10-K405 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For fiscal year ended DECEMBER 31, 1994 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-11618 HPSC, INC. ----------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 04-2560004 ------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 60 STATE STREET, BOSTON, MASSACHUSETTS 02109 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (617) 720-3600 -------------- Securities registered pursuant to section 12 (b) of the Act: NONE Securities registered pursuant to section 12 (g) of the Act: COMMON STOCK-PAR VALUE $.01 PER SHARE (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any other amendment to this Form 10-K. YES X NO --- --- The aggregate market value of the voting stock held by non-affiliates of the registrant was $16,394,325 at February 28, 1995, representing 3,544,719 shares. The number of shares of common stock, par value $.01 per share, outstanding as February 28, 1995 was 5,574,712. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Stockholders for the fiscal year ended December 31, 1994 (the "1994 Annual Report") are incorporated by reference into Parts I, II and IV of this annual report on Form 10-K. Portions of the Proxy Statement of the Registrant to be filed on or about March 28, 1995 are incorporated by reference in Part III of this report on Form 10-K. The 1994 Annual Report and Proxy Statement, except for the parts therein which have been specifically incorporated by reference, shall not be deemed "filed" as part of this report on Form 10-K. 2 PART I Item 1. BUSINESS GENERAL HPSC, Inc. (the "Company" or "HPSC") is a financial services company dedicated to providing financing for healthcare professionals. HPSC formerly provided financing exclusively to the dental profession, but in mid-1993 it began to expand into other healthcare markets and through its wholly-owned subsidiary, American Commercial Finance Corporation ("ACFC"), into asset based lending which focuses primarily on accounts receivable and inventory financing. The Company's new business volume in 1994 increased substantially compared to 1993 - $32,609,000 versus $16,402,000. In 1993, Healthco International, Inc. (Healthco), the dental equipment supplier which previously supplied the Company with substantially all of its business, filed for bankruptcy. The bankruptcy of Healthco initially posed several significant challenges to the Company. Management has worked to replace its lost business while at the same time pursuing its plan to diversify into other markets. Within the dental industry the Company continues its efforts to expand its business by capitalizing on its reputation for providing a high level of customer service and innovative and competitive financing programs. Today the Company provides financing for over 100 different dental distributors and healthcare providers. While certain of these vendors provide a substantial amount of business for the Company, the Company is no longer dependent on any single source for its business. The Company is now also providing financing to the ophthalmic, podiatry, veterinary and chiropractic professions. The Company finances dental, medical and other healthcare equipment as well as leasehold improvements, office furniture, supplies and certain other costs involved in opening, maintaining or acquiring a healthcare facility or practice. The Company finances transactions only after a customer's credit has been approved and a financing agreement has been executed. The Company does not maintain any inventory. Typically, the manufacturer or distributor delivers the equipment directly to the customer, and the Company purchases the equipment from the supplier, at its customary selling price to the customer, upon installation and customer acceptance. Substantially all of the Company's agreements with its customers are non-cancelable and provide for a full payout at a fixed financing rate with a fixed payment schedule. The majority of the agreements have a term of between three and seven years. All leases are classified as direct financing leases. The Company's principal sources of funding include fixed rate borrowings of varying maturities and a revolving line of credit at variable rates (see Note B of Notes to Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition - Liquidity and Capital Resources" in the 1994 Annual Report). The Company's income depends, to a significant extent, upon its ability to maintain a satisfactory spread between its cost of borrowings and the rates that it charges its customers. In a rising interest rate environment, the Company's use of variable rate financing could adversely affect its ability to maintain these margins. Competitive pressures and other market conditions could hinder the Company's ability to raise the rates charged to is customers as quickly as its variable rate financing costs were rising. As of November 1, 1994, the Company entered into a Purchase and Sale Agreement with certain secured creditors of Healthco ("Secured Creditors") pursuant to which the Company and certain individual investors agreed to acquire the 1,949,182 shares of the Company's stock owned by Healthco which it had pledged to the Secured Creditors and to resolve all claims between the Company and the Secured Creditors relating to the Healthco bankruptcy. The total consideration to be paid under the Purchase and Sale Agreement was $9 million, $4.5 million to be paid at closing and $4.5 million to be in the form of a 6 month promissory note, collateralized by the shares of HPSC Common Stock purchased by the Company. On December 30, 1994, the Company and the Secured Creditors closed the transaction provided for in the Purchase and Sale Agreement. The Company acquired 1,225,182 shares of its stock, subject to the pledge of those shares to the Secured Creditors. Individual investors acquired the remaining 724,000 shares. Mutual releases of claims were exchanged at the closing, provided that the release of the Secured Creditor claims against HPSC, if any, is contingent upon the Company's repayment in full of the note. 3 Item 1. BUSINESS (continued) SEGMENT The Company is principally engaged in providing financing to healthcare professionals. MARKETING AND SOURCES OF SUPPLY The Company obtains its customers principally from equipment vendor referral programs and directly from end-users to whom the Company has mailed literature, who have learned of the Company's services through advertising or who are current customers. The vendor referral programs permit the Company to utilize vendors' sales personnel operating from retail distribution centers throughout the United States to generate business for the Company. The Company also sends representatives to major trade conventions. The Company advertises its services through industry publications, its own marketing brochures which it distributes and also through direct mail advertising. Existing customers and referrals from