective Subsidiaries and their respective condition as of the end of
the fiscal year, nothing has come to their attention which would indicate that
an Event of Default or Default hereunder has occurred or that there was any
violation of the covenants of the Borrowers contained in Section 6.9 or Article
7 of this Agreement, or, if such cannot be so certified, specifying in
reasonable detail the exceptions, if any, to such statement.
Section 5.6 Copies of Documents.
Promptly upon their becoming available, copies of any (a)
financial statements, projections, non-routine reports, notices (other than
routine correspondence) and requests for waivers, in each case, delivered by the
Borrowers or any of the Subsidiaries to any lending institution (other than the
Banks) to which any of the Borrowers owes Recourse Debt or Partial Recourse Debt
in excess of $100,000 in principal amount; (b) correspondence or notices
received by any of the Borrowers from any federal, state or local governmental
authority which regulates the operations of any of the Borrowers or any of its
Subsidiaries, relating to an actual or threatened change or development which
would be materially adverse to any of the Borrowers or any Subsidiary, (c)
written reports submitted by any of the Borrowers or any of their Subsidiaries
by its independent accountants in connection with any annual or interim audit of
the books of any of the Borrowers or its Subsidiaries made by such accountants;
(d) any appraisals received by any of the Borrowers or any of their Subsidiaries
with respect to the properties or assets of any of the Borrowers or its
Subsidiaries; and (e) copies of any non-routine notices received by LFC from any
holder of the LFC Subordinated Debt.
Section 5.7 Notices of Defaults.
(a) Promptly, notice of the occurrence of a Default or an Event
of Default hereunder, or a default or an event of default under any of the
Transaction Documents, or an event which would constitute or cause a material
adverse change in the condition, financial or otherwise, of the operations of
any of the Borrowers or any of the Subsidiaries.
(b) Promptly, notice of any bankruptcy or insolvency proceeding
(including, without limitation, appointment of any receiver, trustee,
liquidator, custodian or conservator) which shall have been commenced by or
against any Obligor, or of any action, corporate or otherwise, relating to, or
acquiesced in, with respect to any such proceeding taken by an Obligor.
Section 5.8 ERISA Notices.
(a) Concurrently with such filing, a copy of each Form 5500
which is filed with respect to each Plan with the IRS; and
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(b) Promptly, upon their becoming available, copies of: (i) all
correspondence with the PBGC, the Secretary of Labor or any representative of
the IRS with respect to any Plan, relating to an actual or threatened change or
development which would be materially adverse to any of the Borrowers or any
Subsidiary; (ii) copies of all actuarial valuations received by any of the
Borrowers with respect to any Plan; and (iii) copies of any notices of Plan
termination filed by any Plan Administrator (as those terms are used in ERISA)
with the PBGC and of any notices from PBGC to any of the Borrowers with respect
to the intent of the PBGC to institute involuntary termination proceedings.
Section 5.9 Borrowing Base Reports and Supporting Documents.
(a) Monthly, as soon as all the following are available, but in
any event, within thirty (30) days after the end of each immediately preceding
calendar month a Borrowing Base Report (a "Monthly Borrowing Base Report"),
provided that the Monthly Borrowing Base Report shall not be required to be
accompanied by the supporting documents specified in the following clauses (i),
(ii), (iv) and (vi)-(ix), which supporting documents shall only be required to
accompany each quarterly Borrowing Base Report, setting forth a listing of all
Contracts which are then included in the Borrowing Base with respect to which
any event resulting in a required prepayment hereunder shall have occurred
(whether or not waived by the Borrowers or applicable Foreign Leasing
Subsidiary); evidence satisfactory to the Banks and the Agent that the
provisions of this Agreement (including, without limitation, Sections 6.16 and
6.17 hereof) have been complied with in respect of such assets, in each case
dated as at the first day of the month succeeding the month which is the subject
of the Report, and calculated based on the assumption that all amounts owing
under the Contract Receivables Clause, Emerging Growth Contract Clause, the
Accounts Receivable Clause, the Rental Equipment NBV Clause, and the Finished
Goods Inventory and Receivables Clause are current; and the following additional
information:
(i) Contract Receivables Clause and Emerging Growth
Contract Clause: (A) in the case of a Lease, Lease number, Lessee, Invoiced Cost
of Equipment, Present Value of the Balance of Payments during the remainder of
the Initial Term, and delinquency status; and (B) in the case of an Equipment
Note, CSA or Third Party Note, contract number, Obligor, Invoiced Cost of
Equipment, Present Value of the Balance of Payments during the remainder of its
term, and delinquency status; and (C) in respect of any of the foregoing, a
listing of those assets that have been included in computation of the Borrowing
Base for more than 365 days;
(ii) Residual Value Clause: Lessee; lease number; write-
down, if any, of the original booked Residual Value; original Invoiced Cost of
Equipment;
(iii) Accounts Receivable Clause: accounts receivable
summary by aging category and accounts receivable type; list of accounts
receivable greater than 90 days past due and not yet charged off,
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(iv) Inventory Clause: for equipment with net book value in
excess of $100,000, date of inclusion in Borrowing Base under applicable clause;
type of Equipment; net book value; number of days Equipment has been in
inventory;
(v) Rental Equipment NBV Clause: summary of rental
equipment included in the Borrowing Base, with the summary to set forth
separately the equipment models that have not been subject to, nor identified
nor committed to, a Rental Agreement for a period of greater than four months;
(vi) Finished Goods Inventory and Receivables Note Clause:
Contract number, Obligor, principal balance and delinquency status; and analysis
by industry of Obligors based on approximate percentage of different industries
represented;
(vii) With respect to all clauses of the Borrowing Base:
whether the subject Equipment constitutes a motor vehicle or a fixture or an
aircraft; the identity of any holder of a Lien other than the Agent;
(viii) Recourse Liabilities: with respect to the Borrowers
and each Foreign Leasing Subsidiary separately in respect of all Excludable
Amounts, the amount, the lender or other obligee or payee, and the assets to
which such Liabilities relate or (if contingent) may relate; and
(ix) Sales, Use and Property Taxes: the amount of sales,
use and property taxes billed to Lessees or other obligors and not paid in full
within ninety (90) days following the invoice date or due and unpaid by any
Borrower or any Foreign Leasing Subsidiary; if requested by the Majority Banks,
a detailed description of the nature, obligor and aging of such amounts due.
(b) Monthly, from and after the Term Conversion Date, a detailed
report regarding all cash receipts arising from transactions relating to assets
included under any clause of the Borrowing Base.
Section 5.10 Insurance Coverage.
All material changes in insurance coverage for both property and
life insurance, but in any event any change effecting a reduction in coverage or
in the amount of coverage.
Section 5.11 Accounts Receivable Aging Report; Other
Information.
(a) Monthly, as soon as available, but in any event within 30 days
following the end of each month, a detailed aged accounts receivable aging
report showing accounts receivable (including rental agreements) and the balance
of payments on Contracts past due for each of the Borrowers as the last day of
the immediately preceding month in the following
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categories: 0-30 days; 31-60 days; 61-90 days; 91-120 days; and 121 days and
over and, in each case, to specify separately receivables owned by each Borrower
and each Subsidiary, third party receivables financed by any Borrower and
securitized receivables not reflected on the balance sheet of any Borrower and
any Subsidiary separately; and in respect of any Contracts included in the
Borrowing Base for more than 365 days, detail indicating by name of the Obligor
under any such Contract, the amount included in respect of such Obligor and its
Affiliates in each clause of the Borrowing Base, and the period of inclusion, in
excess of such 365 days, measured in 30 day increments;
(b) Within ten (10) Business Days' following consummation of any
securitization transaction and portfolio/pool financings, a list of all assets
submitted in the bid for inclusion in any such transaction.
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Article 6. Affirmative Covenants.
While the Commitments are outstanding and so long as any Loan
remains outstanding and so long as any L/C Obligations remain outstanding and so
long as the Borrowers are indebted to the Banks and the Agent, and until payment
in full of the Notes and full and complete performance of all of its other
obligations arising hereunder, each of the Borrowers shall and shall cause each
of the Subsidiaries to do or cause to be done each of the following:
Section 6.1 Books and Records.
Keep proper books of record and account in a manner consistent
with past practice and generally accepted accounting principles in which full,
true and correct entries shall be made of all dealings or transactions in
relation to its business and activities.
Section 6.2 Inspections and Audits.
Permit the Banks and the Agent to make or cause to be made, at
the Borrowers' expense, inspections and audits of any books, records and papers
of the Borrowers and each of their Subsidiaries and to make extracts therefrom
and copies thereof, or to make inspections and examinations of any properties
and facilities of the Borrowers and their Subsidiaries, on reasonable notice, at
all such reasonable times and as often as the Agent may reasonably require, and
in any event on an annual basis, in order to assure that each of the Borrowers
is and will be in compliance with its obligations under the Loan Documents or to
evaluate the Banks' investment in the then outstanding Notes.
Section 6.3 Maintenance and Repairs.
Maintain or cause to be maintained by the Lessees or other
Obligors, as the case may be, in good repair, working order and condition,
subject to normal wear and tear, all material properties and assets from time to
time owned by it and used in or necessary for the operation of its business, and
make all reasonable repairs, replacements, additions and improvements thereto.
Section 6.4 Continuance of Business.
Do, or cause to be done, all things reasonably necessary to
preserve and keep in full force and effect its corporate existence and all
permits, rights and privileges necessary for the proper conduct of its business
and continue to engage in the same line of business (as defined in Section 7.7
hereof), including, without limitation, the qualification of each of the
Borrowers and each Subsidiary to do business as a foreign corporation in each
jurisdiction in which failure to so qualify could have a material adverse effect
on the business, operations, financial conditions or properties of any of the
Borrowers or any such Subsidiary.
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Section 6.5 Copies of Corporate Documents.
Subject to the prohibitions set forth in Section 7.12 hereof,
promptly deliver to the Agent copies of any amendments or modifications to its
and any of its Subsidiaries' certificate of incorporation and by-laws, certified
with respect to the certificate of incorporation by the Secretary of State of
its state of incorporation and, with respect to the by-laws, by the secretary or
assistant secretary of the corporation.
Section 6.6 Perform Obligations.
(a) Pay and discharge all of its obligations and liabilities,
including, without limitation, all taxes, assessments and governmental charges
upon its income and properties, when due, unless and to the extent only that
such obligations, liabilities, taxes, assessments and governmental charges shall
be contested in good faith and by appropriate proceedings and that, to the
extent required by generally accepted accounting principles then in effect,
proper and adequate book reserves relating thereto are established by the
Borrowers, and then only to the extent that a bond is filed in cases where the
filing of a bond is necessary to avoid the creation of a Lien against any of its
properties.
(b) Perform all its obligations under each of the Contracts.
Section 6.7 Notice of Litigation.
Promptly notify the Agent in writing of any litigation, legal
proceeding or dispute, other than disputes in the ordinary course of business
or, whether or not in the ordinary course of business, involving amounts in
excess of Two Hundred Fifty Thousand ($250,000) Dollars, affecting any of the
Borrowers or any of the Subsidiaries whether or not fully covered by insurance,
and regardless of the subject matter (excluding, however, any actions relating
to workmen's compensation claims or negligence claims relating to use of motor
vehicles, if fully covered by insurance, subject to deductibles).
Section 6.8 Insurance.
(a) Maintain with or at responsible insurance companies such
insurance on such of its properties, in such amounts and against such risks as
is customarily maintained by similar businesses each such policy with loss
payable endorsements naming the Agent as loss payee, or in respect of liability
insurance, additional named insured and in each case referring to "the Agent as
Agent; Attn: Leasing Division", with such endorsements to be effective
regardless of breach by the lessee or warranties, declaration or conditions in
such policy and stating that the insurer shall give the Agent thirty (30) days
written notice of any nonpayment or nonrenewal thereof, all in form and
substance satisfactory to the Agent; file with the Agent upon its request a
detailed list of the insurance then in effect, stating the names of the
insurance companies, the amounts and rates of the insurance, dates of the
expiration thereof and the properties and risks covered thereby, the first of
which lists is as set forth on Exhibit Q annexed hereto; and, within
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30 days after notice in writing from the Agent, obtain such additional insurance
as the Agent may reasonably request;
(b) Maintain at its own expense or cause others to maintain all
risk insurance on each item of Equipment in an amount, if maintained by a Lessee
or other Obligor, at least equal to the stipulated loss value thereof as set
forth in the Contract, as the case may be, and if maintained by any Borrower or
Foreign Leasing Subsidiary, equal to amounts customarily maintained by lessors
or secured parties, as the case may be, in comparable positions and liability
insurance with respect to each item of Equipment in amounts customarily
maintained by similar businesses;
(c) Carry all insurance available through the PBGC or any
private insurance companies covering its obligations to the PBGC;
(d) Take the actions described in Section 6.17 hereof relating
to insurance maintained by Lessees or other Obligors, as the case may be.
Section 6.9 Financial Covenants.
(a) With respect to LCI and its Subsidiaries including LFC and
its Subsidiaries, on a consolidated basis, at the end of each calendar quarter
commencing with the quarter ending March 31, 1997, have minimum Adjusted
Tangible Net Worth in an amount not less than (i) Eighteen Million ($18,000,000)
Dollars plus seventy-five (75%) percent of consolidated net income (with no
deduction for losses) commencing from the calendar quarter ending March 31, 1997
and subsequent quarters thereto;
(b) With respect to LCI and its Subsidiaries including LFC and
its Subsidiaries, on a consolidated basis, at all times maintain a maximum ratio
of (i) Total Recourse Liabilities to (ii) Adjusted Tangible Net Worth not in
excess of 4:1;
(c) With respect to LCI and its Subsidiaries excluding LFC and
its Subsidiaries, on a consolidated basis, at the conclusion of each twelve-
month period ending on the last day of each calendar quarter have Debt Service
Coverage for the twelve-month period then ended of not less than 2:1; and
(d) With respect to LCI and its Subsidiaries excluding LFC and
its Subsidiaries, on a consolidated basis, at the conclusion of each twelve-
month period ending on the last day of each calendar quarter have Cash Flow
Coverage for the twelve-month period then ended of not less than 1.05:l.
Section 6.10 Reportable Events.
(a) Promptly notify the Agent in writing of the occurrence of
any Reportable Event, as defined in Section 4043 of ERISA, if a notice of such
Reportable Event is
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required under ERISA to be delivered to the PBGC within 30 days after the
occurrence thereof, together with a description of such Reportable Event and a
statement of the action the Borrowers intend to take with respect thereto,
together with a copy of the notice thereof given to the PBGC.
(b) Promptly notify the Agent in writing if the Borrowers or any
other Loan Party receives: any notice of any violation or administrative or
judicial complaint or order having been filed or about to be filed against any
of the Borrowers or such other Loan Party alleging violations of any
Environmental Law and Regulation, or (ii) any notice from any governmental body
or any other Person alleging that any of the Borrowers or such other Loan Party
is or may be subject to any Environmental Liability; and promptly upon receipt
thereof, provide the Agent with a copy of such notice together with a statement
of the action the Borrowers or such other Loan Party intends to take with
respect thereto.
Section 6.11 Comply with ERISA.
Comply with all applicable provisions of ERISA now or hereafter
in effect.
Section 6.12 Upgrades and Add-ons.
The Borrowers shall deliver to the Agent, not later than
simultaneously with any upgrade of or add-on to any Equipment included in the
Borrowing Base, from any lender which has a Lien on such Equipment but does not
finance such upgrade or ad-on, the written agreement of such lender to the
effect that such lender's Lien in the lease payment or receivables arising in
connection with such Equipment inclusive of such upgrades and add-ons shall not
include the payments or receivables attributable to such upgrade or add-on.
Section 6.13 Intentionally Omitted
Section 6.14 Intentionally Omitted
Section 6.15 Environmental Compliance
Operate all property owned or leased by it such that no
obligation, including a cleanup obligation, shall arise under any Environmental
Law and Regulation, which obligation would constitute a Lien or charge (prior to
that in favor of the Agent) on any property of any of the Borrowers or any other
Loan Party; provided, however, that in the event that any such claim is made or
any such obligation arises, the Borrowers or such other Loan Party shall, at
their own cost and expense, immediately satisfy such claim or obligation.
Section 6.16 Possession of Leases.
(a) Clearly and conspicuously mark each file and the first page
of each Equipment schedule (each such schedule itself (if related to a lease and
not a CSA) a Lease incorporating the terms of a Master Lease), included in any
of the Contract Receivables Clauses
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of the Borrowing Base to indicate that a security interest in the lease or CSA,
as the case may be, to be perfected by possession may only be perfected by
possession of the counterpart copy marked "Counterpart No. 1"; (b) at all times
maintain possession of said counterpart copy of each Lease or CSA, as the case
may be, included in any of the Contract Receivables Clauses of the Borrowing
Base marked "Counterpart No. l."; (c) maintain in each Master Lease a statement
to the effect that only the Equipment schedule marked "Counterpart 1", and not
such Master Lease, constitutes chattel paper the possession of which can perfect
a security interest; (d) eliminate all legends stamped on any Lease or any CSA
included in any of the Contract Receivables Clauses of the Borrowing Base
indicating any interests of any Person in such Lease other than the Agent upon
inclusion of such Lease in the Borrowing Base, and endorse each such Lease file
and Equipment schedule (each such schedule itself a Lease incorporating the
terms of a Master Lease) and each such CSA, upon inclusion in the Borrowing
Base, with the following legend imposed by indelible stamp or typed within the
Equipment Schedule:
THIS [LEASE] [CONDITIONAL SALES AGREEMENT] (AND EQUIPMENT
SCHEDULE [AND MASTER LEASE] THE TERMS OF WHICH IT INCORPORATES)
HAS BEEN ASSIGNED TO, IS SUBJECT TO THE SECURITY INTEREST OF, AND
IS HELD IN TRUST FOR THE BENEFIT OF [FLEET BANK, N.A.] AS AGENT,
PURSUANT TO THE TERMS AND CONDITIONS OF A SECURITY AGREEMENT AND
RELATED DOCUMENTS (AS THE SAME MAY BE AMENDED);
and (e) deliver the original, duly endorsed "Pay to the Order of [the Agent]",
of each Equipment Note, each Third Party Note, each Receivables Note and each
Finished Goods Inventory Note included in any of the Contract Receivables
Clauses or the Finished Goods Inventory Note and Receivables Note Clause of the
Borrowing Base to the Agent, who shall maintain possession thereof.
Section 6.17 Lessee Insurance Policies.
Prior to inclusion of any asset in the Borrowing Base, the Pre-
Computation value of which exceeds $100,000, require each Obligor who is
required to maintain insurance on any asset in the Borrowing Base and to its
insurance policy issuer, to deliver to the Borrowers a loss payee endorsement
which shall name the applicable Borrower and its successors and assigns as loss
payee as their interests may appear; provided that, at the Agent's request, the
Borrowers shall require the Obligor to cause the Agent specifically to be named
as loss payee with respect to Equipment related to a Contract included in the
Contract Receivables Clause.
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Section 6.18 Motor Vehicles.
No later than 45 days after the date hereof, deliver certificates
of title with respect to any motor vehicles owned by the Borrowers and included
in the Borrowing Base in form sufficient for filing (with applicable fees paid)
to the applicable state authorities to enable such authorities to endorse the
Lien of the Agent thereon.
Section 6.19 Credit Scoring Models.
(a) Consistently adhere to the Credit Scoring Model, Emerging
Growth Credit Scoring Matrix, or Loan Scoring Model, as applicable, and adhere
to the Credit Policy Manual and Loan Policy Manual in respect of all Contracts;
and
(b) Subject to the provisions of Section 7.20 hereof, no later
than 10 days after any amendment, modification or other revision of the Emerging
Growth Credit Scoring Matrix, the Credit Scoring Model, the Loan Scoring Model,
the Credit Policy Manual or the Loan Policy Manual deliver a copy thereof, as so
amended, modified or revised, to the Agent.
Section 6.20 Finished Goods Inventory Loans; Receivables Loans.
To the extent relevant to any Borrower, maintain all necessary
licenses, permits or certificates necessary to maintain its authority to do
business in each jurisdiction in which any Finished Goods Inventory Loan or
Receivables Loan may be originated by such Borrower, and maintain all licenses
necessary to originate such Loans in such jurisdiction.
Section 6.21 Origination and Servicing of Loans.
(a) Conduct a substantial part of all negotiations relating to
each Finished Goods Inventory Loan and Receivables Loan in the State of
Illinois.
(b) Fund all Finished Goods Inventory Loans and Receivables
Loans in the State of Illinois.
(c) Maintain, with respect to those Borrowers making Finished
Goods Inventory Loans and Receivables Loans, their only offices in the State of
Illinois with its principal office in Illinois.
(d) Require approval of the terms of all Finished Goods
Inventory Loans and Receivables Loans by the relevant Borrower's principal
office in Illinois.
(e) Require payment of principal and interest under any Finished
Goods Inventory Note and Receivables Note to be made at the relevant Borrower's
principal office located in Illinois.
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(f) Require all Finished Goods Inventory Notes and Receivables
Notes, and all documents and instruments executed in connection therewith to
contain a choice of law provision set forth conspicuously in bold face
capitalized type designating the law of the State of Illinois as the law
governing such Note and the transaction evidenced thereby and under which
disputes shall be determined.
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Article 7. Negative Covenants.
------------------
While the Commitments are outstanding and so long as any Loan remains
outstanding and so long as any L/C Obligations remain outstanding and so long as
the Borrowers are indebted to the Banks and the Agent and until payment in full
of the Notes and full and complete performance of all of their other obligations
arising hereunder and under the Loan Documents, the Borrowers shall not and
shall not permit any of their Subsidiaries to do, agree to do, or permit to be
done, any of the following; provided, however, that the following covenants
(other than the covenant in Section 7.19) shall not apply to LFC and its
Subsidiaries except as and to the extent expressly set forth in Section 7.19
below:
Section 7.1 Indebtedness.
------------
Create, incur, permit to exist or have outstanding any Indebtedness,
except:
(a) Indebtedness of the Borrowers to the Banks and the Agent under
this Agreement and the Notes;
(b) (i) In each case, as to any of the following incurred and
continuing in the ordinary course of business: taxes, assessments and
governmental charges, non-interest bearing accounts payable, Equipment payables
and accrued liabilities, in any case not more than ninety 90 days past due from
the original due date thereof, or if such liabilities are more than ninety (90)
days past due such liabilities are as of such ninetieth day being contested in
good faith and by appropriate proceedings and to the extent required by
generally accepted accounting principles then in effect, proper and adequate
book reserves relating thereto are established by the applicable Borrowers and
then only to the extent that a bond is filed in cases where the filing of a bond
is necessary to avoid the creation of a Lien against any of its properties;
provided, however, that non-interest bearing accounts payable and other accrued
liabilities excluding those specifically listed above in this clause (i) which
in the aggregate do not exceed Two Hundred Fifty Thousand ($250,000) Dollars at
any one time may be more than ninety (90) days past due from the original due
date thereof so long as no such liability or liabilities individually or in the
aggregate could have a material adverse effect on any of the Borrowers or any of
their Subsidiaries and in each case each such liability shall have been incurred
and shall be continuing in the ordinary course of business; and
(ii) non-interest bearing deferred liabilities other than for borrowed
money (e.g., prepaid income, deferred compensation and deferred taxes), and non-
interest bearing liabilities which are not shown as liabilities on the balance
sheets of any of the Borrowers or any of their Subsidiaries and other than for
borrowed money such as under maintenance contracts and agreements to purchase
equipment pursuant to a lease naming a Borrower or Subsidiary as lessor, and
liabilities to employees of any Borrower or any Subsidiary, in each case as to
any of the above incurred and continuing in the ordinary course of business;
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(c) Indebtedness secured by the security interests referred to in
subsection 7.2(c) hereof and capitalized lease obligations, in each case
incurred only if, after giving effect thereto, the limit on capital expenditures
set forth in Section 7.13 hereof would not be breached;
(d) Subordinated Debt; provided, however, that none of the Borrowers
shall make any payment of principal, interest, premium or fees in respect of the
Subordinated Debt if any Default or Event of Default hereunder then exists or
would exist after giving effect to any such payment;
(e) Permanent Secured Debt, now existing or hereafter incurred (to the
extent permitted under the definition of such term, including compliance with
the representations made in Section 3.24 hereof);
(f) Obligations of LCI to repurchase certain lease receivables and
equipment from Special Purpose Entities, whether in the form of guaranties or
otherwise; provided, however, that such obligations may only be satisfied in the
event that LFC defaults in its obligations with respect thereto under the Sale
and Assignment Agreement or the Servicing Agreement, which obligations are
unsecured or secured by cash collateral in amounts acceptable to the Agent;
(g) Indebtedness of any Special Purpose Entity which Subsidiary is
formed after the date of this Agreement; provided, however, that the Borrowers
shall have delivered to the Agent such agreements, instruments and documents
relating to any Special Purpose Entities as the Agent may reasonably request
from time to time, and the Borrowers shall notify the Agent at least seven (7)
Business Days prior to the consummation of any securitization transaction
involving a Special Purpose Entity;
(h) With respect to Foreign Subsidiaries, Indebtedness to the
Borrowers comprised of the Foreign Subsidiary Loans upon and subject to the
terms and conditions set forth in this Agreement;
(i) Indebtedness under the Convertible Subordinated Debt Documents in
existence on the date hereof;
(j) As specifically permitted under subsection 7.9(b) hereof;
(k) Unsecured debt for borrowed money not to exceed Two Million
($2,000,000) Dollars in the aggregate; and
(l) As permitted on Exhibit R annexed hereto.
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Section 7.2 Liens.
-----
Create, or assume or permit to exist, any Lien on any of the
properties or assets of any of the Borrowers or any of their Subsidiaries,
whether now owned or hereafter acquired, except:
(a) Those created and granted by the Security Documents;
(b) Permitted Liens;
(c) Purchase money mortgages or security interests, conditional sale
arrangements and other similar security interest on motor vehicles and equipment
acquired by any of the Borrowers or any Subsidiary (but excluding from the right
under this subsection (c) to grant such purchase money and similar Liens or
arrangements any such motor vehicles and equipment purchased for the purpose of
lease or similar transaction as part of the Basic Business except that the
exclusion in this parenthetical shall not apply to Permitted Borrowing Base
Encumbrances or in respect of assets not included in the Borrowing Base on which
a manufacturer has a purchase money security interest prior to payment to such
manufacturer of the purchase price thereof) (hereinafter referred to
individually as a "Purchase Money Security Interest") with the proceeds of the
Indebtedness referred to in this subsection 7.2(c); provided, however, that:
(i) The transaction in which any Purchase Money Security
Interest is imposed to be created is not then prohibited by this Agreement;
(ii) Any Purchase Money Security Interest shall attach only to
the property or asset acquired in such transaction and shall not extend to or
cover any other assets or properties of the Borrowers; and
(iii) The Indebtedness secured or covered by any
Purchase Money Security Interest shall not exceed the lesser of the cost or fair
market value of the property or asset acquired and shall not be renewed,
extended or prepaid from the proceeds of any borrowing by the Borrowers or any
Subsidiary;
(d) The interests of the lessor under any capitalized lease permitted
hereunder;
(e) The liens of Newcourt permitted under the Subordination Agreements
to which Newcourt is a party; and
(f) As set forth on Exhibit S annexed hereto.
(g) In the case of a Lease, the interests of the Lessee under such
Lease;
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(h) In the case of an Equipment Note or CSA, the interests of the
Obligor in the Equipment securing or covered by such Equipment Note or CSA and
any other Lien in the Equipment granted by the Obligor to another Person so long
as such Lien is subordinate to the interest of the Applicable Company and the
Agent on terms such that the subordinate Lienholder cannot exercise any remedies
prior to payment in full of all of the Obligor's obligations to the Applicable
Company and, as assigned, the Agent and otherwise substantially similar to a
form of intercreditor agreement submitted to and approved in advance by the
Agent;
(i) In the case of a Third Party Note, the interests of the Obligor
and lessee in the Third Party Lease, and any other Lien in the Equipment granted
by the Obligor to another Person so long as such Lien is subordinate to the
interests of the Applicable Company and the Agent on terms such that the
subordinate Lienholder cannot exercise any remedies prior to payment in full of
all of the Obligor's obligations to the Applicable Company and, as assigned, the
Agent and otherwise substantially similar to a form of intercreditor agreement
submitted to and approved in advance by the Agent;
(j) In the case of Equipment sold to an Applicable Company, with or
without a related Contract, a subordinate interest retained by the seller upon
the sale, on a discounted basis, of such Equipment and Eligible Contract so long
as the purchase agreement between the Borrower and such seller is assignable to
and has been assigned to the Agent and the interest of the seller is subordinate
on terms such that the seller cannot exercise any remedies prior to recovery in
full of all interests of the Borrower and, as assigned, the Agent in such
Equipment and Eligible Contract.
Section 7.3 Guaranties.
----------
Except as set forth in Section 7.1 hereof, assume, endorse, be or
become liable for, or guarantee, the obligations of any Person, except by the
endorsement of negotiable instruments for deposit or collection in the ordinary
course of business. For the purposes hereof, the term "guarantee" shall include
any agreement, whether such agreement is on a contingency or otherwise, to
purchase, repurchase or otherwise acquire Indebtedness of any other Person, or
to purchase, sell or lease, as lessee or lessor, property or services, in any
such case primarily for the purpose of enabling another person to make payment
of Indebtedness (other than purchases, sales, leases and guarantees to vendors
relating to the business transactions of Foreign Leasing Subsidiaries in the
aggregate not to exceed Two Million ($2,000,000) Dollars, in each case in the
ordinary course of the applicable Borrower's or any Foreign Leasing Subsidiary's
business), or to make any payment (whether as an advance, capital contribution,
purchase of an equity interest or otherwise) to assure a minimum equity, asset
base, working capital or other balance sheet or financial condition, in
connection with the Indebtedness of another Person, or to supply funds to or in
any manner invest in another Person in connection with such Person's
Indebtedness.
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Section 7.4 Mergers, Acquisitions.
Merge or consolidate with any Person (whether or not the
applicable Borrower or any Subsidiary is the surviving entity) or become a
general partner of any partnership or acquire all or substantially all of the
assets or any of the capital stock of any Person or acquire any portion of the
assets in the form of a lease portfolio of any Person, (a) except that the
Borrowers may make Investments in the form of formation of Subsidiaries upon the
terms set forth in Section 7.9 hereof; and (b) except that the Borrowers may
acquire assets in the form of a lease portfolio of a Person so long as (i) the
purchase price (including assumption of Indebtedness and stock issuances) does
not exceed Twenty-Million ($20,000,000) Dollars, annually, individually or in
the aggregate in respect of all such acquisitions, (ii) at least eighty (80%)
percent of the Contracts purchased (measured by aggregate dollar amount payable
thereunder) satisfy the Borrowers' criteria for originations as set forth in the
Credit Policy Manual, the Credit Scoring Model, the Emerging Growth Credit
Scoring Matrix, (iii) the Banks shall have received a detailed description of
the proposed acquisition of a lease portfolio not later than seven (7) Business
Days prior to the proposed consummation of any such acquisition; and (iv) no
Default or Event of Default exists as of the date of any such acquisition.
Section 7.5 Redemptions, Distributions.
(a) Purchase, redeem, retire or otherwise acquire, directly or
indirectly, or make any sinking fund payments with respect to, any shares of any
class of stock of any of the Borrowers or any of the Subsidiaries now or
hereafter outstanding or set apart any sum for any such purpose; provided,
however, that the Borrowers may purchase or repurchase shares of the capital
stock of Quantum from the individual shareholders of Quantum but only upon the
following terms and conditions:
(i) the Borrowers shall have delivered to the Banks and
the Agent not less than seven (7) days prior notice of the Borrowers' intention
to make such a purchase, which notice shall specify the amount of the payment
(in cash or other consideration) to be made and the proposed date of the
payment;
(ii) no Default or Event of Default then exists or, as of
the date of proposed payment, would exist after giving effect to any such
payment, as confirmed in writing by the Borrowers delivered to the Agent;
(iii) the aggregate amount of all such payments while any of
the Obligations is outstanding shall not exceed Two Hundred Fifty Thousand
($250,000) Dollars; or,
(b) Declare or pay any dividends or make any distribution of any
kind on any Borrower's or Subsidiary's outstanding stock, or set aside any sum
for any such purpose, except that:
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(i) any Borrower may declare or pay any dividend payable solely
in shares of its common stock;
(ii) Special Purpose Entities and Foreign Leasing Subsidiaries
may and shall pay Upstream Payments to the applicable Borrower in an amount
requisite to, and for the purpose of enabling such Borrower to use the proceeds
thereof to, satisfy its obligations under subsection 2.8(b) hereof to the extent
permitted by applicable law;
(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 other
than LFC, 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 lesser of (1) the
amount of such excess on the date(s) of such payment or declaration and (2) the
amount of any dividend or liquidating distribution received by LCI from LFC,
provided that in any event (x) no Default or Event of Default exists or would
exist after giving effect thereto as confirmed in writing by the Borrowers to
the Agent; and (y) LCI may not declare or pay such dividend prior to the
termination and repayment in full of the LFC Subordinated Debt;
(iv) LFC shall declare and pay dividends to LCI on a quarterly
basis, after the termination of and repayment in full of the LFC Subordinated
Debt, in an amount not less than all cash of LFC in excess of any amounts
necessary to provide for the payment of obligations of LFC reflected on LFC's
balance sheet to unrelated third parties (such as, for example, sales and use
taxes and security deposits);
(v) the Borrowers may declare or pay a dividend to LINC Group
for the purpose of enabling LINC Group to repurchase shares of its capital stock
or stock options with respect thereto; provided, however, that (A) the amount of
all dividends declared and paid for such purpose may not exceed One Million
($1,000,000) Dollars per fiscal year in the aggregate in accordance with the
terms of any agreements in effect on the date hereof and (B) no Default or Event
of Default then exists or would exist after giving effect thereto, as confirmed
in writing by the Borrowers delivered to the Agent; and
(vi) any Subsidiary of LCI may declare and pay dividends to LCI,
provided that no Default or Event of Default exists or would exist after giving
effect thereto as confirmed in writing by the Borrowers to the Agent.
Section 7.6 Stock Issuance.
Issue any additional shares or any right or option to acquire any
shares, or any security convertible into any shares, of the capital stock of any
Borrower or any of its Subsidiaries.
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Section 7.7 Changes in Business.
Make any material change in its business which is the Basic
Business, or in the nature of its operation, or liquidate or dissolve itself (or
suffer any liquidation or dissolution); or convey, sell, lease, assign, transfer
or otherwise dispose of any of its property, assets or business except in the
ordinary course of business of the Basic Business (subject at all times to and
conditioned on the continuing lien on and security interest in all proceeds
thereof in favor of the Agent) and for a fair consideration; or dispose of any
shares of its stock or any Indebtedness, whether now owned or hereafter
acquired, or discount, sell, pledge, hypothecate or otherwise dispose of any
such stock or accounts receivable (except in the ordinary course of business of
the Basic Business and for a fair consideration); provided, however, that:
(a) the proceeds of any sale or lease of Equipment which results
in an obligation to make a prepayment under Section 2.8 hereof shall be applied
as and within the period set forth in such Section 2.8;
(b) LCI shall be entitled at its option to transfer to LINC
Capital Partners, Inc. (LCI's wholly-owned Subsidiary) the assets held in the
LINC Capital Partners Division of LCI upon and subject to the following terms
and conditions: (i) the Agent shall have received at least ten Business Days'
prior written notice of LCI's intention to effect such a transfer; (ii) the
Agent shall have received such agreements, instruments and documents (including
substitute promissory notes) as the Agent may reasonably request in order to
confirm that LINC Capital Partners, Inc. is a party to and bound by the Loan
Agreement and the Notes in the same manner as if LINC Capital Partners, Inc. had
been named a Borrower hereunder and in such event the Banks and the Agent shall
execute and deliver, if required by the Agent, an amendment to the Loan
Agreement and new Notes in confirmation of the foregoing, in each case, in form
and substance satisfactory to the Agent, and (iii) the Agent and its counsel
shall be satisfied in the exercise of their sole discretion that the Banks and
the Agent shall suffer no adverse effect as a result of any such transfer to
LINC Capital Partners, Inc. and the execution and delivery of the agreements,
instruments and documents relating thereto;
(c) in any event, without limiting the generality of the
foregoing, none of the Borrowers nor their Foreign Leasing Subsidiaries shall
cease to engage in the Basic Business; and
(d) during the continuance of any Default or Event of Default,
sales of assets which sales otherwise constitute the Basic Business shall not be
permitted unless the proceeds of any such sale are used simultaneously to prepay
the Obligations hereunder and cure the existing Defaults and Events of Default
and such sales would not otherwise impair the overall value of the Collateral or
repayment of the Loans in the judgment of the Agent in its sole discretion.
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Section 7.8 Prepayments.
Make any voluntary or optional prepayment of any amounts
outstanding under: (a) any Subordinated Debt except for the Convertible
Subordinated Debt, provided that prepayments of the Convertible Subordinated
Debt shall only be allowed if no Event of Default hereunder then exists or would
exist after giving effect to such prepayment; or (b) any other Indebtedness that
is permitted to be incurred hereunder if after giving effect to the prepayment
under any such other Indebtedness a Default or an Event of Default would then
exist hereunder (except any prepayment required as a result of a Contract
termination).
Section 7.9 Investments.
Make, or suffer to exist, any Investment in any Person,
including, without limitation, any shareholder, director, officer or employee of
any of the Borrowers or any of their Subsidiaries, except:
(a) Investments in:
(i) obligations issued or guaranteed by the United States
of America;
(ii) certificates of deposit, bankers acceptances and other
"money market instruments" issued by any bank or trust company organized under
the laws of the United States of America or any State thereof and having capital
and surplus in an aggregate amount not less than Two Hundred Fifty Million
($250,000,000) Dollars;
(iii) open market commercial paper bearing investment grade
credit rating issued by Standard & Poor's Corp. or by another nationally
recognized credit rating firm; and
(iv) repurchase agreements entered into with any bank or
trust company organized under the laws of the United States of America or any
State thereof and having capital and surplus in an aggregate amount not less
than One Hundred Million ($100,000,000) Dollars relating to United States of
America government obligations;
in each case maturing or being due or payable in full not more than 180 days
after the Borrowers' acquisition thereof;
(b) Investments made on or following the date of execution and
delivery of this Agreement, but only upon and subject to the following terms and
conditions:
(i) Investments by the Borrowers in any one or more of
their respective Subsidiaries which Subsidiaries exist on the date of this
Agreement, provided that (A) no Investment may be made in LFS or LFC other than
the Investments existing on the date hereof
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as described in Exhibit T hereto; (B) notwithstanding any of the foregoing, the
Borrowers may make or have, as applicable, Investments in an aggregate amount
not to exceed $3,000,000 at any time in (i) Subsidiaries that are Special
Purpose Entities, and (ii) Subsidiaries that are not Special Purpose Entities
but only in an aggregate amount not to exceed $1,000,000 (of such maximum
$3,000,000) at any time; and (C) in no event shall any of the terms of this
Agreement be construed to permit either of the Borrowers to borrow from any
Subsidiary or Affiliate except for the other Borrower.
(ii) (A) All of the foregoing Investments in the form of
Indebtedness and the repayment of such Indebtedness shall be subject to the
terms and conditions of the Subordination Agreement; (B) neither any of the
Borrowers nor any Subsidiary shall be permitted to make at any time any
contribution or other similar payment to any Person, including, without
limitation, to any of the Borrowers or any Subsidiary, relating to such Person's
payment on any guaranty or similar obligation; (C) the maximum amount of
Indebtedness described in the preceding clauses of subsection (i) shall be
deemed at all times to include equity investments (and not solely loans) made by
any of the Borrowers in any of the Subsidiaries or LINC Group or its Affiliates;
and
(iii) No Investment shall be made under this subsection (b)
on a date when a Default or Event of Default exists or would exist after giving
effect to the making of such Investment;
(c) Finished Goods Inventory Loans and Receivables Loans made in
the ordinary course of the Applicable Companies' Basic Business to Obligors in
industries acceptable to the Agent and in accordance with customary lending
practices, the Loan Policy Manual and the Loan Scoring Matrix;
(d) Investments in the form of secured or unsecured loans to
officers of any of the Borrowers in the aggregate principal amount at any time
outstanding not to exceed $500,000; and
(e) Investments existing on the date of execution and delivery
of this Agreement described on Exhibit T annexed hereto, but only in the amunts
and to the extent set forth thereon.
Section 7.10 Fiscal Year.
-----------
Change its fiscal year or change the fiscal year of LINC Group.
Section 7.11 ERISA Obligations.
-----------------
(a) Be or become obligated to the PBGC other than in respect of
annual premium payments in excess of Fifty Thousand ($50,000) Dollars.
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(b) Be or become obligated to the IRS with respect to excise or
other penalty taxes provided for in those provisions of Section 4975 the Code,
as in effect or hereafter amended or supplemented, in excess of Fifty Thousand
($50,000) Dollars.
Section 7.12 Amendment of Documents.
----------------------
Modify, amend, supplement or terminate, or agree to modify,
amend, supplement or terminate its certificate of incorporation or by-laws, any
of the documents relating to the Convertible Subordinated Debt, the Quantum
Shareholders' Agreement, the non-recourse provisions of any Non-Recourse Debt,
the subordination provisions of any agreements or instruments of Indebtedness,
any documents relating to transactions with affiliates (other than arm's length
transactions with affiliates insuring in the ordinary course of business as
permitted in subsection 7.16), or any of the Transaction Documents; provided,
however, that the Transaction Documents may be amended so long as any such
amendment is immaterial or not adverse to the Borrowers, the Agent or the Banks
in the judgment of the Agent, and so long as a copy of any such proposed
amendment is provided to the Agent prior to the execution thereof, provided,
further, that (a) any amendment, modification or supplement to the Note Purchase
Agreement shall have been consented to by the Agent; and (b) in no event shall
the Transaction Documents be amended in any respect to modify the subordination
provisions thereof or the defined terms in such documents which would affect or
modify the subordination provisions therein.
Section 7.13 Capital Expenditures.
--------------------
Make or be or become obligated to make capital expenditures, as
defined in accordance with GAAP, in the aggregate for the Borrowers and the
Subsidiaries in excess of (a) One Million ($1,000,000) Dollars for the fiscal
year ending in 1997 and (b) Five Hundred Thousand ($500,000) Dollars in any
subsequent single fiscal year.
Section 7.14 Rental Obligations.
------------------
Enter into, or permit to remain in effect, any lease, as lessee
(other than capitalized leases which are governed by Section 7.13 hereof, if,
after giving effect thereto, the aggregate amount of all rentals and other
obligations, including, without limitation, all percentage rents and additional
rent, due from the Borrowers and the Subsidiaries thereunder (net of sub-lease
rents received) in any single calendar year would exceed One Million Two Hundred
Fifty Thousand ($1,250,000) Dollars.
Section 7.15 Management Fees.
---------------
Except as otherwise permitted in subsections 7.16(b) or (c), pay,
or be or become obligated to pay, any management fees (including, without
limitation, advisory and consulting fees and fees in respect of services
rendered in connection with the management or supervision of the management of
any of the Borrowers or their Affiliates) to any shareholder, director, officer
or employee of any of the Borrowers or Person controlled by the shareholder,
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director or officer except in an aggregate amount in any single fiscal year not
exceeding $5,000 with respect to all the Borrowers.
Section 7.16 Transactions with Affiliates.
----------------------------
Except as expressly permitted by this Agreement, directly or
indirectly: (i) make any Investment in an Affiliate; (ii) transfer, sell, lease,
assign or otherwise dispose of any assets to an Affiliate; (iii) merge into or
consolidate with or purchase or acquire assets from an Affiliate; or (iv) enter
into any other transaction directly or indirectly with or for the benefit of any
Affiliate (including, without limitation, guarantees and assumptions of
obligations of an Affiliate; provided, however, that (a) payments on Investments
expressly permitted by Section 7.9 hereof may be made subject to the terms
thereof, (b) any Affiliate who is an individual may serve as an employee or
director of any of the Borrowers or any Subsidiary and receive reasonable
compensation for his or her services in such capacity, except that LCI may pay
for his services in such capacity, (c) any Borrowers or any Subsidiary may enter
into any transaction with an Affiliate providing for the leasing of property,
the rendering or receipt of services (so long as such services are not in the
nature of management or consulting services) or the purchase or sale of product,
inventory and other assets in the ordinary course of business if the monetary or
business consideration arising therefrom would be substantially as advantageous
to such Borrower or a Subsidiary as the monetary or business consideration which
would obtain in a comparable arm's length transaction with a Person not an
Affiliate, and (d) any Subsidiary or any Borrower may enter into any transaction
with another Subsidiary or any Borrower may enter into any transaction with
another Subsidiary or any Borrower which is not prohibited by this Agreement or
any of the other Loan Documents.
Section 7.17 Changes in Calculation of Net Book Value.
----------------------------------------
Change the basis on which any of the Borrowers calculate net book
value, depreciation policy (it being understood that Quantum's depreciation
policy is seven (7) years to zero salvage value), residual value estimations,
expense capitalization or other factors significantly affecting the calculation
of net book value or Invoiced Cost with respect to Equipment from any of the
methods or policies described in Exhibit U annexed hereto, except if such change
is required for compliance with generally accepted accounting principles, and in
any event, the policies respecting all such calculations shall be subject to
approval by the Agent which shall receive (30) days notice from the Borrowers of
any change that affects residual values.
Section 7.18 Matters Regarding Quantum.
-------------------------
(a) Fail to deliver to the Agent prompt notice regarding any
dispute between any Borrower or any of its directors or officers, on the one
hand, and Quantum or any of its directors or officers, on the other hand; or
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(b) Fail to file Financing Statements naming each Lessee as
debtor/lessee, Quantum as secured party/lessor, and the Agent as assignee upon
the terms and conditions set forth in Section 2.25(c) hereof.
Section 7.19 Business of LFC.
---------------
Permit LFC or any of its Subsidiaries to (a) engage in any
business other than the run-off, winding-up and managing of its existing
portfolio of equipment leases, equipment financings and equipment Residual
Values acquired by LFC pursuant to the Sale and Assignment Agreement or owned by
its Subsidiaries on the date hereof (including, without limitation, renewing,
extending or refinancing leases included in such existing portfolio or owned by
its Subsidiaries), (b) incur any Indebtedness other than the LFC Subordinated
Debt and other than of the type described in subsection 7.1(b) hereof
(excluding, however, liabilities for new equipment payables) or create any Liens
other than Permitted Liens (so long as Permitted Liens are consistent with the
preceding limitation on incurrence of Indebtedness), (c) make any Investments
(which term shall not be deemed to refer to any interest of LFC in residuals of
its currently existing portfolio entered into in the ordinary course of
business) other than Investments in instruments of the type set forth in
subsection 7.9(a) hereof or (d) replace or refinance the LFC Subordinated Debt
or from and after final repayment of all obligations under the LFC Subordinated
Debt, take any action in contravention of the other provisions of this Article
7, which provisions shall, after such repayment of the obligations under the LFC
Subordinated Debt, be deemed applicable to LFC and LFC's Subsidiaries.
Section 7.20 Credit Scoring Models and Policies.
----------------------------------
Amend, modify or otherwise revise the Credit Policy Manual, the
Credit Scoring Model or the Emerging Growth Credit Scoring Matrix, and after
acceptance thereof by the Banks and the Agent, the Loan Policy Manual or the
Loan Scoring Model, in any material way or in a manner adverse to the Banks or
the Agent.
Section 7.21 Limitations on Loans.
--------------------
(a) Include any Finished Goods Inventory Loan or Receivables
Loan in computation of the Borrowing Base, unless and until each Applicable
Company shall have executed and delivered to the Banks and the Agent (i) a copy
of its Loan Policy Manual and Loan Scoring Model, and (ii) if requested by the
Agent a note assignment agreement supplementing the LCI Assignment of Contracts
pledging to the Agent all of such Applicable Company's right, title and interest
in and to any and all Finished Goods Inventory Notes, Receivables Notes and
Contract Collateral.
(b) (i) Make, or commit to make, any Finished Goods Inventory
Loan or Receivables Loans (A) other than in the ordinary course of business, and
in accordance with its customary lending practices as set forth in the Loan
Policy Manual and the Loan Scoring Model,
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and (B) unless the Applicable Company reasonably believes that such Loan
constitutes, or upon funding will constitute, an Eligible Contract.
(ii) Other than in the ordinary course of business,
consistent with its credit policy as set forth in the Loan Scoring Model and the
Loan Policy Manual, grant any extension of the time of payment of any Finished
Goods Inventory Loan or Receivables Loan, compromise or settle any Finished
Goods Inventory Loan or Receivables Loan for less than the full amount thereof,
release, in whole or in part, any person or property liable for the payment
thereof, or allow any credit or discount whatsoever thereon.
(iii) Fail to file upon making a Finished Goods Inventory
Loan or a Receivables Loan, all required financing statements in order to assure
that the Applicable Company receives a first priority perfected security
interest in the Contract Collateral related thereto.
Section 7.22 Certain Inactive Subsidiaries.
-----------------------------
Permit or suffer any Subsidiary (excluding LFC and Quantum) to
engage in any business activities or to acquire any assets (other than
immaterial assets not exceeding $250,000 in the aggregate in market value) or
have any Investments or incur any Indebtedness or liabilities except in order to
maintain corporate existence and except as otherwise in existence on the date of
this Agreement as set forth on Exhibit D or on Exhibit T annexed hereto.
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Article 8 Events of Default.
--------- -----------------
If any one or more of the following events ("Events of Default")
shall occur and be continuing, the Commitments shall terminate (except for the
obligation under Section 2.32 hereof to convert the Temporary Loans into Loans
made under Section 2.1 hereof and except for the obligations of the Banks under
Section 2.33 hereof in respect of the purchase of participation in the L/Cs from
the Issuing Bank) and the entire unpaid balance of the principal of and interest
on the Notes or the Temporary Loan Note outstanding and all other obligations
and Indebtedness of the Borrowers to the Banks and the Agent arising hereunder
and under the other Loan Documents shall immediately become due and payable upon
written notice to that effect given to the Borrowers by the Agent (except that
in the case of the occurrence of any Event of Default described in Section 8.6
no such notice shall be required), without presentment or demand for payment,
notice of non-payment, protest or further notice or demand of any kind, all of
which are expressly waived by each of the Borrowers. References in this Article
8 to Subsidiaries shall be deemed to include LFC and LFC's Subsidiaries in
respect of provisions of this Agreement expressly applicable to them and
otherwise from and after the final repayment of all obligations under the LFC
Subordinated Debt, notwithstanding any provision contained in this Article 8 to
the contrary.
Section 8.1 Payments.
--------
Failure to make any payment or mandatory prepayment of principal
upon any Notes or the Temporary Loan Note or to make any payment of any Fee when
due, or, to make any payment or mandatory prepayment of interest within five (5)
Business Days after such payment or prepayment is due; or failure to reimburse
any Unreimbursed Drawing when due; or,
Section 8.2 Covenants.
---------
Failure to perform or observe any of the agreements of any of the
Borrowers or the Subsidiaries contained in Section 6.9 or 6.17 or Article 7
hereof, or,
Section 8.3 Other Covenants.
---------------
(a) Failure by any of the Borrowers to perform or observe any
other term, condition or covenant of this Agreement or of any of the other Loan
Documents to which it is a party, including, without limitation, the Notes, the
Temporary Loan Note, or any of the Security Documents, which shall remain
unremedied for a period of 15 days after notice thereof shall have been given to
the Borrowers by the Agent or for a longer period of time not to exceed an
additional 30 days as is needed to complete action expeditiously begun within
such initial 15 day period, to remedy such failure, but such longer period shall
be permitted only if in the judgment of the Agent such additional 30 days is a
reasonable period to complete actions begun within the initial 15 day period to
remedy such failure and only if there is no adverse impact upon the Collateral
or the Banks' and the Agent's interest therein in the reasonable judgment of the
Agent; or,
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(b) Failure by any Subsidiary to perform or observe any term,
condition or covenant of any of the Loan Documents to which it is a party,
including, without limitation, the Security Documents, which shall remain
unremedied for a period of 15 days after notice thereof shall have been given to
the Borrowers by the Agent or for a longer period of time not to exceed an
additional 30 days as is needed to complete action expeditiously begun with in
such initial 15 day period, to remedy such failure, but such longer period shall
be permitted only if in the judgment of the Agent such additional 30 days is a
reasonable period to complete actions begun within the initial 15 day period to
remedy such failure and only if there is no adverse impact on the Collateral or
the Agent's and the Banks' interest therein in the reasonable judgment of the
Agent; or,
Section 8.4 Other Defaults.
---------------
(a) Failure to perform or observe any term, condition or
covenant of any bond, note, debenture, loan agreement, indenture, guaranty,
trust agreement, mortgage or similar instrument to which any Borrower or any
Subsidiary (other than LFC or its Subsidiaries except to the extent referred to
in Section 8.12 hereof) is a party or by which it is bound, or by which any of
its properties or assets may be affected including, without limitation, any of
the Indebtedness covered by any documents relating to the Convertible
Subordinated Debt or to the Partial Recourse Documents (collectively a "Debt
Instrument") (other than Non-Recourse Debt that does not exceed One Million
($1,000,000) Dollars in the aggregate), so that, as a result of any such failure
to perform the Indebtedness included therein or secured or covered thereby may
be declared or may become due and payable prior to the date on which such
Indebtedness would otherwise become due and payable; or,
(b) Any event or condition referred to in any Debt Instrument
(other than documents relating to Non-Recourse Debt all of which Debt does not
exceed One Million ($1,000,000) Dollars in the aggregate) shall occur or fail to
occur, so that, as a result thereof, the Indebtedness included therein or
secured or covered thereby may be declared or may become due and payable prior
to the date on which such Indebtedness would otherwise become due and payable;
or,
(c) Failure to pay any Indebtedness for borrowed money due at
final maturity or pursuant to demand under any Debt Instrument (other than
documents relating to Non-Recourse Debt all of which Debt does not exceed One
Million ($1,000,000) Dollars in the aggregate); provided, however, that the
provisions of this Section 8.4 shall not be applicable to any Debt Instrument
which relates to or evidences Indebtedness which, on the date this Section 8.4
would otherwise be applicable thereto, is in principal amount of less than
$500,000 unless and until the aggregate principal amount of all such Debt
Instruments otherwise excluded from the provisions of Section 8.4 and in respect
of which the conditions of clause (a), (b) or (c) then apply, would exceed One
Million ($1,000,000) Dollars; or,
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Section 8.5 Representations and Warranties.
------------------------------
Any representation or warranty made in writing to the Banks or
the Agent in any of the Loan Documents or in connection with the making of the
Loans, or any certificate, statement or report made or delivered in compliance
with this Agreement, shall have been false or misleading in any material respect
when made or delivered; or,
Section 8.6 Bankruptcy.
----------
(a) Any Borrower or any of the Subsidiaries other than LFC and
its Subsidiaries shall make an assignment for the benefit of creditors, file a
petition in bankruptcy, be adjudicated insolvent, petition or apply to any
tribunal for the appointment of a receiver, custodian, or any trustee for it or
a substantial part of its assets, or shall commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect, or any Borrower or any Subsidiary other than LFC and its Subsidiaries
shall take any corporate action to authorize any of the foregoing actions; or
there shall have been filed any such petition or application, or any such
proceeding shall have been commenced against it, which remains undismissed for a
period of thirty (30) days or more; or any order for relief shall be entered in
any such proceeding; or any Borrower or any of the Subsidiaries other than LFC
and its Subsidiaries by any act or omission shall indicate its consent to,
approval of or acquiescence in any such petition, application or proceeding or
the appointment of a custodian, receiver or any trustee for it or any
substantial part of any of its properties, or shall suffer any custodianship,
receivership or trusteeship to continue undischarged for a period of thirty (30)
days or more; or,
(b) Any Borrower or any of the Subsidiaries other than LFC and
its Subsidiaries shall generally not pay its debts as such debts become due; or,
(c) Any Borrower or any of the Subsidiaries other than LFC and
its Subsidiaries shall have concealed, removed, or permitted to be concealed or
removed, any part of its property, with intent to hinder, delay or defraud its
creditors or any of them or made or suffered a transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
law; or shall have made any transfer of its property to or for the benefit of a
creditor at a time when other creditors similarly situated have not been paid
during any period while either any such Borrower or any of such Subsidiaries is
insolvent; or shall have suffered or permitted, while insolvent, any creditor to
obtain a Lien upon any of its property through legal proceedings or distraint
which is not vacated within thirty (30) days from the date thereof, or,
Section 8.7 Judgments.
---------
Any judgment against any of the Borrowers or any of the
Subsidiaries other than LFC and its Subsidiaries or any attachment, levy or
execution against any of its properties for any amount in excess of $250,000
shall remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed
for a period of sixty (60) days or more; or,
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Section 8.8 ERISA.
-----
(a) With respect to any Borrower, the termination of any Plan or
the institution by the PBGC of proceedings for the involuntary termination of
any Plan, in either case, by reason of, or which results or could result in, a
"material accumulated funding deficiency" under Section 412 of the Code; or,
(b) Failure by any Borrower to make required contributions, in
accordance with the applicable provisions of ERISA, to each of the Plans
hereafter established or assumed by it; or,
Section 8.9 Ownership of Stock of the Borrowers.
-----------------------------------
(a) LINC Group shall at any time own, beneficially and of
record, less than 100% of all of the issued and outstanding shares of capital
stock of LCI 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
(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 LFC or
less than 80% 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
Section 8.10 Liens.
-----
Any of the Liens created and granted to the Agent under the Security Documents
shall fail to be valid, first, perfected Liens, subject to no prior or equal
Lien, except as permitted by Section 7.2 hereof, except that, upon the
conditions set forth in the following clauses (a) and (b), no default under this
Section 8.10 will be deemed to exist until the violation of any of the terms of
this Section 8.10 first occurs in respect of Collateral which has in the
aggregate a value (as determined by the Agent) of Five Hundred Thousand
($500,000) Dollars or more, but only if (a) any collateral having an aggregate
value below Five Hundred Thousand ($500,000) Dollars which fails to be subject
to the Liens in favor of the Agent is withdrawn from the Borrowing Base
immediately upon any of the Borrower's awareness of the occurrences of the event
which gave rise to the failure hereunder, and (b) the failure was caused by the
related Lessee or Obligor and not by any Borrower or its Subsidiaries; or
Section 8.11 LINC Group.
----------
(a) Ownership of the issued and outstanding shares of capital
stock of LINC Group shall change or such shares shall have been transferred such
that Martin E. Zimmerman, Allen Palles and A. Luc Pols shall cease in the
aggregate to have and retain voting control, with in any event at least fifty-
one (51 %) percent of the voting stock of LINC Group, at
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all times being held by Martin E. Zimmerman; except that upon at least ten (10)
days' prior written notice to the Agent, Martin E. Zimmerman or Allen Palles or
A. Luc Pols may transfer shares of LINC Group to his children or spouse or
trusts for the benefit of any of them so long as (i) Martin E. Zimmerman
continues at all times to have voting control with respect to the stock of LINC
Group; (ii) prior to any such transfer to children, spouse, or trusts, any such
aforementioned transferee of Martin E. Zimmerman, Allen Palles or A. Luc Pols
agrees in writing not to make any further transfers and to be bound by the
provisions and prohibitions set forth in this Section 8.1l(b), and (iii) a
legend is placed on any stock certificates transferred to any children, spouse
or trusts to such effect; or
(b) (i) Martin E. Zimmerman or Allen Palles shall cease for any
reason whatsoever, including, without limitation, death or disability (as such
cessation shall be determined in the sole and absolute judgment of the Majority
Banks) to be executive officers of each of the Borrowers or to actively
participate in the management of each of the Borrowers, or (ii) if such
cessation shall occur as a result of the death or such disability, no successor
satisfactory to the Majority Banks, in their sole discretion, shall have become
and shall have commenced to perform the duties of an executive officer of each
of the Borrowers within sixty (60) days after such cessation; provided, however,
that if any satisfactory successor or successors shall have been so elected and
shall have commenced performance of such duties within such period, the name of
such successor or successors shall be deemed to have been inserted in place of
either of Martin E. Zimmerman or Allen Palles or both in this Section 8.11; or
Section 8.12 LFC Reimbursement for Special Purpose Entities.
(a) LFC shall fail to satisfy its obligations under the Sale and
Assignment Agreement arising out of the assumption by LFC of the obligations of
LCI under its servicing, credit enhancement and other documents relating to
Special Purpose Entities, including, without limitation, the obligation to
repurchase defaulted leases, or (b) an "Event of Default" under the Servicing
Agreement shall have occurred and be continuing.
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Article 9. The Agent.
Section 9.1 Appointment, Powers and Immunities.
Each Bank hereby irrevocably appoints and authorizes the Agent to act
as its agent hereunder, under the Security Documents and the other Loan
Documents with such powers as are specifically delegated to the Agent by the
terms of this Agreement, the Security Documents and the other Loan Documents
together with such other powers as are reasonably incidental thereto. The Agent
shall have no duties or responsibilities except those expressly set forth in
this Agreement, the Security Documents and the other Loan Documents and shall
not be a trustee for any Bank, nor is the Agent acting in a fiduciary capacity
of any kind under the Loan Documents or in respect thereof or in respect of any
Bank. The Agent shall not be responsible to the Banks for any recitals,
statements, representations or warranties contained in this Agreement, the
Security Documents, or the other Loan Documents in any certificate or other
document referred to or provided for in, or received by any of them under, this
Agreement, the Security Documents or the other Loan Documents, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement, the Security Documents or the other Loan Documents or any other
document referred to or provided for herein or therein or for the collectibility
of the Loans or for the validity, effectiveness or value of any interest or
security covered by the Security Documents or for the value of any Collateral or
for the validity or effectiveness of any assignment, mortgage, pledge, security
agreement, financing statement, document or instrument, or for the filing,
recording, re-filing, continuing or re-recording of any thereof or for any
failure by any of the Borrowers or any of the other Loan Parties to perform any
of its obligations hereunder or under the other Loan Documents, except that the
Agent shall undertake to file continuation statements for the Financing
Statements filed naming the Agent as secured party, subject to the next
sentence. The Agent may employ agents and attorneys-in-fact and shall not be
answerable, except as to money or securities received by it or its authorized
agents, for the negligence or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. Neither the Agent nor any of its directors,
officers, employees or agents shall be liable or responsible for any action
taken or omitted to be taken by it or them hereunder, under the Security
Documents or the other Loan Documents or in connection herewith or therewith,
except for its or their own gross negligence or willful misconduct.
Section 9.2 Reliance by Agent.
The Agent shall be entitled to rely upon any certification, notice or
other communication (including any thereof by telephone, telex, telegram or
cable) believed by it to be genuine and correct and to have been signed or sent
by or on behalf of the proper person or persons, and upon advice and statements
of legal counsel, independent accountants and other experts selected by the
Agent. As to any matters not expressly provided for by this Agreement, the
Security Documents or the other Loan Documents, the Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder, under the
Security Documents or the other Loan Documents in accordance with instructions
signed by the Majority Banks, or such other number of Banks as is specified in
Section 10.6 hereof, and such instructions of the Majority Banks
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or other number of Banks as aforesaid and any action taken or failure to act
pursuant thereto shall be binding on all of the Banks.
Section 9.3 Events of Default.
The Agent shall not be deemed to have knowledge of the occurrence of a
Default (other than the non-payment of principal of or interest on Loans) unless
the Agent has received notice from a Bank or any of the Borrowers specifying
such Default and stating that such notice is a "Notice of Default". In the
event that the Agent receives such a notice of the occurrence of a Default, the
Agent shall give notice thereof to the Banks (and shall give each Bank notice of
each such non-payment). The Agent shall (subject to Section 9.7 hereof) take
such action with respect to such Default as shall be directed by the Majority
Banks, except as otherwise provided in Section 10.6 hereof.
Section 9.4 Rights as a Bank.
With respect to its Commitments and the Loans made by it, the Agent in
its capacity as a Bank hereunder shall have the same rights and powers hereunder
as any other Bank and may exercise the same as though it were not acting as the
Agent, and the term "Bank" or "Banks" shall, unless the context otherwise
indicates, include the Agent in its individual capacity. The Agent and its
Affiliates may (without having to account therefor to any Bank) accept deposits
from, lend money to and generally engage in any kind of banking, trust or other
business with any of the Borrowers or its Affiliates, as if it were not acting
as the Agent, and the Agent may accept fees and other consideration from the
Borrowers or its Affiliates, for services in connection with this Agreement, the
Security Documents or any of the other Loan Documents or otherwise without
having to account for the same to the Banks.
Section 9.5 Indemnification.
The Banks shall indemnify the Agent (to the extent not reimbursed by
the Borrowers under Sections 10.1 and 10.2 hereof (or under applicable
provisions of other Loan Documents)), ratably in accordance with the aggregate
principal amount of the Loans made by the Banks (or, if no Loans are at the time
outstanding, ratably in accordance with their respective Commitments), for any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against the Agent in
any way relating to or arising out of this Agreement, the Security Documents or
any of the other Loan Documents or any other documents contemplated by or
referred to herein or therein or the transactions contemplated by or referred to
herein or therein or the transactions contemplated hereby and thereby
(including, without limitation, the costs and expenses which the Borrowers are
obligated to pay under Sections 10.1 and 10.2 hereof, but excluding, unless a
Default has occurred and is continuing, normal administrative costs and expenses
incident to the performance of its agency duties hereunder or under the Security
Documents) or the enforcement of any of the terms hereof or of the Security
Documents, or of any such other documents, provided that no Bank shall be liable
for any of the
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foregoing to the extent they arise from the gross negligence or willful
misconduct of the party to be indemnified.
Section 9.6 Non-Reliance on Agent and Other Banks.
(a) Each Bank agrees that it has, independently and without reliance
on the Agent or any other Bank, and based on such documents and information as
it has deemed appropriate, made its own credit analysis of each of the Borrowers
and decision to enter into this Agreement and that it will, independently and
without reliance upon the Agent or any other Bank, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own analysis and decisions in taking or not taking action under this Agreement,
the Security Documents or the other Loan Documents.
(b) Each Bank acknowledges that any statements, written or oral, as to
the financial condition or credit worthiness of any of the Borrowers or any of
their Affiliates or the value or composition of the collateral, and any related
matters made by any of the Borrowers or any of their Affiliates or Fleet in
anticipation of the closing of the transactions contemplated by this Agreement
or made on or after the date of this Agreement, including, without limitation,
any audits or reviews of Borrowing Base Reports are and shall be based on
documents and material made available to Fleet by any of the Borrowers and
Persons affiliated with it or acting on their behalf and, accordingly, the
accuracy and completeness and thoroughness of such documents and materials and
the conclusions drawn therefrom are the sole responsibility of the Borrowers and
persons acting on their behalf. Any past or future review of these materials
was and shall be undertaken by Fleet for its own benefit and internal use as a
Bank hereunder, and any characterization thereof, or conclusions drawn therefrom
if any, were or are or shall be shared with other Banks solely as a courtesy.
Fleet disclaims any responsibility or liability, express or implied, for the
data set forth therein, and any characterization of, or conclusions by and from,
such data as to the financial condition or credit analysis of any of the
Borrowers or any other Loan Party, the value or composition of the Collateral
and any appraisal of it, or any other matter.
(c) The Agent shall not be required to keep itself informed as to the
performance or observance by any of the Borrowers of this Agreement, the
Security Documents or the other Loan Documents or any other document referred to
or provided for herein or therein or to inspect the properties or books of any
of the Borrowers. Except for notices, reports and other documents and
information expressly required to be furnished to the Banks by the Agent
hereunder or under the Security Documents, or the other Loan Documents, the
Agent shall not have any duty or responsibility to provide any Bank with any
credit or other information concerning the affairs, financial condition or
business of any of the Borrowers, which may come into the possession of the
Agent or any of its Affiliates.
Section 9.7 Failure to Act.
Except for action expressly required of the Agent hereunder, or under
the Security Documents, the Agent shall in all cases be fully justified in
failing or refusing to act
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hereunder or thereunder unless it shall be indemnified to its satisfaction by
the Banks against any and all liability and expense which may be incurred by it
by reason of taking or continuing to take any such action.
Section 9.8 Resignation or Removal of Agent.
(a) The Agent may resign at any time by giving not less than 10 days
prior written notice thereof to the Banks and the Borrowers, and the Agent may
be removed at any time with or without cause by the Majority Banks upon not less
than 10 days prior written notice thereof executed by the Majority Banks and
delivered to the Banks, the Agent and the Borrowers. In the event of any such
resignation by Fleet, LaSalle National Bank shall, without further action being
required hereunder, become the successor Agent. For purposes of this Section
9.8, in the event that one or more Banks abstains or otherwise chooses not to
participate the selection of any successor Agent, the term Majority Banks shall
be deemed to mean Banks having the same percentage of the aggregate amount of
the Commitments (if no Loans are then outstanding hereunder) or the Loans (if
any Loan is then outstanding hereunder), as the case may be, as if the
abstaining Bank's Commitment or Loans, as the case may be, were not included, so
that in no event shall the abstention of one or more Banks cause the voting
percentage necessary to constitute the Majority Banks amongst those Banks voting
to be higher than if the abstaining Bank or Banks had not abstained. Each of
the Borrowers, the Banks and the retiring Agent shall at the Borrowers' joint
and several expense thereupon execute and deliver Uniform Commercial Code
statements reflecting such change. Upon any removal of the Agent, the Majority
Banks shall have the right to appoint a successor Agent. If no successor Agent
shall have been so appointed by the Majority Banks and shall have accepted such
appointment within 30 days after the Majority Banks' removal of the retiring
Agent, then the retiring Agent may, on behalf of the Banks, after consultation
with the Borrowers, appoint a successor Agent which shall be one of the Banks.
Upon the acceptance of any appointment as Agent hereunder or under the Security
Documents by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder and under the Security Documents. After any retiring
Agent's resignation or removal hereunder as Agent, the provisions of this
Article 9 shall continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as the Agent.
(b) In the event that a successor Agent is named, the Principal Office
shall be the office of the successor Agent designated by notice of the successor
Agent to the Banks and the Borrowers and, in the event that such Principal
Office is in a time zone other than the time zone in which New York City is in,
all references to New York City time shall mean the respective hour in the time
zone in which the successor Agent's designated Principal Office is located.
Section 9.9 Sharing of Collateral and Payments.
(a) Prior to any acceleration by the Agent and the Banks of the
Obligations:
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(i) in the event that any Bank shall obtain payment in respect of
a Note (which term for the purposes of this Section 9.9 shall be deemed to
include any L/C Obligations), or interest thereon, whether voluntarily or
involuntarily, and whether through the exercise of a right of banker's lien,
set-off or counterclaim against any Borrower or any other Loan Party or
otherwise, in a greater proportion than any such payment obtained by any other
Bank in respect of the corresponding Note held by it, then the Bank so receiving
such greater proportionate payment shall purchase for cash from the other Bank
or Banks such portion of each such other Bank's or Banks' Loan as shall be
necessary to cause such Bank receiving the proportionate overpayment to share
the excess payment with each Bank; and
(ii) in the event that any Bank shall obtain payment in respect
of any Interest Rate Contract to which such Bank is a party, whether voluntarily
or involuntarily, and whether through the exercise of a right of banker's lien,
set-off or counterclaim against any Borrower or any other Loan Party or
otherwise, such Bank shall be permitted to retain the full amount of such
payment and shall not be required to share such payment with any other Bank.
(b) Upon or following any acceleration by the Agent and the Banks of
the Obligations, in the event that any Bank shall obtain payment in respect of a
Note, or interest thereon, or in respect of an Interest Rate Contract to which
such Bank is a party, or receive any Collateral or proceeds thereof with respect
to any Note or any Interest Rate Contract to which it is a party, whether
voluntarily or involuntarily, and whether through the exercise of a right of
banker's lien, set-off or counterclaim against any Borrower or any other Loan
Party or otherwise, in a greater proportion than any such payment obtained by
any other Bank in respect of the aggregate amount of the corresponding Note held
by such Bank and any Interest Rate Contract to which such Bank is a party, then
the Bank so receiving such greater proportionate payment or such greater
proportionate amount of Collateral, shall purchase for cash from the other Bank
or Banks such portion of each such other Bank's or Banks' Loan, or shall provide
the other Banks with the benefits of any such Collateral, or the proceeds
thereof, as shall be necessary to cause such Bank receiving the proportionate
overpayment to share the excess payment or benefits of such Collateral or
proceeds ratably with each Bank. For the purposes of this subsection 9.9(b),
payments on Notes received by each Bank and receipt of Collateral by each Bank
shall be in the same proportion as the proportion of: (A) the sum of: (x) the
Obligations owing to such Bank in respect of the Note held by such Bank, plus
(y) the Obligations owing to such Bank in respect of Interest Rate Contracts to
which such Bank is party, if any, to (B) the sum of: (x) the Obligations owing
to all of the Banks in respect of all of the Notes, plus (y) the Obligations
owing to all of the Banks in respect of all Interest Rate Contracts to which any
Bank is a party;
provided, however, that, with respect to subsections 9.9(a)(i) and (b) above, if
all or any portion of such excess payment or benefits is thereafter recovered
from the Bank that received the proportionate overpayment, such purchase of
Loans or payment of benefits, as the case may be, shall be rescinded, and the
purchase price and benefits returned, to the extent of such recovery, but
without interest.
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Article 10. Miscellaneous Provisions.
Section 10.1 Fees and Expenses; Indemnity.
The Borrowers will promptly pay, jointly and severally, all costs of
the Agent and the Banks in preparing the Loan Documents and all costs and
expenses of the issue of the Notes and the Temporary Loan Note and of the
Borrowers' and the other Loan Parties' performance of and compliance with all
agreements and conditions contained herein on its part to be performed or
complied with (including, without limitation, all costs of filing or recording
any assignments, mortgages, financing statements and other documents), and the
reasonable fees and expenses and disbursements of special counsel to the Agent
and the Banks in connection with the preparation, execution and delivery,
administration, interpretation and enforcement of this Agreement, the Notes, the
Temporary Loan Note, the Security Documents, the other Loan Documents and all
other agreements, instruments and documents relating to this transaction, the
consummation of the transactions contemplated by all such documents, the
preservation of all rights of the Agent and the Banks, the negotiation,
preparation and execution and delivery of any amendment, modification or
supplement of or to, or any consent or waiver under, any such document (or any
such instrument which is proposed but not executed and delivered) and with any
claim or action threatened, made or brought against the Agent or any of the
Banks arising out of or relating to any extent to this Agreement, the Security
Documents, the other Loan Documents or the transactions contemplated hereby or
thereby. In addition, the Borrowers will promptly (and in any event within 30
days after its receipt of an invoice or statement therefor) pay, jointly and
severally, all costs and expenses (including, without limitation, reasonable
fees and disbursements of counsel) suffered or incurred by the Agent or the
Banks in connection with their respective enforcement of the payment of the
Notes or the Temporary Loan Note held by each of them it or any other sum due to
it under this Agreement or any of the other Loan Documents or any of its other
rights hereunder or thereunder. In addition to the foregoing, the Borrowers
shall, jointly and severally, indemnify the Agent and each Bank and each of
their respective directors, officers, employees, attorneys, agents and
Affiliates against, and hold each of them harmless from, any loss, liabilities,
damages, claims, costs and expenses (including reasonable attorneys' fees and
disbursements) suffered or incurred by it arising out of, resulting from or in
any manner connected with, the execution, delivery and performance of each of
the Loan Documents, the Loans and any and all transactions related to or
consummated in connection with the Loans, including, without limitation, losses,
liabilities, damages, claims, costs and expenses suffered by the Agent or any of
the Banks or any of their respective directors, officers, employees, attorneys,
agents or Affiliates in investigating, preparing for, defending against, or
providing evidence, producing documents or taking any other action in respect of
any commenced or threatened litigation, administrative proceeding or
investigation under any federal securities law or any other statute of any
jurisdiction, or any regulation, or at common law or otherwise, which is alleged
to arise out of or is based upon (1) any untrue statement or alleged untrue
statement of any material fact of any of the Borrowers and their affiliates in
any document or schedule filed with the Securities and Exchange Commission or
any other governmental body; (2) any omission or alleged omission to state any
material fact required to be stated in such document or schedule, or necessary
to make the statements made therein, in light of the circumstances under which
made, not misleading; (3) any
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acts, practices or omission or alleged acts, practices or omissions of any of
the Borrowers or its agents related to the making of any acquisition, purchase
of shares or assets pursuant thereto, financing of such purchases or the
consummation of any other transactions contemplated by any such acquisitions
which are alleged to be in violation of any federal securities law or of any
other statute, regulation or other law of any jurisdiction applicable to the
making of any such acquisition, the purchase of shares or assets pursuant
thereto, the financing of such purchases or the consummation of the other
transactions contemplated by any such acquisition; or (4) any withdrawals,
termination or cancellation of any proposed such acquisition for any reason
whatsoever provided however that the foregoing shall not include any legal fees
for litigation determined adversely to the Agent or the Banks if such adverse
determination was solely due to its gross negligence, or willful misconduct.
The indemnity set forth herein shall be in addition to any other obligations or
liabilities of any of the Borrowers to the Agent and the Banks hereunder or at
common law or otherwise. The provisions of this Section 10.1 shall survive the
payment of the Notes, the Temporary Loan Note, and the termination of this
Agreement.
Section 10.2 Taxes.
If, under any law in effect on the date of the closing of any Loan
hereunder, or under any retroactive provision of any law subsequently enacted,
it shall be determined that any Federal, state or local tax (including, without
limitation, any stamp, documentary, recording or similar tax) is payable in
respect of the issuance of any of the Notes or the Temporary Loan Note, or in
connection with the filing or recording of any assignments, mortgages, financing
statements, or other documents (whether measured by the amount of indebtedness
secured or otherwise) as contemplated by this Agreement, then the Borrowers will
pay, jointly and severally, any such tax and all interest and penalties, if any,
and will indemnify the Banks and the Agent against and save each of them
harmless from any loss or damage resulting from or arising out of the nonpayment
or delay in payment of any such tax. If any such tax or taxes shall be assessed
or levied against any Bank or any other holder of its respective Note, such
Bank, or such other holder, as the case may be, may notify the Borrowers and
make immediate payment thereof, together with interest or penalties in
connection therewith, and shall thereupon be entitled to and shall receive
immediate reimbursement therefor from the Borrowers, jointly and severally.
Notwithstanding any other provision contained in this Agreement, the covenants
and agreements of the Borrowers in this Section 10.2 shall survive payment of
the Notes and the Temporary Loan Note and the termination of this Agreement.
Section 10.3 Payments.
As set forth in Section 2.13 hereof, all payments by any of the
Borrowers on account of principal, interest, fees and other charges (including
any indemnities) shall be made to the Agent at the Principal Office, in lawful
money of the United States of America in immediately available funds, by wire
transfer or otherwise, not later than 12:00 P.M. New York City time on the date
such payment is due. Any such payment made on such date but after such time
shall, if the amount paid bears interest, be deemed to have been made on and
interest shall continue to accrue and be payable thereon until the next
succeeding Business Day. If any payment
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of principal or interest becomes due on a day other than a Business Day on which
banks in New York, New York are required or permitted by law to remain closed,
such payment may be made on the next succeeding Business Day on which such banks
are open and such extension shall be included in computing interest in
connection with such payment (except that if a successor Agent is named pursuant
to Section 9.8(b) whose designated Principal Office is not in New York, New
York, the foregoing reference to New York, New York, shall mean the city in
which said successor Agent's Principal Office is located). All payments
hereunder and under the Note and the Temporary Loan Note shall be made without
set-off or counterclaim and in such amounts as may be necessary in order that
all such payments shall not be less than the amounts otherwise specified to be
paid under this Agreement and the Notes and the Temporary Loan Note (after
withholding for or on account of (i) any present or future taxes, levies,
imposts, duties or other similar charges of whatever nature imposed by any
government or any political subdivision or taxing authority thereof, other than
any tax (except those referred to in clause (ii) below) on or measured by the
net income of the respective Bank or the Agent to which such payment is due
pursuant to applicable federal, state and local income tax laws, and (ii)
deduction of amounts equal to the taxes on or measured by the net income of such
Bank or the Agent payable by the Bank with respect to the amount by which the
payments required to be made under this sentence exceed the amounts otherwise
specified to be paid in this Agreement and the Notes and the Temporary Loan
Note). Upon payment in full of any Note, the Bank shall mark the Note "Paid" and
return it to the Borrowers.
Section 10.4 Survival of Agreements and
Representations; Waiver of
Trial by Jury.
All agreements, representations and warranties made herein shall
survive the delivery of this Agreement and the Notes and the Temporary Loan
Note. Each of the Borrowers waives trial by jury in any litigation in any court
with respect to, in connection with, or arising out of, this Agreement, the
Notes, the Temporary Loan Note, the Security Documents, any of the other Loan
Documents, or any instrument or document delivered pursuant to this Agreement,
or the validity, protection, interpretation, collection or enforcement thereof.
Section 10.5 Lien on and Set-off of Deposits.
As security for the due payment and performance of all the
Obligations, each of the Borrowers hereby grants to the Agent for the ratable
benefit of the Banks a Lien on any and all deposits or other sums at any time
credited by or due from the Agent or any Bank to any of the Borrowers, whether
in regular or special depository accounts or otherwise, and any and all monies,
securities and other property of any of the Borrowers, and the proceeds thereof,
now or hereinafter held or received by or in transit to any Bank or the Agent
from or for any of the Borrowers, whether for safekeeping, custody, pledge,
transmission, collection or otherwise, and any such deposits, sums, monies,
securities and other property, may at any time after the occurrence and during
the continuance of any Event of Default be set-off, appropriated and applied by
any
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Bank or the Agent against any of the Obligations, whether or not any of such
Obligations is then due or is secured by any collateral, or, if it is so
secured, whether or not the collateral held by the Agent is considered to be
adequate.
Section 10.6 Modifications, Consents and
Waivers, Entire Agreement.
No modification, amendment or waiver of or with respect to any
provision of this Agreement, any Notes, the Security Documents, or any of the
other Loan Documents and all other agreements, instruments and documents
delivered pursuant hereto or thereto, nor consent to any departure by the
Borrower or any other Loan Party from any of the terms or conditions thereof,
shall in any event be effective unless it shall be in writing and signed by the
Agent and the Majority Banks; provided, however, that notwithstanding the
foregoing, without the written consent of each Bank affected thereby (and of the
Agent if expressly required in this Agreement or any of the other Loan
Documents), in no event shall any amendment, modification, waiver or consent:
(a) Be effective with respect to Article 3 (it being understood that a
waiver of any Default or Event of Default under Section 8.5 hereof shall not
constitute an amendment or modification of any Section therein), Article 9 or
Sections 2.1 or 10.6 hereof;
(b) Extend the final maturity of any Loan or Note or extend the stated
expiration of any L/C beyond the Commitment Termination Date (it being
understood that any waiver of the application of any prepayment of or the method
of application of any prepayment to the amortization of, the Loans shall not
constitute any such extension) or reduce the principal amount thereof, or reduce
the rate or extend the time of payment of interest or fees thereon (other than
as a result of waiving the applicability of any post-default increase in
interest rates) or be effective with respect to Section 8.1;
(c) Reduce the percentage specified in the definition of Majority
Banks;
(d) Reduce the amount or extend the payment date for the mandatory
payments required under Section 2.8 or 2.10, or increase the amount of the
Commitment of any Bank hereunder (it being understood that a waiver of any
Default or Event of Default shall not constitute a change in the terms of any
Commitment of any Bank);
(e) Extend the Commitment Termination Date;
(f) Increase any of the advance rate percentages set forth in the
definition of "Borrowing Base" herein;
(g) Release or permit the release of all or substantially all or any
substantial part of the Collateral (other than as contemplated by Section 2.23
hereof), or release any guarantor from any guaranty of the Obligations or
release any Subsidiary from any guaranty issued to the Agent after the date
hereof in each case except as expressly provided in the Loan Documents;
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(h) Without the consent of the Issuing Bank, amend, modify, or waive
any provision of Section 2.33 or alter its rights or obligations with respect to
L/Cs; or
(i) Consent to any assignment or transfer by any Borrower of the
Obligations.
Any such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. No consent to or demand on any Borrower in any
case shall, of itself, entitle it to any other or further notice or demand in
similar or other circumstances. This Agreement and the other Loan Documents
embody the entire agreement and understanding among the Banks, the Agent and the
Borrowers and supersede all prior agreements and understandings relating to the
subject matter hereof, provided that the Agent and the Banks shall be entitled
to enforce any and all of their rights arising as a result of a breach of the
terms of the Second Restated Agreement which terms exist prior to the date
hereof as if the Second Restated Agreement had not been superseded. Without
limiting the generality of Article 9 hereof, no Bank shall have any claim or
right of action of any kind whatsoever against the Agent in respect of any
action or refraining from action which the Agent is instructed to take or
refrain from (including, without limitation, foreclosure on the Agent's Lien) by
the requisite Banks as set forth in this Section 10.6.
Section 10.7 Remedies Cumulative.
Each and every right granted to the Agent and each Bank hereunder or
under any other document delivered hereunder or in connection herewith, or
allowed it by law or equity, shall be cumulative and may be exercised from time
to time. No failure on the part of the Agent or any Bank or any holder of any
Note or the Temporary Loan Note to exercise, and no delay in exercising, any
right shall operate as a waiver thereof, nor shall any single or partial
exercise of any right preclude any other or future exercise thereof or the
exercise of any other right. The due payment and performance of any of the
Borrowers' indebtedness, liabilities and obligations under any Note or the
Temporary Loan Note and this Agreement and the other Loan Documents shall be
without regard to any counterclaim, right of offset or any other claim
whatsoever which any of the Borrowers may have against any Bank or the Agent and
without regard to any other obligation of any nature whatsoever which any Bank
or the Agent may have to any of the Borrowers, and no such counterclaim required
under federal law or offset shall be asserted by any of the Borrowers in the any
action, suit or proceeding instituted by any Bank or the Agent for payment or
performance of any of the Borrower's indebtedness, liabilities or obligations
under the Notes, the Temporary Loan Note, this Agreement, the Security
Documents, the other Loan Documents or otherwise.
Section 10.8 Further Assurances.
At any time and from time to time, upon the request of the Agent, each
of the Borrowers shall execute, deliver and acknowledge or cause to be executed,
delivered and acknowledged, such further documents and instruments and do such
other acts and things as the Agent may reasonably request in order to fully
effect the purposes of this Agreement, the Notes,
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the Temporary Loan Note, the Security Documents, the other Loan Documents and
any other agreements, instruments and documents delivered pursuant hereto or in
connection with the Loans, including, without limitation, the execution and
delivery to the Agent of mortgages in form and substance satisfactory to the
Agent covering all real property or interests therein acquired by any of the
Borrowers or any of their Subsidiaries (provided that any mortgage or owned
property may be subject to a first mortgage if herein permitted), and all leases
of real property entered into by any of the Borrowers or any of their
Subsidiaries as tenant or lessee, after the date of this Agreement, promptly
after such acquisition or the entering into of any such lease.
Section 10.9 Notices.
-------
All notices, requests, reports and other communications pursuant
to this Agreement shall be in writing, either by letter (delivered by hand or
commercial messenger service or sent by certified mail, return receipt
requested, except for routine reports delivered in compliance with Article 5
hereof which may be sent by ordinary first-class mail) or telegram, addressed as
follows:
(a) If to any of the Borrowers, which notice shall be deemed
delivered to and binding upon all of the Borrowers:
LINC Capital, Inc.
303 East Wacker Drive
Chicago, Illinois 60601
Attention: Treasurer
with a copy to:
General Counsel
LINC Capital, Inc.,
303 East Wacker Drive
Chicago, Illinois 60601
(b) If to the Agent:
Fleet Bank, N.A.
592 Fifth Avenue
New York, New York 10036
Attention: Leasing Division
with a copy (other than in the case of Borrowing Notices
and reports and other documents delivered in compliance
with Article 5 hereof) to:
Winston & Strawn
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200 Park Avenue
New York, New York 10166-4193
Attention: Susan Berkwitt-Malefakis, Esq.
Any notice, request or communication hereunder shall be deemed to have been
given on the day on which it is delivered by hand or such commercial messenger
service to such party at its address specified above, or, if sent by mail, on
the third Business Day after the day deposited in the mail, postage prepaid, or
in the case of telegraphic notice, when delivered to the telegraph company,
addressed as aforesaid. Any party may change the person or address to whom or
which notices are to be given hereunder, by notice duly given hereunder;
provided, however, that any such notice shall be deemed to have been given
hereunder only when actually received by the party to which it is addressed.
Notwithstanding any other provision contained in this Agreement or any of the
other Loan Documents, the Banks and the Agent shall be entitled to rely on any
instruction or authorization contained in any notice given, executed and
delivered by any one of the Borrowers pursuant to this Agreement, and any such
notice shall be and be deemed to be given on behalf of and binding on each of
the Borrowers. Each of the Borrowers hereby appoints each of the other Borrowers
as its agent for delivering and receiving notices pursuant to this Agreement.
Section 10.10 Counterparts.
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This Agreement may be signed in any number of counterparts with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
Section 10.11 Construction, Governing Law; Consent to
---------------------------------------
Jurisdiction.
------------
(a) THE HEADINGS USED IN THIS AGREEMENT AND THE TABLE OF
CONTENTS ARE FOR CONVENIENCE ONLY AND SHALL NOT BE DEEMED TO CONSTITUTE A PART
HEREOF. ALL USES HEREIN OF THE MASCULINE GENDER OR OF SINGULAR OR PLURAL TERMS
SHALL BE DEEMED TO INCLUDE USES OF THE FEMININE OR NEUTER GENDER OR PLURAL OR
SINGULAR TERMS, AS THE CONTEXT MAY REQUIRE. THIS AGREEMENT, THE NOTES, THE
TEMPORARY LOAN NOTE, THE SECURITY DOCUMENTS, THE OTHER LOAN DOCUMENTS AND ALL
OTHER DOCUMENTS AND INSTRUMENTS EXECUTED AND DELIVERED IN CONNECTION HEREWITH
AND THEREWITH, SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
(b) EACH OF THE BORROWERS IRREVOCABLY CONSENTS THAT ANY LEGAL
ACTION OR PROCEEDING AGAINST IT UNDER, ARISING OUT OF OR IN ANY MANNER RELATING
TO THIS AGREEMENT, THE NOTES, THE TEMPORARY LOAN NOTE OR ANY OTHER LOAN DOCUMENT
MAY BE BROUGHT IN ANY COURT OF THE STATE OF NEW YORK OR IN THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. EACH OF THE BORROWERS, BY
THE EXECUTION AND DELIVERY OF THIS AGREEMENT, EXPRESSLY AND IRREVOCABLY ASSENTS
AND SUBMITS TO THE PERSONAL JURISDICTION OF ANY OF SUCH COURTS
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IN ANY SUCH ACTION OR PROCEEDING. EACH OF THE BORROWERS FURTHER IRREVOCABLY
CONSENTS TO THE SERVICE OF ANY COMPLAINT, SUMMONS, NOTICE OR OTHER PROCESS
RELATING TO ANY SUCH ACTION OR PROCEEDING BY DELIVERY THEREOF TO IT BY HAND OR
BY MAIL IN THE MANNER PROVIDED FOR IN SECTION 10.9 HEREOF. EACH OF THE BORROWERS
HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY CLAIM OR DEFENSE IN ANY SUCH ACTION
OR PROCEEDING BASED ON ANY ALLEGED LACK OF PERSONAL JURISDICTION, IMPROPER VENUE
OR FORUM NON CONVENIENS OR ANY SIMILAR BASIS. NONE OF THE BORROWERS SHALL BE
ENTITLED IN ANY SUCH ACTION OR PROCEEDING TO ASSERT ANY DEFENSE GIVEN OR ALLOWED
UNDER THE LAWS OF ANY STATE OTHER THAN THE STATE OF NEW YORK UNLESS SUCH DEFENSE
IS ALSO GIVEN OR ALLOWED BY THE LAWS OF THE STATE OF NEW YORK. NOTHING IN THIS
SECTION 10.11 SHALL AFFECT OR IMPAIR IN ANY MANNER OR TO ANY EXTENT THE RIGHT OF
ANY BANK TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY OF THE
BORROWERS IN ANY JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED BY
LAW.
Section 10.12 Severability.
------------
The provisions of this Agreement are severable, and if any clause
or provision hereof shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction and shall not in
any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision in this Agreement in any jurisdiction. Each of the
covenants, agreements and conditions contained in this Agreement is independent
and compliance by any of the Borrowers with any of them shall not excuse non-
compliance by any of the Borrowers with any other. None of the Borrowers shall
take any action the effect of which shall constitute a breach or violation of
any provision of this Agreement.
Section 10.13 Binding Effect; No
Assignment or Delegation.
------------------------
This Agreement shall be binding upon and inure to the benefit of
each of the Borrowers and its successors and to the benefit of the Banks and the
Agent and their respective successors and assigns. The rights and obligations of
each of the Borrowers under this Agreement shall not be assigned or delegated
without the prior written consent of the Agent, and any purported assignment or
delegation without such consent shall be void. Each of the Borrowers and the
Subsidiaries also acknowledge and confirm that each Bank may hereafter sell or
assign or grant participation in the Loans to one or more lenders in accordance
with Section 10.14 and 10.15 hereof, so long as such other lenders are engaged
in business in (but not necessarily only in) the United States.
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Section 10.14 Participations by Banks.
-----------------------
(a) Each Bank ("Participating Bank") may singly or collectively
enter into participations (the "Participations") to one or more banks or other
entities ("Participant") in or to all or a portion of its rights and obligations
under this Agreement (including, without limitation, all or a portion of its
Commitment, the Loans owing to it, and the Note or Notes held by it) but
excluding any participation relating to the Temporary Loan Note; provided,
however, that
(i) the Participating Bank's obligations under this
Agreement (including, without limitation, its Commitment to the Borrowers
hereunder) shall remain unchanged;
(ii) the Participating Bank shall remain solely
responsible to the other parties hereto for the exercise of its rights and the
performance of its obligations hereunder (including, without limitation,
retaining sole and exclusive authority for voting and consenting in regard to
any matters arising hereunder) and the Participant Bank shall not undertake or
be entitled to undertake any of such rights, responsibilities or obligations;
(iii) the Participating Bank shall remain the holder of any
such Note or Temporary Loan Note, any other Loan Document which it may possess
hereunder, and any Collateral a security interest in which can be perfected by
possession, and none of the Security Documents or UCC financing statements,
shall be marked, modified, or amended in any manner;
(iv) each of the Borrowers, the Agent and the other Banks
shall continue to deal solely and directly with the Participating Bank in
connection with such Bank's rights and obligations under this Agreement, and the
loan documents evidencing the Participation (the "Participation Documents")
shall not represent or imply that the Participant has entered into a multi-
lender arrangement, joint venture, or tenancy in common with any or all of the
Banks and the Agent nor shall the Agent, any Loan party (other than the
Participating Bank, if so required by the Participant) be obligated to give the
Participant any Notice of any Default or Event of Default hereunder, or any
notice of, or opportunity to participate in any determination concerning any
consent or waiver, amendment of any Loan Document, substitution of collateral,
enforcement of any remedies, or any other rights of the Agent and Banks
hereunder;
(v) the Agent shall be notified of the Participation, but
such notification shall not be deemed to create any obligation of any kind
whatsoever of the Agent to the Participant;
(vi) the Participation Documents shall not create or imply
any right of recourse in the Participant against any of the Borrowers
notwithstanding (a) any reference in the Participation Documents to a sale,
fractional transfer, or assignment of the Participating Bank's ownership
interest in the Loan, Notes, or Temporary Loan Note, or (b) any provision in the
Participation Documents as to the creation of an agency or trust relationship
between the
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<PAGE>
Participating Bank and the Participant, repurchase obligations of the
Participating Bank, order of application loan payments received, offset rights
of any of the Borrowers or the Participating Bank or the Participant, the
segregation of loan payments or collateral in the Participation;
(vii) each of the Borrower's consent to the Participation
shall have been obtained, but such consent shall not be deemed to create any
right of recourse of the Participant to any of the Borrowers;
(b) Any Bank may, in connection with any Participation, disclose
to the Participant or proposed Participant Bank, any information relating to any
of the Borrowers furnished to the Bank by or on behalf of any of the Borrowers;
provided that, (i) prior to any such disclosure, the Participant or proposed
Participant shall agree to preserve the confidentiality of any confidential
information relating to any of the Borrowers received by it from said Bank; (ii)
other than with respect to the Participating Bank and the Participant, such
disclosure shall not create or imply any relationship between the Participant
and any Bank hereunder, nor does any Bank providing such confirmation make any
representation or warranty or assume any responsibility with respect to such
information.
Section 10.15 Assignments by Banks.
--------------------
(a) Each Bank may assign to one or more banks or other entities
that are Eligible Assignees (each, an "Assignee") all or a portion of its rights
and obligations under this Agreement (including, without limitation, all or a
portion of its Commitment, the Loans owing to it, and the Note or Notes held by
it) by the execution and delivery to the Agent of an Assignment and Acceptance;
provided, however that: (i) each such assignment shall be of a constant, and not
a varying, percentage of all of the assigning Bank's rights and obligations
under this Agreement; (ii) the amount of the Commitment of the assigning Bank
being assigned pursuant to each such assignment (determined as of the date of
the Assignment and Acceptance with respect to such assignment) shall in no event
be less than $5,0000,000 and shall be an integral multiple of $500,000; (iii)
such assignee shall have complied with the provisions of Section 10.16 hereof,
if applicable; and (iv) the Bank assignor or assignee shall have paid to the
Agent a $3,500 assignment administration fee. Upon such execution, delivery,
acceptance and recording, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least three (3)
Business Days after the execution thereof: (x) the Assignee thereunder shall be
a party hereto and, to the extent that rights and obligations hereunder have
been assigned to it pursuant to such Assignment and Acceptance, have the rights
and obligations of a Bank hereunder, and (y) the Bank assignor thereunder shall,
to the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Bank's rights and obligations under this Agreement, such Bank shall cease to be
a party hereto).
-147-
<PAGE>
(b) By executing and delivering an Assignment and Acceptance,
the Bank assignor thereunder and the Assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such assigning Bank makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other instrument or document
furnished pursuant hereto; (ii) such assigning Bank makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of any of the Borrowers or the performance or observance by any of the Borrowers
of any of its obligations under this Agreement or any other instrument or
document furnished pursuant hereto; (iii) such Assignee confirms that it has
received a copy of this Agreement, together with copies of such financial
statements and such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into such Assignment and
Acceptance; (iv) such Assignee will, independently and without reliance upon the
Agent, such assigning Bank or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (v) such
Assignee confirms that it is an Eligible Assignee; (vi) such Assignee appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement as are delegated to the Agent by the
terms hereof, together with such powers as are reasonably incidental thereto;
and (vii) such Assignee agrees that it will perform in accordance with their
terms all of the obligations which by the terms of this Agreement are required
to be performed by it as a Bank.
(c) Upon its receipt of an Assignment and Acceptance executed by
an assigning Bank and an Assignee, together with any Note subject to such
assignment and the written consent of the Borrowers and the Agent to such
Assignment, the Agent shall: (i) accept such Assignment and Acceptance, and (ii)
give prompt notice thereof to each of the Borrowers. Within five Business Days
after its receipt of such notice, each of the Borrowers, at its own expense,
shall execute and deliver to the Agent in exchange for the surrendered Note a
new Note to the order of such Assignee in an amount equal to the Commitment
assumed by it pursuant to such Assignment and Acceptance plus, if the Assignee
is already a Bank under this Agreement, the amount of its Commitment before
giving effect to the assignment, and, if the assigning Bank has retained a
Commitment hereunder, a new Note to the order of the assigning Bank in an amount
equal to the Commitment retained by it hereunder. Such new Note(s) shall be in
an aggregate principal amount equal to the aggregate principal amount of such
surrendered Note, shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in substantially the form of Exhibit A.
(d) Any Bank may, in connection with any assignment or proposed
assignment pursuant to this Section 10.15, disclose to the Assignee or proposed
assignee, any information relating to any of the Borrowers furnished to such
Bank by or on behalf of the Borrowers; provided that (i) prior to any such
disclosure, the Assignee or proposed assignee shall agree to preserve the
confidentiality of any confidential information relating to any of the Borrowers
received by it from such Bank, and (ii) such disclosure shall not create or
imply any relationship between the Assignee and any Bank hereunder, nor does any
Bank providing such
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<PAGE>
information make any representation or warranty or assume any responsibility
with respect to such information.
Section 10.16 Delivery of Tax Forms.
---------------------
Each Bank that is not organized under the laws of the United
States or a state thereof shall:
(a) deliver to the Borrowers and the Agent, on or prior to the
date of the execution and delivery of this Agreement or the date on which it
becomes a Bank hereunder, (i) two accurate and duly completed executed copies of
United States IRS Form 1001 or 4224, or successor applicable form, as the case
may be, and (ii) an accurate and complete IRS Form W-8 or W-9, or successor
applicable form, as the case may be;
(b) deliver to the Borrowers and the Agent two further accurate
and complete executed copies of any such form or certification on or before the
date that any such form or certification expires or becomes obsolete and after
the occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrowers; and
(c) obtain such extensions of time for filing and completing
such forms or certifications as may reasonably be requested by the Borrowers or
the Agent;
unless in any such case under clause (b) above an event (including, without
limitation, any change in treaty, law or regulation) has occurred prior to the
date on which any such delivery would otherwise be required which renders all
such forms inapplicable or which would prevent such Bank from duly completing
and delivering any such form with respect to it and such Bank so advises the
Borrowers and the Agent. Such Bank shall certify (i) in the case of a Form 1001
or 4224 that is provided pursuant to Section 10.14(a), that it is entitled to
receive payments under this Agreement without deduction or withholding of any
United States Federal income taxes; (ii) in the case of an IRS Form 1001 or 4224
that is provided pursuant to Section 10.14(b), to the extent legally entitled to
do so, that it is entitled to receive payments under this Agreement without, or
at a reduced rate of, deduction or withholding of any United States Federal
income taxes; and (iii) and in the case of a Form W-8 or W-9, that it is
entitled to an exemption from United States backup withholding tax. Each Person
not organized under the laws of the United States or a state thereof that is an
assignee hereunder shall, prior to the effectiveness of the related transfer, be
required to provide all of the forms and statements required pursuant to this
Section 10.14.
Section 10.17 Domicile of Loans.
-----------------
Each Bank may transfer and carry its Loans at, to or for the
account of any office, subsidiary or affiliate of such Bank. Notwithstanding
anything to the contrary contained herein, to the extent that a transfer of
Loans pursuant to this Section 10.17 would, at the time of such transfer, result
in increased costs under Section 2.16 or 10.3 hereof from those being charged by
the respective Bank prior to such transfer, then the Borrowers shall not be
obligated to pay such
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<PAGE>
increased costs (although the Borrowers shall be obligated to pay any other
increased costs of the type described above resulting from changes after the
date of the respective transfer.)
Section 10.18 Scope of Agent's Lien.
Each Bank agrees that the Agent's Lien on the Collateral shall
secure only the Obligations and shall not secure any other obligation,
liability, or indebtedness of any of the Borrowers or any other Loan Party
having rights in the Collateral, notwithstanding the provisions of any agreement
between any Bank and any of the Borrowers or other Loan Party, and whether or
not the Agent or any of the other Banks are aware of such agreement.
Section 10.19 Effective Date of Representations and Warranties.
Notwithstanding any other provision of this Agreement or any of
the Security Documents, all representations and warranties which were made prior
to the date hereof in the Second Restated Agreement, any amendments or
supplements thereto or the Security Documents, shall remain effective and be
deemed to be and remain effective from and after the original date on which such
representations and warranties were made.
Section 10.20 Relief from Bankruptcy Stay.
Each of the Borrowers agrees that, in the event that any
Borrower, any Loan Party or any of the persons or parties constituting any
Borrower or a Loan Party shall (i) file with any bankruptcy court of competent
jurisdiction or be the subject of any petition under Title II of the U. S. Code,
as amended ("Bankruptcy Code"), (ii) be the subject of any order for relief
issued under the Bankruptcy Code, (iii) file or be the subject of any petition
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any present or future federal or state act
or law relating to bankruptcy, insolvency, or other relief for debtors, (iv)
have sought or consented to or acquiesced in the appointment of any trustee,
receiver, conservator, or liquidator, or (v) be the subject of an order,
judgment, or decree entered by any court of competent jurisdiction approving a
petition filed against such readjustment, liquidation, dissolution, or similar
relief under any present or future federal or state act or law relating to
bankruptcy, insolvency, or relief for debtors, the Banks and the Agent shall
thereupon be entitled and each of the Borrowers irrevocably consents to
immediate and unconditional relief from any automatic stay imposed by Section
362 of the Bankruptcy Code, or otherwise, on or against the exercise of the
rights and remedies otherwise available to the Banks and the Agent as provided
for herein, in the Notes, the Temporary Loan Notes, other loan documents
delivered in connection herewith and as otherwise provided by law, and each of
the Borrowers hereby irrevocably waives any right to object to such relief and
will not contest any motion by any Bank or the Agent seeking relief from the
automatic stay and each of the Borrowers will cooperate with the Banks and the
Agent, in any manner requested by the Agent, in their efforts to obtain relief
from any such stay or other prohibition.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed on the date first above written.
LINC CAPITAL, INC.
By: /s/ Allen P. Palles
--------------------------------
Title: CFO
-----------------------------
LINC QUANTUM ANALYTICS, INC.
By: /s/ M. Eileen O' Brien
--------------------------------
Title: VP & Treasurer
-----------------------------
<PAGE>
Commitment: FLEET BANK, N.A.
- ---------- as Agent and as a Bank
$25,000,000
(including $5,000,000 sublimit
for Temporary Loans)
By: /s/ Harris Mehos
--------------------------------
Title: Vice President
-----------------------------
Lending Office for Prime Rate
Loans and Eurodollar Loans and
Temporary Loans:
592 Fifth Avenue
New York, New York 10036
Attention: Harris Mehos, Leasing and
Transportation Finance
Address for Notices:
Fleet Bank, N.A.
592 Fifth Avenue
New York, New York 10036
Attention: Harris Mehos, Leasing and
Transportation Finance
Telecopier: (212) 819-6515
<PAGE>
Commitment: CORESTATES BANK, N.A.
- ----------
$20,000,000
By: /s/ Carmel Albano
--------------------------------
Title: Assistant Vice President
-----------------------------
Lending Office for Prime Rate
Loans and Eurodollar Loans:
CoreStates Bank, N.A.
1339 Chestnut Street
Widener Bldg., 11th Floor
P. O. Box 7618, FC: 1-8-11-24
Philadelphia, PA 19101-7618
Attention: Carmel Albano
Assistant Vice President
Address for Notices:
CoreStates Bank, N.A.
1339 Chestnut Street
Widener Bldg., 11th Floor
P. O. Box 7618, FC: 1-8-11-24
Philadelphia, PA 19101-7618
Attention: Carmel Albano
Assistant Vice President
Telecopier: (215) 786-5478
<PAGE>
Commitment: LASALLE NATIONAL BANK
- -----------
$13,000,000
By: /s/ Henry J. Munez
--------------------------------
Title: Commercial Lending Officer
-----------------------------
Lending Office for Prime Rate
Loans:
135 South LaSalle Street
LaSalle and Adams Streets
Chicago, IL 60603
Lending Office for Eurodollar
Loans:
135 South LaSalle Street
LaSalle and Adams Streets
Chicago, IL 60603
Attention: Henry Munez
Address for Notices:
135 South LaSalle Street
LaSalle and Adams Streets
Chicago, IL 60603
Attention: Henry Munez
Telecopier: (312) 750-6559
<PAGE>
Commitment: THE FIRST NATIONAL BANK OF CHICAGO
- -----------
$10,000,000
By: /s/ Craig Goldsmith
-----------------------------
Title: AVP
--------------------------
Lending Office for Prime Rate
Loans:
1 First National Plaza
Mail Suite 0084
Chicago, Illinois 60670-0084
Attention: Mr. Craig Goldsmith
Lending Office for Eurodollar
Loans:
1 First National Plaza
Mail Suite 0084
Chicago, Illinois 60670-0084
Attention: Craig Goldsmith
Address for Notices:
1 First National Plaza
Mail Suite 0084
Chicago, Illinois 60670-0084
Attention: Mr. Craig Goldsmith
Telecopier No. (312) 732-6222
<PAGE>
Commitment: EUROPEAN AMERICAN BANK
- -----------
$7,000,000
By: /s/ Chris Czaja
----------------------------
Title: Vice President
-------------------------
Lending Office for Prime Rate
Loans:
400 Oak Street
Garden City, New York 11530
Attention: Chris Czaja
Lending Office for Eurodollar
Loans:
400 Oak Street
Garden City, New York 11530
Attention: Chris Czaja
Address for Notices:
400 Oak Street
Garden City, New York 11530
Attention: Chris Czaja
Telecopier: (516) 357-1150
<PAGE>
ACKNOWLEDGED
The undersigned hereby confirms the accuracy of the representations and
warranties made in respect of it under the Loan Documents and agrees to be bound
by and observe each of the covenants, conditions and agreements applicable to it
under this Loan Agreement:
THE LINC GROUP, INC.
By: /s/ Allen P. Palles
------------------------------------
Title: CFO
---------------------------------
<PAGE>
EXHIBIT 10.7
THE LINC GROUP 1994 NONQUALIFIED
OPTION PLAN
EFFECTIVE DECEMBER 1, 1994
<PAGE>
THE LINC GROUP 1994 NONQUALIFIED
--------------------------------
OPTION PLAN
-----------
EFFECTIVE DECEMBER 1, 1994
--------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE I
- ---------
ESTABLISHMENT AND PURPOSE.......................... 1
1.1 Purpose.......................................................... 1
ARTICLE II
- ----------
DEFINITIONS................................. 1
2.1 "Affiliate"...................................................... 1
2.2 "Agreement" or "Option Agreement"................................ 1
2.3 "Board of Directors" or "Board".................................. 1
2.4 "Book Value per Share"........................................... 1
2.5 "Cause".......................................................... 2
2.6 "Code" or "Internal Revenue Code"................................ 2
2.7 "Commission"..................................................... 2
2.8 "Committee"...................................................... 2
2.9 "Common Stock"................................................... 2
2.10 "Company"........................................................ 2
2.11 "Disability"..................................................... 2
2.12 "Disinterested Person"........................................... 3
2.13 "Exchange Act"................................................... 3
2.14 "Fair Market Value".............................................. 3
2.15 "Grant Date"..................................................... 4
2.16 "Independent Third Party"........................................ 4
2.17 "Nonqualified Option" or "Option"................................ 4
2.18 "Option Period".................................................. 4
2.19 "Option Price"................................................... 4
2.20 "Participant".................................................... 4
2.21 "Plan"........................................................... 4
2.22 "Public Offering"................................................ 4
2.23 "Representative"................................................. 4
</TABLE>
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<PAGE>
Page
----
2.24 "Retirement"...................................................... 5
2.25 "Rule 16b-3"...................................................... 5
2.26 "Securities Act".................................................. 5
2.27 "Termination of Employment"....................................... 5
2.28 "Transfer"........................................................ 5
2.29 "Zimmerman Entity"................................................ 5
3.30 "Zimmerman Interest".............................................. 5
ARTICLE III
- -----------
ADMINISTRATION............................... 6
3.1 Committee Structure and Authority.................................. 6
ARTICLE IV
- ----------
STOCK SUBJECT TO PLAN........................... 8
4.1 Number of Shares................................................... 8
4.2 Release of Shares.................................................. 8
4.3 Restrictions on Shares............................................. 9
4.4 Shareholder Rights................................................. 9
4.5 Voting of Proxies.................................................. 9
4.6 Best Efforts To Register........................................... 9
4.7 Anti-Dilution......................................................10
ARTICLE V
- ---------
ELIGIBILITY; STOCK PROVISIONS..................10
5.1 Eligibility........................................................10
ARTICLE VI
- ----------
OPTIONS..................................11
6.1 General............................................................11
6.2 Grant and Exercise.................................................11
6.3 Terms and Conditions...............................................11
(a) Option Period...............................................11
(b) Option Price................................................11
(c) Exercisability..............................................11
(d) Method of Exercise..........................................11
(e) Company Loan or Guarantee...................................12
(f) Non-transferability of Options..............................12
-ii-
<PAGE>
Page
6.4 Termination by Reason of Death.....................................13
6.5 Termination by Reason of Disability or Retirement..................13
6.6 Other Termination..................................................13
6.7 Cashing Out of Option..............................................13
ARTICLE VII
- -----------
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN..................14
7.1 Right of First Refusal.............................................14
(a) Purchase by the Company.......................................14
(b) Purchase Price and Conditions.................................14
(c) Price.........................................................14
(d) Closing.......................................................14
(e) Purchase by Third Party.......................................15
(f) Committee Discretion..........................................15
7.2 Purchase of Stock Subsequent to a Termination of Employment........16
(a) Prior to Public Offering......................................16
(b) Subsequent to a Public Offering...............................16
(c) Price: Payment Terms.........................................16
(d) The Closing...................................................18
(e) Maximum Amount................................................18
(f) Purchase of Exercisable Options...............................19
(g) Committee Discretion..........................................20
7.3 Transfer of Shares.................................................20
7.4 Limited Transfer During Offering...................................20
7.5 Committee Discretion...............................................20
7.6 No Company Obligation..............................................20
7.7 Sale of Shares of Common Stock by Zimmerman........................21
ARTICLE VIII
- ------------
CHANGE IN CONTROL PROVISIONS.................................21
8.1 Impact of Event....................................................21
8.2 Definition of Change in Control....................................22
8.3 Change in Control Price............................................23
ARTICLE IX
- ----------
GENERAL PROVISIONS APPLICABLE TO THE PLAN....................23
9.1 Termination of Plan................................................23
9.2 Termination of Certain Obligations.................................23
-iii-
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<TABLE>
<CAPTION>
<S> <C> <C>
9.3 Withholding............................................................24
9.4 Rights With Respect to Continuance of Employment......................24
9.5 Amendments and Termination.............................................24
9.6 Notice to the Company of Participant's Election........................25
ARTICLE X
- ---------
MISCELLANEOUS....................................25
10.1 Indemnification of the Board and Committee.............................25
10.2 Interpretation.........................................................26
10.3 Validity...............................................................26
10.5 Assignment.............................................................26
10.6 Captions...............................................................26
10.7 Entire Agreement.......................................................26
10.8 General Provisions.....................................................26
(a) Representation................................................26
(b) No Additional Obligation......................................26
(c) Representation................................................26
(d) Controlling Law...............................................27
(e) Offset........................................................27
10.9 Mitigation of Excise Tax..............................................27
10.10 Rights with Respect to Continuance of Employment......................27
10.11 Options in Substitution for Options Granted by Other Corporations.....28
10.12 Procedure for Adoption................................................28
10.13 Procedure for Withdrawal..............................................28
10.14 Delay.................................................................28
</TABLE>
<PAGE>
THE LINC GROUP 1994 NONQUALIFIED
OPTION PLAN
EFFECTIVE DECEMBER 1, 1994
ARTICLE I
---------
ESTABLISHMENT AND PURPOSE
-------------------------
1.1 Purpose. The LINC Group 1994 Nonqualified Option Plan is hereby
established effective December 1, 1994 by The LINC Group, Inc. The purpose of
the Plan is to promote the overall financial objectives of the Company and its
stockholders by motivating those persons selected to participate in the Plan to
achieve long-term growth in stockholder equity in the Company and by retaining
the association of those individuals who are instrumental in achieving this
growth.
ARTICLE II
----------
DEFINITIONS
-----------
The following sections of this Article II provide basic definitions of
terms used throughout the Plan, and whenever used herein in the capitalized
form, except as otherwise expressly provided, the term shall be deemed to have
the following meanings:
2.1 "Affiliate" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated association or other
entity (other than the Company) that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company including, without limitation, any member of an affiliated group of
which the Company is a common parent corporation as provided in Section 1504 of
the Code.
2.2 "Agreement" or "Option Agreement" means, individually or
collectively, any Agreement entered into between a Participant and the Company
pursuant to the Plan whereby an Option is granted to a Participant.
2.3 "Board of Directors" or "Board" means the Board of Directors of the
Company.
2.4 "Book Value per Share" means the book value per share of the Common
Stock as of the relevant date determined on a fully diluted basis in accordance
with generally accepted accounting principles consistently applied. Book value
shall be determined using audited financial statements for the date as of which
the determination is to be made, if available, but if not otherwise normally
available for such date, unaudited statements prepared by the Company are to be
used. If audited financial statements are in the process of preparation when a
determination would otherwise be made hereunder, but are not yet complete,
unaudited
<PAGE>
statements prepared by the Company are to be used and an appropriate adjustment
made, if necessary, on completion of the audit. If unaudited statements
prepared by the Company have been used, and no audit is in preparation which
would give rise to an automatic adjustment as hereinabove provided, such
unaudited statement shall be final and binding upon all Participants. If the
Company shall have more than one class of stock outstanding, then the book
value of the shares of any class shall be computed as to give effect to the
relative rights, preferences, qualifications and limitations of each such
class.
2.5 "Cause" shall mean, for purposes of whether and when a Participant
has incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate the written agreement or arrangement between
the Participant and the Company or an Affiliate for Cause as defined in such
agreement or arrangement, or in the event there is no such agreement or
arrangement or the agreement or arrangement does not define the term "cause,"
then Cause shall mean (a) any act or failure to act deemed to constitute cause
under the Company's established practices, policies or guidelines applicable to
the Participant or (b) the Participant's act or omission to act which
constitutes gross misconduct with respect to the Company or an Affiliate in any
material respect.
2.6 "Code" or "Internal Revenue Code" means the Internal Code of 1986, as
amended, final Treasury Regulations thereunder and any subsequent Internal
Revenue Code.
2.7 "Commission" means the Securities and Exchange Commission or any
successor agency.
2.8 "Committee" means those persons appointed by the Board of Directors
to administer the Plan, as further described in the Plan.
2.9 "Common Stock" means the shares of Common Stock of the Company,
$0.001 par value per share, whether presently or hereafter issued, and any other
stock or security resulting from adjustment thereof as described in Section 4.7
or the common stock of any successor to the Company which is designated for the
purpose of the Plan.
2.10 "Company" means The LINC Group, Inc. and includes any successor or
assignee corporation or corporations into which the Company may be merged,
changed or consolidated; any corporation for whose securities the securities of
the Company shall be exchanged; and any assignee of or successor to
substantially all of the assets of the Company.
2.11 "Disability" means a mental or physical illness that entitles the
Participant to receive benefits under the long term disability plan of the
Company or an Affiliate, or if the Participant is not covered by such a plan or
the Participant is not an employee of the Company or an Affiliate, a mental or
physical illness that renders a Participant totally and permanently incapable of
performing the Participant's duties for the Company or an Affiliate. The
determination of Disability shall be made by the Committee. The determination of
Disability
-2-
<PAGE>
for purposes of the Plan shall not be construed to be an admission of disability
for any other purpose.
2.12 "Disinterested Person" shall have the meaning set forth in Rule
16b-3, or any successor definition adopted by the Commission and shall mean a
person who is also an "outside director" under Section 162(m) of the Code.
2.13 "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
2.14 "Fair Market Value" means:
(a) prior to a Public Offering, the value determined on the basis of
the good faith determination of the Committee and without regard to whether
the Common Stock is restricted, illiquid or represents a minority
interest, unless expressly provided otherwise in an Agreement; and
(b) on or after a Public Offering, the value determined on the basis
of the good faith determination of the Committee, without regard to whether
the Common Stock is restricted or represents a minority interest, pursuant
to the applicable method described below:
(i) if the Common Stock is listed on a national securities
exchange or quoted on The Nasdaq Stock Market ("NASDAQ"), the closing
price of the Common Stock on the relevant date (or, if such date is
not a business day or a day on which quotations are reported, then on
the immediately preceding date on which quotations were reported), as
reported by the principal national exchange on which such shares are
traded (in the case of an exchange) or by the NASDAQ, as the case may
be;
(ii) if the Common Stock is not listed on a national securities
exchange or quoted on the NASDAQ, but is actively traded in the over-
the-counter market, the average of the closing bid and asked prices
for the Common Stock on the relevant date (or, if such date is not a
business day or a day on which quotations are reported, then on the
immediately preceding date on which quotations were reported), or the
most recent preceding date for which such quotations are reported;
and
(iii) if, on the relevant date, the Common Stock is not publicly
traded or reported as described in (i) or (ii), the value determined
in good faith by the Committee.
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2.15 "Grant Date" means the date that as of which an Option is granted
pursuant to the Plan.
2.16 "Independent Third Party" means a person or entity who is not (a) an
employee of the Company or of any Affiliate or (b) a Zimmerman Entity.
2.17 "Nonqualified Option" or "Option" means an option to purchase Common
Stock in the Company granted under the Plan other than an incentive stock option
within the meaning of Section 422 of the Code.
2.18 "Option Period" means the period during which the Option shall be
exercisable in accordance with the Agreement and the Plan.
2.19 "Option Price" means the price at which the Company's Common Stock
may be purchased under an Option as provided in Section 6.3.
2.20 "Participant" means a person who satisfies the eligibility conditions
of Article V and to whom an Option has been granted by the Committee under the
Plan, and in the event a Representative is appointed for a Participant or a
former spouse becomes a Representative, then the term "Participant" shall mean
such appointed Representative, successor Representative, or former spouse as the
case may be. The term shall also include a trust for the benefit of the
Participant, the Participant's Parents, spouse or descendants, or a custodian
under a uniform gifts to minors act or similar statute for the benefit of the
Participant's descendants, to the extent permitted by the Committee and not
inconsistent with the Rule 16b-3. Notwithstanding the foregoing, the term
"Termination of Employment" shall mean the Termination of Employment of the
Participant.
2.21 "Plan" means The LINC Group 1994 Nonqualified Option Plan, as herein
set forth and as may be amended from time to time.
2.22 "Public Offering" means the initial public offering of shares of
Common Stock under the Securities Act.
2.23 "Representative" means (a) the person or entity acting as the
executor or administrator of a Participant's estate pursuant to the last will
and testament of a Participant or pursuant to the laws of the jurisdiction in
which the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been permissibly transferred; provided that
only one of the foregoing shall be the Representative at any point in time as
determined under applicable law and recognized by the Committee.
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2.24 "Retirement" means the Participant's Termination of Employment after
attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or an Affiliate, if the Participant is covered by such plan, and if
the Participant is not covered by such a plan, then age 65, or age 55 with the
accrual of 10 years service.
2.25 "Rule 16-b3" means Rule 16b-3, as promulgated under the Exchange Act,
as amended from time to time, or any successor thereto.
2.26 "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
2.27 "Termination of Employment" means the occurrence of any act or event
whether pursuant to an employment agreement or otherwise that actually or
effectively causes or results in the person's ceasing, for whatever reason, to
be an officer, director or employee of the Company, any Affiliate or LINC Anthem
Corporation, including, without limitation, death, disability, dismissal,
severance at the election of the Participant, retirement as determined by the
Committee, or severance as a result of the discontinuance, liquidation, sale or
transfer by the Company or its Affiliates of all businesses owned or operated by
the Company or its Affiliates (other than a transfer to a Zimmerman Entity). A
transfer of employment to LINC Anthem corporation shall not constitute a
Termination of Employment.
2.28 "Transfer" means any sale, gift, assignment, distribution,
conveyance, pledge, hypothecation, encumbrance or other transfer of title,
whether by operation of law or otherwise.
2.29 "Zimmerman Entity" means each and any of Martin E. Zimmerman, his
spouse, his or her heirs, and any group (within the meaning of Section 13(d)(3)
of the Exchange Act) of which any of Martin E. Zimmerman, his or her spouse or
their heirs, is a member for purposes of acquiring, holding or disposing of
securities of the Company, any trust established by or for the benefit of any of
the foregoing and any other entity controlled by or for the benefit of the
foregoing.
2.30 "Zimmerman Interest" means the beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of the Zimmerman
Entities in the outstanding voting securities of the Company entitled to vote
generally in the election of directors or such other securities as may be
specifically referenced.
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ARTICLE III
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ADMINISTRATION
--------------
3.1 Committee Structure and Authority. The Plan shall be administered by
the Committee which, except as provided herein, may be comprised of one or more
persons. The Committee shall be the Compensation Committee of the Board of
Directors, unless such committee does not exist or the Board establishes a
committee whose sole purpose is the administration of the Plan; provided that
only those members of the Compensation Committee of the Board who participate in
the decision relative to Options under the Plan shall be deemed to be part of
the "Committee" for the purposes of Plan. In the absence of an appointment, the
Board shall be the Committee. A majority of the Committee shall constitute a
quorum at any meeting thereof (including telephone conference) and the acts of a
majority of the members present, or acts approved in writing by a majority of
the entire Committee without a meeting, shall be the acts of the Committee for
purposes of the Plan. The Committee may authorize any one or more of its
members or an officer of the Company to execute and deliver documents on behalf
of the Committee. On and after a Public Offering, the Committee shall be
comprised of only such number of Disinterested Persons as is required for
application of Rule 16b-3 and the deduction of compensation under Section 162(m)
of the Code. A member of the Committee shall not exercise any discretion
respecting himself or herself under the Plan. The Board shall have the
authority to remove, replace or fill any vacancy of any member of the Committee
upon notice to the Committee and the affected member. Any member of the
Committee may resign upon notice to the Board. The Committee may allocate among
one or more of its members, or may delegate to one or more of its agents, such
duties and responsibilities as it determines.
Among other things, the Committee shall have the authority, subject to the
terms of the Plan:
(a) to select those persons to whom Options may be granted from time
to time;
(b) to determine whether and to what extent Options are to be
granted hereunder;
(c) to determine the number of shares of Common Stock to be covered
by each Option granted hereunder;
(d) to determine the terms and conditions of any Options granted
hereunder (including, but not limited to, the Option Price, the Option Period,
any exercise restriction or limitation and any exercise acceleration or
forfeiture waiver regarding any Option and the shares of Common Stock relating
thereto);
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(e) to adjust the terms and conditions, at any time or from time to
time, of any Option, subject to the limitations of Section 9.5;
(f) to determine to what extent and under what circumstances Common
Stock and other amounts payable with respect to an Option shall be
deferred;
(g) to determine under what circumstances an Option may be settled in
cash or Common Stock;
(h) to provide for the forms of Agreement to be utilized in
connection with the Plan;
(i) to determine whether a Participant has a Disability or a
Retirement;
(j) to determine what securities law requirements are applicable to
the Plan, Options, and the issuance of shares of Common Stock and to
require of a Participant that appropriate action be taken with respect to
such requirements;
(k) to cancel, with the consent of the Participant or as otherwise
provided in the Plan or an Agreement, outstanding Options;
(l) to interpret and make a final determination with respect to the
remaining number of shares of Common Stock available under the Plan;
(m) to require as a condition of the exercise of an Option or the
issuance or transfer of a certificate of Common Stock, the withholding from
a Participant of the amount of any federal, state or local taxes as may be
necessary in order for the Company or any other employer to obtain a
deduction or as may be otherwise required by law;
(n) to determine whether and with what effect an individual has
incurred a Termination of Employment;
(o) to determine whether the Company or any other person has a right
or obligation to purchase Common Stock from a Participant and, if so, the
terms and conditions on which such Common Stock is to be purchased;
(p) to determine the restrictions or limitations on the transfer of
Common Stock;
(q) to determine whether an Option is to be adjusted, modified or
purchased, or is to become fully exercisable, under the Plan or the terms
of an Agreement;
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(r) to determine the permissible methods of Option exercise and
payment, including cashless exercise arrangements;
(s) to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan; and
(t) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Option issued under the Plan (and any Agreement) and to otherwise
supervise the administration of the Plan. The Committee's policies and
procedures may differ with respect to Options granted at different times or to
different Participants.
Any determination made by the Committee pursuant to the provisions of the
Plan shall be made in its sole discretion, and in the case of any determination
relating to an Option, may be made at the time of the grant of the Option or,
unless in contravention of any express term of the plan or an Agreement, at any
time thereafter. All decisions made by the Committee pursuant to the provisions
of the Plan shall be final and binding on all persons, including the Company and
Participants. Any determination shall not be subject to de novo review if
challenged in court.
ARTICLE IV
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STOCK SUBJECT TO PLAN
---------------------
4.1 Number of Shares. Subject to the adjustment under Section 4.6, the
total number of shares of Common Stock reserved and available for distribution
pursuant to Options under the Plan shall be 1,000,000 shares of Common Stock
authorized for issuance on the Effective Date. Such shares may consist, in
whole or in part, of authorized and unissued shares or treasury shares.
4.2 Release of Shares. If any shares of Common Stock that have been
optioned cease to be subject to an Option, if any shares of Common Stock that
are subject to any Option are forfeited, if any Option otherwise terminates
without issuance of shares of Common Stock being made to the Participant, or if
any shares (whether or not restricted) of Common Stock are received by the
Company in connection with the exercise of an Option, such shares, in the
discretion of the Committee, may again be available for distribution in
connection with Options under the Plan.
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4.3 Restrictions on Shares. Shares of Common Stock issued upon exercise
of an Option shall be subject to the terms and conditions specified herein and
to such other terms, conditions and restrictions as the Committee in its
discretion may determine or provide in the Option Agreement and under applicable
law. The Company shall not be required to issue or deliver any certificates for
shares of Common Stock, cash or other property prior to (i) the listing of such
shares on any stock exchange (or other public market) on which the Common Stock
may then be listed (or regularly traded), (ii) the completion of any
registration or qualification of such shares under federal or state law, or any
ruling or regulation of any government body which the Committee determines to be
necessary or advisable, and (iii) the satisfaction of any applicable withholding
obligation in order for the Company or an Affiliate to obtain a deduction with
respect to the exercise of an Option. The Company may cause any certificate for
any share of Common Stock to be delivered to be properly marked with a legend or
other notation reflecting the limitations on transfer of such Common Stock as
provided in the Plan or as the Committee may otherwise require. The Committee
may require any person exercising an Option to make such representations and
furnish such information as it may consider appropriate in connection with the
issuance or delivery of the shares of Common Stock in compliance with applicable
law or otherwise. Fractional shares shall not be delivered, but shall be rounded
to the next lower whole number of shares.
4.4 Shareholder Rights. No person shall have any rights of a shareholder
as to shares of Common Stock subject to an Option until, after proper exercise
of the Option or other action required, such shares shall have been recorded on
the Company's official shareholder records as having been issued or transferred.
Upon exercise of the Option or any portion thereof, the Company will have thirty
(30) days in which to issue the shares, and the participant will not be treated
as a shareholder for any purpose whatsoever prior to such issuance. No
adjustment shall be made for cash dividends or other rights for which the record
date is prior to the date such shares are recorded as issued or transferred in
the Company's official shareholder records, except as provided herein or in an
Agreement. Upon the exercise of an Option prior to a Public Offering, share
certificates shall be issued in the name of the Participant in the discretion of
the Committee may be deposited with the Company in escrow or as the Committee
may otherwise direct with related stock powers signed by the Participant.
4.5 Voting of Proxies. All Shares of Common Stock issued upon exercise of
an Option shall be subject to the terms and conditions respecting the granting
and voting of proxies as provided in the Option Agreement.
4.6 Best Efforts To Register. If there has been a Public Offering, the
Company will register under the Securities Act the Common Stock delivered or
deliverable pursuant to Options on Commission Form S-8 if available to the
Company for this purpose (or any successor or alternate form that is
substantially similar to that form to the extent available to effect such
registration), in accordance with the rules and regulations governing such
forms, as soon as such forms are available for registration to the Company for
this purpose. The company will use its best efforts to cause the registration
statement to become effective as soon as possible and will
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file such supplements and amendments to the registration statement as may be
necessary to keep the registration statement in effect until the earliest of (a)
one year following the expiration of the Option Period of the last Option
outstanding, (b) the date the Company is no longer a reporting company under the
Exchange Act and (c) the date all Participants have disposed of all shares
delivered pursuant to any Option. The Company may delay the foregoing obligation
if the Committee reasonably determines that any such registration would
materially and adversely affect the Company's interests of if there is no
material benefit to Participants.
4.7 Anti-Dilution. In the event of any Company stock dividend, stock
split, combination or exchange of shares, recapitalization or other change in
the capital structure of the Company, corporate separation or division of the
Company (including, but not limited to, a split-up, spin-off, split-off or
distribution to Company shareholders other than a normal cash dividend), sale by
the Company of all or a substantial portion of its assets (measured on either a
stand-alone or consolidated basis), reorganization, rights offering, a partial
or complete liquidation, or any other corporate transaction, Company share
offering or event involving the Company and having an effect similar to any of
the foregoing, then the Committee shall adjust or substitute, as the case may
be, the number of shares of Common Stock available for Options under the Plan,
the number of shares of Common Stock covered by outstanding Options, the
exercise price per share of outstanding Options, and any other characteristics
or terms of the Options as the Committee shall deem necessary or appropriate to
reflect equitably the effects of such changes to the Participants; provided,
however, that any fractional shares resulting from such adjustment shall be
eliminated by rounding to the next lower whole number of shares with appropriate
payment for such fractional share as shall reasonably be determined by the
Committee.
ARTICLE V
---------
ELIGIBILITY; STOCK PROVISIONS
-----------------------------
5.1 Eligibility. Except as herein provided, the persons who shall be
eligible to participate in the Plan and be granted Options shall be those
persons who are officers, directors or employees of the Company or any Affiliate
thereof who shall be in a position, in the opinion of the Committee, to make the
most significant contributions to the growth, management, protection and success
of the Company and its Affiliates. Of those persons described in the preceding
sentence, the Committee shall, from time to time, in its sole discretion, select
those persons who are to be granted Options and shall determine the terms and
conditions with respect thereto. In making this selection and in determining the
form of the Option, the Committee may give consideration to the functions and
responsibilities of the respective individual, the present and potential
contributions of such person to the Company and its Affiliates, the value of the
individual's service to the Company and its Affiliates and such other factors
deemed relevant by the Committee. No member of the Committee while so serving
shall be eligible to participate in the Plan, and the Committee may designate in
writing other persons who are not eligible to participate in the Plan if such
persons would otherwise be eligible to participate in the Plan.
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ARTICLE VI
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OPTIONS
-------
6.1 General. The Committee shall have authority to grant Options
under the Plan at any time or from time to time. Options may be granted alone or
in addition to other Options and all Options shall be Non-Qualified Options. An
Option shall entitle the Participant to receive shares of Common Stock upon
exercise of such Option, subject to the Participant's satisfaction in full of
any conditions, restrictions or limitations imposed in accordance with the Plan
or an Agreement (the terms and provisions of which may differ from other
Agreements) including without limitation, payment of the Option Price.
6.2 Grant and Exercise. The grant of an Option shall occur as of the date
the Committee determines. Each Option granted under the Plan shall be evidenced
by an Agreement, in a form approved by the Committee, which shall embody the
terms and conditions of such Option and which shall be subject to the express
terms and conditions set forth in the Plan. Such Agreement shall become
effective upon execution by the Participant.
6.3 Terms and Conditions. Options shall be subject to such terms and
conditions as shall be determined by the Committee, including the following:
(a) Option Period. The Option Period of each Option shall be fixed
by the Committee; provided that no Option shall be exercisable more than
fifteen (15) years after the date the Option is granted.
(b) Option Price. The Option Price per share of the Common Stock
purchasable under an Option shall be determined by the Committee.
(c) Exercisability. Subject to Section 8.1, Options shall be
exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Committee. If the Committee provides that any
Option is exercisable only in installments, the Committee may at any time
waive such installment exercise provisions, in whole or in part. In
addition, the Committee may at any time accelerate the exercisability of
any Option.
(d) Method of Exercise. Subject to the provisions of this Article, a
Participant may exercise Options, in whole or in part, at any time during
the Option Period by the Participant's giving written notice of exercise on
a form provided by the Committee (if available) to the Company specifying
the number of shares of Common Stock subject to the Option to be purchased.
Such notice shall be accompanied by payment in full of the
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purchase price by cash or check or such other form of payment as the
Company may accept. If approved by the Committee, payment in full or in
part may also be made (i) by delivering Common Stock already owned by the
Participant having a total Fair Market Value on the date of such delivery
equal to the Option Price; (ii) by the execution and delivery of a note or
other evidence of indebtedness (and any security agreement thereunder)
satisfactory to the Committee and permitted in accordance with Section
6.3(e); (iii) by authorizing the Company to retain shares of Common Stock
which would otherwise be issuable upon exercise of the Option having a
total Fair Market Value on the date of delivery equal to the Option Price;
or (iv) by any combination of the foregoing. No shares of Common Stock
shall be issued until full payment therefor has been made. A Participant
shall have all of the rights of a shareholder of the Company holding the
class of Common Stock that is subject to such Option (including, if
applicable, the right to vote the shares and the right to receive
dividends), when the Participant has given written notice of exercise, has
paid in full for such shares and such shares have been recorded on the
Company's official shareholder records as having been issued or
transferred.
(e) Company Loan or Guarantee. Upon the exercise of any Option and
subject to the pertinent Agreement and the discretion of the Committee, the
Company may at the request of the Participant:
(i) lend to the Participant, with recourse, an amount equal to
such portion of the Option Price as the Committee may
determine; or
(ii) guarantee a loan obtained by the Participant from a
third-party for the purpose of tendering the Option Price.
The terms and conditions of any loan or guarantee, including the term,
interest rate, and any security interest thereunder, shall be determined by
the Committee, except that no extension of credit or guarantee shall
obligate the Company for an amount to exceed the lesser of the aggregate
Fair Market Value per share of the Common Stock on the date of exercise,
less the par value of the shares of Common Stock to be purchased upon the
exercise of the Option, or the amount permitted under applicable laws or
the regulations and rules of the Federal Reserve Board and any other
governmental agency having jurisdiction.
(f) Non-transferability of Options. Except as provided herein or in
an Agreement, no Option or interest therein shall be transferable by the
Participant other than by will or by the laws of descent and distribution,
and all Options shall be exercisable during the Participant's lifetime only
by the Participant. If and to the extent transferability is permitted by
Rule 16b-3 and except as otherwise provided herein or by an Agreement,
every Option granted hereunder shall be freely transferable, but only if
such transfer is exempt under Rule 16b-3 or is pursuant to a domestic
relations order
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which would be a "qualified domestic relations order" as defined in Section
414 of the Code if such applied to the Option, but only to the extent
consistent with an Option's intended status as an Incentive Option.
6.4 Termination by Reason of Death. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to death, any unexpired and unexercised Option held by such
Participant shall thereafter be fully exercisable for a period of one (1) year
(or such other period or no period as the Committee may specify) immediately
following the date of such death or until the expiration of the Option Period,
whichever period is the shorter.
6.5 Termination by Reason of Disability of Retirement. Unless otherwise
provided in an Agreement or determined by the Committee, if a Participant incurs
a Termination of Employment due to a disability or Retirement, any unexpired and
unexercised Option held by such Participant shall thereafter be fully
exercisable by the Participant for the period of one (1) year (or such other
period or no period as the Committee may specify) immediately following the date
of such Termination of Employment or until the expiration of the Option Period,
whichever period is shorter. The Participant's death at any time following a
Termination of Employment due to Disability shall not affect the foregoing.
6.6 Other Termination. Unless otherwise provided in an Agreement or
determined by the Committee, if the Termination of Employment is involuntary on
the part of the Participant but is not due to death, Disability, Retirement or
with Cause, any Option held by such Participant shall thereupon terminate,
except that such Option, to the extent then exercisable, may be exercised for
the lesser of the three-month period commencing with the date of such
Termination of Employment or until the expiration of the Option Period. If the
Participant incurs a Termination of Employment which is voluntary (other than
due to Retirement) or due to Cause, the Option shall terminate immediately. The
death or Disability of a Participant after a Termination of Employment otherwise
provided herein shall not extend the exercisability of the time permitted to
exercise an Option.
6.7 Cashing Out of Option. On receipt of written notice of exercise, the
committee may elect to cash out all or part of the portion of any Option (for
which, on or after a Public Offering, at lease six months has elapsed since the
Grant Date (provided that such limitation shall not apply to an Option granted
to a Participant who has subsequently died)) to be exercised by paying the
Participant an amount, in cash or Common Stock, equal to the excess of the Fair
Market Value of the Common Stock that is subject to the Option over the Option
Price times the number of shares of Common Stock subject to the Option on the
effective date of such cash out. Cash outs relating to Options held by
Participants who are actually or potentially subject to Section 16(b) of the
Exchange Act shall comply with the "window period" provisions of Rule 16b-3, to
the extent applicable.
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ARTICLE VII
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PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN
- ------------------------------------------------------
7.1 Right of First Refusal.
(a) Purchase by the Company. A Participant may sell shares of Common
Stock acquired upon the exercise of an Option to any person or organization,
other than the Company or a qualified plan maintained by the Company and
described in Section 401(a) of the Code, only after first offering to sell all
such shares of Common Stock to the Company (or, in the event the Company shall
assign its right to purchase such Common Stock, to the person to whom the
Company has assigned its right) as follows:
(b) Purchase Price and Conditions. The Participant who desires to sell
shares of Common Stock acquired upon the exercise of an Option ("Offered
Securities") shall serve written notice upon the Company, indicating that the
Participant has a bona fide offer for the purchase of the Offered Securities and
stating the number and class of the Offered Securities, the name and address of
the person desiring to purchase them and the sales price and related terms of
payment, and enclosing photocopies of all written communications regarding such
sale and a statement that the Participant intends to sell such Offered
Securities at the offered price and terms. Said notice shall also contain an
offer to sell the Offered Securities to the Company, upon the same terms and
conditions (other than price) as set forth in the aforesaid bona fide offer of
purchase and at a price determined as set forth in Section 7.1(c) below. For a
period sixty (60) days (five (5) days if the offer is subsequent to a Public
Offering), the Company shall have the option to purchase any or all of the
Offered Securities by giving written notice thereof to the Participant;
provided, however, that if the Company (or the person to whom the Company may
assign its rights hereunder) shall not purchase all of the Offered Securities,
such Offered Securities may be sold to the third party offeror subject to the
terms of Section 7.1(e). If the Company (or the person to whom the Company
shall assign its right hereunder) elects to exercise its option to purchase the
Offered Securities, the sale shall be consummated as provided in Section 7.1(d).
(c) Price. If the offer to sell the shares of Common Stock pursuant to
this Section 7.1 precedes a Public Offering, the price shall be the lesser of
(i) the price set forth in the bona fide offer to purchase, or (ii) the
aggregate Book Value of such shares. If the offer to purchase shares of Common
Stock pursuant to this Section 7.1 is subsequent to the date of a Public
Offering, the price shall be the lesser of (x) the price set forth in the bona
fide offer to purchase the Common Stock and (y) the Fair Market Value of such
shares.
(d) Closing. The sale of Offered Securities shall be consummated within
fifteen (15) days after the close of the sixty (60) day (or five day, as the
case may be)
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period described in section 7.1(b), unless another date shall be agreed upon by
the Participant and the Company, at the principal executive offices of the
Company or such other location as the parties may mutually agree. At the
closing, the Participant shall deliver to the Company stock certificates duly
endorsed for transfer, or accompanied by duly endorsed stock powers,
representing all of the Offered Securities, free and clear of all claims, liens
or encumbrances (other than the restrictions pursuant to this Plan) together
with such other documentation as legal counsel for the Company may reasonably
require. If the Board shall determine, it may withhold from payment to the
Participant, or require the Participant to pay to the Company such amount as the
Board may deem necessary to entitle the Company to a current income tax
deduction in an amount equal to the income reportable by the Participant.
(e) Purchase by Third Party. In the event that the Company (or any
person to whom the Company may assign its rights hereunder) shall not exercise
the option to purchase, as provided herein, all of the Offered Securities, the
offer shall be considered to have been rejected and the offering Participant
shall have the right to dispose of all, but not less than all, of the Offered
Securities to the person named in the bona fide offer of purchase at the price
and upon the terms and conditions set forth in the offer and to consummate the
resulting transaction at any time during the thirty (30) days immediately
following the expiration of the offer made to the Company. At or prior to the
closing of such transaction, the transferor shall deliver to the Company such
amount of cash as the Committee may deem necessary or appropriate, or as may be
required or as the Company may be entitled for federal, state or local income
tax purposes and the Company shall not be required to recognize the transferee
as the shareholder of record until such amount shall be tendered. In the event
such transaction is not consummated within thirty (30) days following the
termination of the Company's option described herein, the Offered Securities may
not be sold without the Participant again complying with the provisions of this
Section. Offered Securities transferred pursuant to this Section 7.1 and the
transferee thereof shall be subject to all the terms and conditions of this Plan
and the Agreement pursuant to which the Participant acquired the Common Stock,
including, without limitation, any restrictions on transfer of Common Stock
provided in this Section 7.1, and the transferee shall be considered for all
purposes of this Plan, as the Participant. Any transfer of Offered Securities
made in conflict or derogation of the terms of this Plan shall be void.
(f) Committee Discretion. Notwithstanding any provision herein to the
contrary, the Company may upon determination by the Committee assign its right
to purchase Offered Securities hereunder, whereupon the assignee of such right
shall have all the rights, duties and obligations of the Company with respect to
the purchase of the Offered Securities.
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7.2 Purchase of Stock Subsequent to a Termination of Employment.
(a) Prior to Public Offering. If a Public Offering has not occurred and if
a Participant incurs a Termination of Employment, the Company, or such other
person as the Committee may designate in writing (provided such person accepts
in writing the obligations hereunder), shall have the obligation, to the extent
it may lawfully do so, to purchase from the Participant, and the Participant
shall have the obligation to sell, all of the Participant's shares of Common
Stock acquired upon the exercise of an Option to the Company (or the person
designated by the Committee) in accordance with the provisions of this Section
7.2.
(b) Subsequent to a Public Offering. After a Public Offering and if a
Participant incurs a Termination of Employment, the Company (or such other
person as the Committee may designate in writing) shall have the right (but not
the obligation) for the period of sixty (60) days immediately following the date
of the Termination of Employment, which right shall be exercisable in the sole
discretion of the Committee or the person designated by the Committee, whichever
is applicable, to cause the Participant to transfer any portion of the shares of
Common Stock acquired pursuant to the exercise of an Option to the Company (or
to the person the Committee may designate) in accordance with the applicable
provisions of this Section 7.2.
(c) Price; Payment Terms.
(1) In the event the Company shall have an obligation or right to
purchase the shares of Common Stock pursuant to Section 7.2(a) or (b) upon
or following a Termination of Employment other than for Cause, the purchase
price per share of Common Stock shall be determined as follows:
(i) In the event a Public Offering has not been declared
effective with respect to the Common Stock, but if more than fifty
percent (50%) of the outstanding shares of Common Stock are held by
persons or entities who are not employees or former employees of the
Company or an Affiliate or parties related to those employees or
former employees of the Company or an Affiliate, then the price shall
be determined as follows:
(x) If, in the most recent sale to a party (including the
exercise of warrants or similar rights) which is not related to an
employee or former employee of the Company or Affiliate, twenty
percent (20%) or more of the outstanding shares of Common Stock
were sold, the price will be the greater of the Book Value per
Share determined as of the close of the fiscal year of the Company
ending coincident with or next preceding the Termination of
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Employment and the price paid in the sale between the Company and
the outside purchaser.
(y) If, in the most recent sale to an unrelated party, less
than twenty percent (20%) of the outstanding shares of Common
Stock were sold, then the purchase price shall be the greater of
the Book Value per Share determined as of the close of the
Company's fiscal year ending coincident with or next preceding
the Termination of Employment and an amount equal to the average
of the sales price from each of the most recent sales within the
preceding three years, until such sales aggregate to 30% of the
outstanding Common Stock of the Company. The average will be
computed as the arithmetic mean, not the weighted average.
(ii) If a Public Offering has not occurred, but if fifty percent
(50%) or less of the outstanding shares of the Common Stock are held
by entities or persons who are not employees of the Company or an
Affiliate or persons related to those employees, then the purchase
price will be the then Book Value per Share of Company's Common Stock
as of the close of the Company's fiscal year ending coincident with or
next preceding the Termination of Employment.
(iii) If a Public Offering has occurred, then the purchase price
shall be the Fair Market Value of the Common Stock.
(2) In the event the Company shall have an obligation or right to
purchase shares of Common Stock pursuant to this Section 7.2 upon or
following a Termination of Employment for Cause, the purchase price shall
be equal to the lesser of (a) the Fair Market Value of the Common Stock,
(b) the Book Value per Share of the Company's Common Stock as of the close
of the Company's fiscal year next preceding the Termination of Employment,
or (c) the price per share for the Common Stock paid by the Participant
upon the exercise of the Option.
The purchase price for shares of Common Stock transferred to the
Company in accordance with this Section 7.2 shall be paid, in the sole
discretion of the Committee, in a single sum or in such number of equal
annual or monthly installments as the Committee may determine, but not to
exceed a period of 36 months. The first installment of the purchase price
shall be paid by the Company on the first day of the calendar quarter next
following the calendar quarter in which occurs the obligation or the
exercise of the Company's right to purchase the shares of Common Stock
pursuant to this Section 7.2 ("Closing Date"). Notwithstanding the
foregoing, if following the payment of the first installment, the Book
Value per Share, if applicable, is redetermined and increased as a result
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of the delivery of audited financial statements (provided Book Value per
Share is relevant in determining the amount paid by the Company), the
difference between the actual installment payments and the amount which
should have been payable shall be paid as soon as administratively
possible, and if following the payment of the first installment, the Book
Value per Share is redetermined and decreased as a result of the delivery
of audited financial statements (provided Book Value per Share is relevant
in determining the amount paid by the Company), the difference between the
actual installment payments and the amount which should have been payable
shall be divided by the number of remaining installment payments and such
amount shall be subtracted from the remaining installment payments.
Subsequent installments shall be due on the successive annual or monthly
(whichever the case) anniversary dates of the Closing Date. Interest shall
accrue from the Closing Date on the balance of the purchase price remaining
unpaid from time to time at the average quarterly commercial prime rate as
determined by the Committee, plus one hundred basis points and accrued
interest shall be payable together with each installment of the purchase
price paid on the annual anniversary of the Closing Date, including the
last installment payment. The interest rate will be set as of the Closing
Date and adjusted prospectively thereafter on the first day of each
following calendar quarter. The Company shall be entitled to prepay all or
part of the purchase price without penalty or premium. The Company shall be
entitled to withhold any amount when and as it deems appropriate, as may be
required or as the Company may be entitled for federal, state or local
income tax purposes.
(d) The Closing. The Participant's Common Stock acquired upon the exercise
of an Option shall be transferred at a closing at such place and time as the
Company designates. The Company shall give the Participant (or in the event of
his or her death, his or her Representative) at least 15 days' prior written
notice of the Closing Date and place of closing. At the closing the Participant
(or his or her representative) shall deliver to the Company stock certificate(s)
duly endorsed for transfer, or accompanied by duly endorsed stock powers,
representing all of the Common Stock acquired upon the exercise of an Option,
free and clear of all restrictions pursuant to this Plan) together with such
other documentation as the Company's legal counsel may reasonably require.
(e) Maximum Amount. Notwithstanding any provision herein to the contrary,
subject to the discretion of the Committee, in the event that during any fiscal
year of the Company the aggregate payments due Participants (and their
representatives) exceed 10% of the Company's after-tax net earnings for the
immediately preceding fiscal year of the Company, such payments shall be reduced
proportionately so that all such payments for the fiscal year equal an amount
not to exceed 10% of the Company's after-tax net earnings for the preceding
fiscal year. The portion of any payment to a Participant (or Representative)
which is reduced by application of this Section shall be credited with interest
from the date the portion of the payment is not paid until the date the payment
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is paid at a rate equal to the average quarterly commercial prime rate
determined by the Committee. The interest rate will be set as of the date the
payment is not paid and shall be adjusted prospectively thereafter on the first
day of each following quarter. The portion of any payment and accrued interest
which is not paid as a result of an application of the next to the preceding
sentence shall be payable as part of the installment payment(s) for the next
following year of the Company in addition to the installment payment(s)
originally due in that year, but all installment payments whether originally due
on said date or carried over by application of the preceding sentence and
accrued interest shall continue to be subject to the payment limitations of this
Section. In the event that, because of the limitation herein, the total purchase
price and any accrued interest shall not have been paid in their entirety by the
last scheduled installment date, then the payment of any such amounts shall be
deferred for consecutive one-year periods, to a maximum of five years, and shall
be paid on successive anniversaries of the last scheduled payment date, subject
to limitations of this Section. The Company shall be entitled to pay all or any
part of any payment or accrued interest which is not paid without penalty or
premium. The term "Company's after-tax earnings," as used herein, shall mean the
net income, after taxes, of the Company determined in the sole discretion of the
Committee. If, with respect to the purchase of any Common Stock by the Company
pursuant to the provisions of this Section, the Company shall be prohibited from
buying such shares as a result of the Company's not having sufficient capital as
determined under state law, its articles of incorporation or by-laws, any other
person designated by the Committee may purchase such shares.
(f) Purchase of Exercisable Options. Subject to the limitations stated
herein and unless otherwise provided in an Agreement, in the event the
Participant holds Options on the date of the Participant's Termination of
Employment (other than a Termination of Employment for Cause) which are
exercisable but have not been cancelled or exercised ("Remaining Options"), such
Remaining Options will be cancelled on the date of the Termination of Employment
without any further action of the Company or the Participant; provided the
Company shall have the right, in the sole discretion of the Committee, to pay
to the Participant with respect to such Remaining Options an amount ("Additional
Amount") equal to the difference between the amount per share of the Common
Stock subject to the Remaining Options which the Company would have paid for the
Common Stock had the Participant actually owned Common Stock and the exercise
price per share of the Remaining Options (but not less than zero). The time,
form and other conditions of any payment respecting such Additional Amount shall
be the same as the time, form and conditions as would apply respecting the
payment for shares of Common Stock pursuant to Section 7.2. In the event of a
Termination of Employment for Cause, all remaining Options shall be
simultaneously cancelled effective the date of the Termination of Employment.
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(g) Committee Discretion. The provisions of this Section 7.2 shall be
construed by the Committee in its sole discretion, and shall be subject to
such other terms and conditions as the Committee may from time to time
determine.
7.3 Transfer of Shares. A Participant may at any time make a Transfer of
shares of Common Stock received pursuant to the exercise of an Option to his or
her parents, spouse or descendants or to any trust for the benefit of the
foregoing or to a custodian under a uniform gifts to minors act to similar
statute for the benefit of any of the Participant's descendants. Any Transfer of
shares received pursuant to the exercise of an Option shall not be permitted or
valid unless and until the transferee agrees to be bound by the provisions of
the Plan, including, without limitation, Sections 4.5, 7.1, 7.2, 7.7 and 9.2,
and any provision respecting Common Stock under the Agreement of the
Participant, including, without limitation, the granting of a proxy with respect
to such Common Stock, in the same manner and to the same extent as the
Participant was bound thereby, provided that "Termination of Employment" shall
continue to refer to the Termination of Employment of the Participant.
7.4 Limited Transfer During Offering. In the event there is a Public
Offering pursuant to which shares of Common Stock shall be offered for sale in
an underwritten offering, a Participant shall not, during the period requested
by the underwriters managing the registered public offering, effect any public
sale or distribution of shares received directly or indirectly pursuant to an
exercise of an Option.
7.5 Committee Discretion. The Committee may in its sole discretion include
in any Agreement an obligation that the Company purchase a Participant's shares
of Common Stock received upon the exercise of an Option (including the purchase
of any unexercised Options which have not expired), or may obligate a
Participant to sell shares of Common Stock to the Company upon such terms and
conditions as the Committee may determine and set forth in an Agreement. The
provisions of this Article VII shall be construed by the Committee in its sole
discretion, and shall be subject to such other terms and conditions as the
Committee may from time to time determine. Notwithstanding any provision herein
to the contrary, the Company may upon determination by the Committee assign its
right to purchase shares of Common Stock this Article, whereupon the assignee of
such right shall have all the rights, duties and obligations of the Company with
respect to purchase of the shares of Common Stock.
7.6 No Company Obligation. None of the Company, an Affiliate or the
Committee shall have any duty or obligation to affirmatively disclose to a
record or beneficial holder of Common Stock or an Option, and such holder shall
have no right to be advised of any material information regarding the Company or
any Affiliate at any time prior to, upon or in connection with receipt or the
exercise of an Option or the Company's purchase of Common Stock or an Option
from such holder in accordance with the terms hereof.
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7.7 Sale of Shares of Common Stock by Zimmerman. If Martin E. Zimmerman
("Zimmerman") shall at any time sell any shares of Common Stock to an
Independent Third Party, he or she shall give each Participant notice thereof
not less than 30 days before consummation of such sale. Upon receipt of such
notice, each Participant shall either:
(a) if such notice so directs, sell to such proposed purchaser a
percentage of the Participant's shares of Common Stock owned and acquired
pursuant to the Plan equal to that percentage of all shares of Common Stock
owned by Zimmerman which are to be sold by Zimmerman to such purchaser (the
"Pro Rata Percentage") on the same terms and conditions, including at the
price per share of Common Stock to be paid, as in the sale by Zimmerman;
and
(b) have the option, exercisable upon notice to Zimmerman not later
than 15 days after such notice from Zimmerman, to sell the Pro-Rata
Percentage of the Shares owned by the Participant to such purchaser on the
same terms and conditions, including at the purchase price per share of
Common Stock to be paid, as in the sale by Zimmerman.
ARTICLE VIII
------------
CHANGE IN CONTROL PROVISIONS
----------------------------
8.1 Impact of Event. Notwithstanding any other provision of the Plan to
the contrary, in the event of a Change in Control (as defined in Section 8.2)
any Options outstanding as of the date such Change in Control and not then
exercisable shall become fully exercisable to the full extent of the original
grant. Notwithstanding any other provision of the Plan, unless the Committee
shall provide otherwise in an Agreement, the Committee may require that upon a
Change in Control all Options held by any Participant shall be surrendered to
the Company and the Participant shall receive cash, within 30 days of such
notice, in an amount equal to the amount by which the "Change in Control Price"
(as defined in Section 8.3) per share of Common Stock on the date of such
election shall exceed the amount which the Participant must pay to exercise the
Option per share of Common Stock under the Option (the "Spread") multiplied by
the number of shares of Common Stock granted under the Option as to which the
right granted hereunder shall have been exercised; provided, however, on and
after a Public Offering, that if the end of such 60-day period from and after a
Change in Control is within six months of the date of grant of the Option held
by a Participant (except a Participant who has died during such six month
period) who is an officer or director of the Company (within the meaning of
Section 16(b) of the Exchange Act), such Option shall be cancelled in exchange
for a payment to such Participant at the time of the Participant's Termination
of Employment, equal to the Spread multiplied by the number of shares of Common
Stock granted under the Option, plus interest on such amount at the prime rate
compounded annually and determined from time to time. With respect to any
Participant who is an officer or director of the Company (within
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the meaning of Section 16(b) of the Exchange Act), the 60-day period shall be
extended, if necessary, to include the "window period" of Rule 16(b)-3 which
first commences on or after the date of the Change in Control, and the Committee
shall have sole discretion, if necessary, to approve the Participant's exercise
hereunder and the date in which the Spread is calculated may be adjusted, if
necessary, to a later date if necessary to avoid liability to such Participant
under Section 16(b).
8.2 Definition of Change in Control. For purposes of the Plan, a "Change
in Control" shall mean the happening of any of the following events:
(a)(i) An acquisition of 50.1% by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a
"Person") of the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of the then outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock") or the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities") or (ii) the approval by the
shareholders of the Company of a reorganization, merger, consolidation,
complete liquidation or dissolution of the Company, the sale or disposition
of all or substantially all of the assets of the Company or similar
corporate transaction (in each case referred to in this Section 8.2 as a
"Corporate Transaction") or, if consummation of such Corporate Transaction
is subject, at the time of such approval by shareholders, to the consent of
any government or governmental agency, the obtaining of such consent
(either explicitly or implicitly); excluding, however, the following: (i)
any acquisition by or consummation of a Corporate Transaction with the
Company, an Affiliate or by an employee benefit plan (or related trust)
sponsored or maintained by the Company or an Affiliate, (ii) any
acquisition by or consummation of a Corporate Transaction with Zimmerman
Entity, or (iii) any acquisition or Corporate Transaction, if more than a
majority of the beneficial ownership of the entity resulting from the
acquisition or Corporate Transaction is held by Persons who held a majority
of the beneficial ownership of the Outstanding Company Common Stock or the
Outstanding Company Voting Securities before the acquisition or Corporate
Transaction; or
(b) A change in the composition of the Board such that the
individuals who, as of the date of the Public Offering, constitute the
Board (such Board shall be hereinafter referred to as the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board; provided, however, for purposes of this Section 8.2(b), that any
individual who becomes a member of the Board subsequent to the date of the
Company's Public Offering whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of
those individuals who are members of the Board and who were also members of
the Incumbent Board (or deemed to be such pursuant to this proviso) shall
be considered as though such individual were a member of the Incumbent
Board; but, provided, further, that any such individual
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whose initial assumption of office occurs as a result of either an actual
or threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board shall not be so considered as a member of the
Incumbent Board.
8.3 Change in Control Price. For purposes of the Plan, "Changes in Control
Price" means the higher of (a) the highest reported sales price of a share of
Common Stock in any transaction reported on the principal exchange on which such
shares are listed or on NASDAQ during the 60-day period prior to and including
the date of a Change in Control or if not traded on any exchange, then as
determined by the Committee; or (b) if the Change in Control is the result of a
tender or exchange offer or a Corporate Transaction, the highest price per share
of Common Stock paid in such tender or exchange offer or a Corporate
Transaction.
ARTICLE IX
----------
GENERAL PROVISIONS APPLICABLE TO THE PLAN
-----------------------------------------
9.1 Termination of Plan. This Plan shall terminate on December 31, 1999 or
at such earlier time as the Board may determine, and no Options shall be granted
under the Plan after that date. Any Options outstanding under the Plan at the
time of its termination shall remain in effect until they shall have been
exercised, expired or otherwise cancelled, settled or terminated as provided
herein or in the Agreement, and such outstanding Options shall not be affected
by such termination of the Plan. The provisions of the Plan in respect to the
full and final authority of the Committee under the Plan, other than the
authority to grant Options, shall continue notwithstanding the termination of
the Plan.
9.2 Termination of Certain Obligations. The rights and obligations of the
Company, Affiliates and Participants under Sections 4.5, 7.1, 7.2 and 7.7 shall
terminate upon the first to occur of the following events or dates:
(a) Upon the adoption by the Board of a plan for dissolution of the
Company, provided said plan is carried out diligently and substantially all
assets remaining after payment or provision for liabilities are distributed
to the Company's shareholders within a reasonable time thereafter; or
(b) Upon the consummation of a merger or consolidation as to which an
entity other than the Company is the surviving entity, unless the stock of
such surviving entity is owned by substantially the same parties and in
substantially the same proportions as the stock of the Company was owned
prior to such merger or consolidation; or
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(c) The first date on which less than twenty percent (20%) of the
shares of Common Stock are owned by the following, collectively: Martin E.
Zimmerman, his spouse, his or her ancestors and descendants, the estate of
any of them, any trusts for the benefit of any of them, any custodianships
for the benefit of any of them under a uniform gifts to minors act or
similar law; or
(d) The first date on which seventy-five (75%) or more of the shares
of Common Stock are held by persons or entities who have acquired such
shares in one or more public offerings made pursuant to registration
statements filed with the Securities and Exchange Commission, in
transactions described in and permitted by Rule 144 promulgated by said
Commission, or in transactions on a national securities exchange or
recognized over-the-counter market.
Termination of the Plan under this Section shall not impair or affect any
obligations or liabilities accrued prior to such termination.
9.3 Withholding. No later than the date as of which an amount first
becomes includible in the gross income of the Participant for Federal income tax
purposes with respect to any Option, the Participant shall pay to the Company
(or other entity identified by the Committee), or make arrangements satisfactory
to the Company or other entity identified by the Committee regarding the payment
of, any Federal, state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount required in order for the Company or an
Affiliate to obtain a current deduction. Unless otherwise determined by the
Committee, withholding obligations may be settled with Common Stock, including
Common Stock that is part of the Option that gives rise to the withholding
requirement provided that any applicable requirements under Section 16 of the
Exchange Act are satisfied. The obligations of the Company under the Plan shall
be conditional on such payment or arrangements, and the Company and its
Affiliates shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment otherwise due to the Participant.
9.4 Rights With Respect to Continuance of Employment. The Plan and any
Option granted under the Plan shall not confer upon any Participant any right
with respect to continuance of employment by the Company or any of its
Affiliates, nor shall they interfere in any way with the right of the Company or
any of its Affiliates, to terminate a Participant's employment at any time.
9.5 Amendments and Termination. The Board may amend, alter, or discontinue
the Plan at any time, but no amendment, alteration or discontinuation shall be
made which would (a) impair the rights of a Participant under an Option
theretofore granted without the Participant's consent, except such an amendment
made to cause the Plan to qualify for the exemption provided by Rule 16b-3 or
(b) disqualify the Plan from the exemption provided by Rule 16b-3, if
applicable. In addition, no such amendment shall be made without the approval of
the Company's shareholders to the extent such approval is required by law or
agreement.
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The Committee may amend the Plan at any time provided that (a) no amendment
shall impair the rights of any Participant under any Option theretofore granted
without the Participant's consent, (b) no amendment shall disqualify the Plan
from the exemption provided by Rule 16b-3, and (c) any amendment shall be
subject to the approval or rejection of the Board.
The Committee may amend the terms of any Option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Participant without the Participant's consent, except such an amendment made
to cause the Plan or Option to qualify for the exemption provided by Rule 16b-3.
The Committee may also substitute new Options for previously granted Options.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules, as
well as other developments and to grant Options which qualify for beneficial
treatment under such rules without shareholder approval.
9.6 Notice to the Company of Participant's Election. Any Participant who
exercises the election under Section 83 of the Code to have his or her receipt
of shares of Common Stock hereunder taxed currently, without regard to the
restrictions imposed under this Plan or an Agreement or law, shall provide the
Company with a copy of such election immediately upon making the election.
ARTICLE X
---------
MISCELLANEOUS
-------------
10.1 Indemnification of the Board and Committee. In addition to such other
rights of indemnification as they may have and to the extent permitted by law,
the Company shall indemnify, defend and hold harmless the Board, the Committee,
the members of the Committee, the officers of the Company, and any agent or
representative selected by the Board or Committee (collectively, "indemnified
party") against the reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or any threat thereof, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any act or omission in
connection with the Plan or any Option granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by legal counsel selected by the Company) or paid by them in satisfaction of a
judgment in any action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such
indemnified party is liable for gross negligence or gross misconduct in the
performance of his or her duties; provided that within 60 days after institution
of any such action, suit or proceeding the indemnified party may in writing
elect to defend the same at its sole expense, and if such
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election is made, the Company shall have no further liability or obligations to
the indemnified party under this Section.
10.2 Interpretation. Whenever necessary or appropriate in this Plan and
where the context so requires, the singular term and the related pronouns shall
include the plural and the masculine and feminine gender.
10.3 Governing Law. The Plan shall be governed by the laws of the State of
Illinois (other than its laws respecting choice of law).
10.4 Validity. If any provision of this Plan shall for any reason be held
to be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision hereof, and this Plan shall be construed as if such
invalid or unenforceable provision were omitted.
10.5 Assignment. This Plan shall inure to the benefit of and be binding
upon the parties hereto, and their respective successors and assigns.
10.6 Captions. The captions of this Plan are for convenience of reference
only and in no way define, limit or describe the scope or the intent of this
Plan or any part hereof, nor in any way affect this Plan or any part hereof.
10.7 Entire Agreement. This Plan and the Agreement constitute the entire
agreement with respect to the subject matter hereof and thereof, provided that
in the event of any inconsistency between the Plan and the Agreement, the terms
and conditions of this Plan shall control.
10.8 General Provisions.
(a) Representation. The Committee may require each person purchasing
or receiving shares pursuant to an Option to represent to and agree with
the Company in writing that such person is acquiring the shares without a
view to the distribution thereof. The certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
(b) No Additional Obligation. Nothing contained in the Plan shall
prevent the Company or an Affiliate from adopting other or additional
compensation arrangements for its employees.
(c) Representative. The Committee shall establish such procedures as
it deems appropriate for a Participant to designate a Representative to
whom any amounts payable in the event of the Participant's death are to be
paid.
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(d) Controlling Law. The Plan and all Options made and actions taken
thereunder shall be governed by and construed in accordance with the laws
of the State of Delaware (other than its law respecting choice of law). The
Plan shall be construed to comply with all applicable law, and to avoid
liability to the Company, an Affiliate or a Participant, including, without
limitation, liability under Section 16(b) of the Exchange Act.
(e) Offset. Any amounts owed to the Company or an Affiliate by the
Participant of whatever nature may be offset by the Company from the value
of any shares of Common Stock, cash or other thing of value under the Plan
or an Agreement to be transferred to the Participant, and no shares of
Common Stock, cash or other thing of value under the Plan or an Agreement
shall be transferred unless and until all disputes between the Company and
the Participant have been fully and finally resolved and the Participant
has waived all claims to such against the Company or an Affiliate.
10.9 Mitigation of Excise Tax. If any payment or right accruing to a
Participant under the Plan (without the application of this Section 10.9),
either alone or together with other payments or rights accruing to the
Participant from the Company or an Affiliate ("Total Payments") would constitute
a "parachute payment" (as defined in Section 280G of the Code and regulations
thereunder), such payment or right shall be reduced to the largest amount or
greatest right that will result in no portion of the amount payable or right
accruing under the Plan being subject to an excise tax under Section 4999 of the
Code or being disallowed as a deduction under Section 280G of the Code. The
determination of whether any reduction in the rights or payments under the Plan
is to apply shall be made by the Committee in good faith after consultation with
the Participant, and such determination shall be conclusive and binding on the
Participant. The Participant shall cooperate in good faith with the Committee in
making such determination and providing the necessary information for this
purpose. The foregoing provisions of this Section 10.9 shall apply with respect
to any person only if after reduction for any applicable federal excise tax
imposed by Section 4999 of the Code and federal income tax imposed by the Code,
the Total Payments accruing to such person would be less than the amount of the
Total Payments as reduced, if applicable, under the foregoing provisions of the
Plan and after reduction for only federal income taxes.
10.10 Rights with Respect to Continuance of Employment. Nothing contained
herein shall be deemed to alter the relationship between the Company or an
Affiliate and a Participant, or the contractual relationship between a
Participant and the Company or an Affiliate if there is a written contract
regarding such relationship. Nothing contained herein shall be construed to
constitute a contract of employment between the Company or an Affiliate and a
Participant. The Company or an Affiliate and each of the Participants continue
to have the right to terminate the employment or service relationship at any
time for any reason, except as provided in a written contract. The Company or an
Affiliate shall have no obligation to retain the Participant in its employ or
service as a result of the Plan. There shall be no inference as to the length of
employment or service hereby, and the Company or an Affiliate reserves the same
rights to
<PAGE>
terminate the Participant's employment or service as existed prior to the
individual becoming a Participant in the Plan.
10.11 Options in Substitution for Options Granted by Other Corporations.
Options may be granted under the Plan from time to time in substitution for
awards held by employees, directors or service providers of other corporations
who are about to become officers, directors or employees of the Company or an
Affiliate as the result of a merger or consolidation of the employing
corporation with the Company or an Affiliate, or the acquisition by the Company
or an Affiliate of the assets of the employing corporation, or the acquisition
by the Company or Affiliate of the stock of the employing corporation, as the
result of which it becomes a designated employer under the Plan. The terms and
conditions of the Options so granted may vary from the terms and conditions set
forth in the Plan at the time of such grant as the majority of the members of
the Committee may deem appropriate to conform, in whole or in part, to the
provisions of the awards in substitution for which they are granted.
10.12 Procedure for Adoption. Any Affiliate of the Company may by
resolution of such Affiliate's board of directors, with the consent of the Board
of Directors and subject to such conditions as may be imposed by the Board of
Directors, adopt the Plan for the benefit of its employees as of the date
specified in the board resolution.
10.13 Procedure for Withdrawal. Any Affiliate which has adopted the Plan
may, by resolution of the board of directors of such direct or indirect
subsidiary, with the consent of the Board of Directors and subject to such
conditions as may be imposed by the Board of Directors, terminate its adoption
of the Plan.
10.14 Delay. If at the time a Participant incurs a Termination of
Employment (other than due to Cause) or if at the time of a Change in Control,
the Participant is subject to "short-swing" liability under Section 16 of the
Exchange Act, any time period provided for under the Plan or an Agreement to the
extent necessary to avoid the imposition of liability shall be suspended and
delayed during the period the Participant would be subject to such liability,
but not more than six (6) months and one (1) day and not to exceed the Option
Period, whichever is shorter. The Company shall have the right to suspend or
delay any time period described in the Plan or an Agreement if the Committee
shall determine that the action may constitute a violation of any law or result
in liability under any law to the Company, an Affiliate or a shareholder of the
Company until such time as the action required or permitted shall not constitute
a violation of law or result in liability to the Company, an Affiliate or a
shareholder of the Company. The Committee shall have the discretion to suspend
the application of the provisions of the Plan required solely to comply with
Rule 16b-3 if the Committee shall determine that Rule 16b-3 does not apply to
the Plan.
-28-
<PAGE>
Effective as of this 1at day of December, 1994.
THE LINC GROUP, INC.
By: /s/ Martin E. Zimmerman
-----------------------
Martin E. Zimmerman
President and Chief Executive Officer
ATTEST:
- -----------------------------
Assistant Secretary
-29-
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
LINC Quantum Analytics, Inc.
LINC Rentals, Inc.
LINC Scientific Leasing, Inc.
Lease Investment Corporation
LINC Capital Partners, Inc.
LINC Portfolio Management Group, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The
Consolidated Financial Statements of LINC CAPITAL, INC dated December 31, 1995
and 1996 and June 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 JUN-30-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 0 0
<SECURITIES> 982 1,102
<RECEIVABLES> 41,292 54,942
<ALLOWANCES> 1,294 1,844
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 21,345 23,594
<DEPRECIATION> 6,297 7,507
<TOTAL-ASSETS> 67,200 81,665
<CURRENT-LIABILITIES> 0 0
<BONDS> 46,369 61,313
0 0
0 0
<COMMON> 711 1,518
<OTHER-SE> 13,231 13,340
<TOTAL-LIABILITY-AND-EQUITY> 67,200 81,665
<SALES> 22,595 10,252
<TOTAL-REVENUES> 17,814 9,593
<CGS> 18,242 8,222
<TOTAL-COSTS> 18,242 8,222
<OTHER-EXPENSES> 11,655 5,821
<LOSS-PROVISION> 749 479
<INTEREST-EXPENSE> 2,771 1,844
<INCOME-PRETAX> 2,639 1,449
<INCOME-TAX> 1,084 534
<INCOME-CONTINUING> 1,435 902
<DISCONTINUED> 807 (55)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,242 847
<EPS-PRIMARY> .63 0.24
<EPS-DILUTED> .63 0.24
</TABLE>