existing customers of the Company are also important sources of business. LEASES AND NOTES RECEIVABLE At December 31, 1994 the Company's lease, note receivable and asset based lending portfolio of $103,531,000 consisted of approximately 8,000 accounts and 6,000 customers with an average remaining term of 26 months. Lease and note terms ranged from 12-60 months, with the majority having a 36- or 60-month term. No single customer accounted for more than 1.0% of the Company's total receivables at December 31, 1994. FINANCING TERMS AND CONDITIONS The Company generally finances equipment to customers through standard non-cancelable full payout leases or conditional sales agreements or notes. Following execution of an agreement, the equipment is delivered from either a distributor or a manufacturer directly to the customer. Following installation and customer acceptance of the equipment, the Company purchases the equipment from the supplier. The Company is the owner of the leased equipment and holds a security interest in equipment financed with conditional sales agreements or notes. The Company makes no warranties to customers as to any matter, including the condition, performance or suitability of the equipment. In substantially all cases, customers are obligated to remit to the Company all amounts due regardless of the performance of the equipment, to maintain and service the equipment and to insure the equipment against casualty loss. The Company establishes residual values when the equipment is purchased and leased. Substantially all the Company's direct financing leases include a lease purchase option. Historically, because substantially all lessees have exercised this option at the recorded value, the Company generally does not incur gains/losses from the sale or releasing of equipment. The Company recognized no excess of recorded residuals in 1994. 4 Item 1. BUSINESS (continued) CREDIT REVIEW AND LOSS EXPERIENCE The Company conducts a credit review of each prospective customer, using both commercial credit bureaus and its own internal credit procedures. The Company's seven-person collection department is responsible for monitoring slow paying accounts and collection activities when the Company determines such action to be appropriate. Slow paying accounts are subject to service charges. An analysis of changes in the allowance for uncollectible accounts and other pertinent information follows (in thousands):
-------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Gross Write Offs Leases and (Net of Provision Delinquent Allowance Notes Recoveries) for Losses Installments for Losses Receivable -------------------------------------------------------------------------------- December 31, 1994 $103,531 $3,056(1) $754 $3,496 4,595 -------------------------------------------------------------------------------- December 25, 1993 126,369 17,423 15,104 4,805 6,897 -------------------------------------------------------------------------------- December 26, 1992 184,928 6,128 4,307 9,917 9,216 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (1) Approximately $1,166,000 of this 1994 amount relates to Credident, Inc., the Company's Canadian subsidiary. The Company sold substantially all of the assets of Credident to a third party in June, 1994. (See Note A of the "Notes to Consolidated Financial Statements" in the 1994 Annual Report.) For discussion of provision for losses and allowance for losses, see "Management's Discussion and Analysis of Financial Condition - Results of Operations,Fiscal 1994 Compared to 1993 and Fiscal 1993 Compared to 1992" in the 1994 Annual Report.
FUNDING At December 31, 1994 the Company had financing from a fixed rate securitization and a variable rate revolving line of credit. See Note B of the "Notes to Consolidated Financial Statements" and "Management's Discussion and Analysis of Financial Condition - Liquidity and Capital Resources" in the 1994 Annual Report. PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS The Company does not have any material patents, trademarks, licenses, franchises or concessions. SEASONALITY The Company's business is not seasonal; however, healthcare professionals generally tend to purchase more equipment in the fourth quarter, which may result in more business for the Company in that quarter. WORKING CAPITAL The Company does not carry inventory or provide rights of return to its customers. Its working capital requirements relate directly to its volume of financing transactions (see "Business - Funding" and "Management's Discussion and Analysis of Financial Condition - Liquidity and Capital Resources" in the 1994 Annual Report). 5 Item 1. BUSINESS (continued) MATERIAL CUSTOMERS No customer or group of related customers accounted for 1.0% or more of fiscal 1994 revenues. RAW MATERIALS The Company's business does not depend on raw materials. BACKLOG At December 31, 1994, the Company had a backlog of approximately $25,000,000, consisting of customer applications which have been approved but have not yet resulted in a completed transaction, compared to $6,400,000 at the end of 1993. Not all approved applications will result in financing transactions for the Company. GOVERNMENT CONTRACTS OR SUB-CONTRACTS The Company does not have a material amount of government contracts or sub-contracts. COMPETITION The equipment financing business is highly competitive. Participants in the industry compete through vendor/customer service, product innovation, and price. Pricing is affected by each participant's ability to control origination and funding costs, portfolio risk management and operating overhead costs. The Company's ability to compete effectively in this market depends upon: (i) its ability to procure financing on attractive terms; (ii) its knowledge of and experience in its markets; (iii) its flexibility and adaptability in dealing with the special needs of its client; (iv) its relationships with equipment vendors; (v) its ability to continue to expand its business into areas other than the dental profession and (vi) its ability to manage its portfolio effectively. The Company competes with finance divisions, affiliates and subsidiaries of equipment manufacturers, other leasing and finance companies, certain banks engaged in leasing and lease brokers. Many of these organizations are much larger than the Company, have greater financial or other resources than the Company and have access to funds at more favorable rates and terms than those available to the Company. RESEARCH AND DEVELOPMENT The Company does not have research and development activities. ENVIRONMENTAL PROTECTION The Company's compliance with laws and regulations relating to the protection of the environment will not have a material effect on its capital expenditures, earnings or competitive position. EMPLOYEES At December 31, 1994, the Company and its subsidiaries had 44 full-time employees, including 27 in general and administration and 17 in sales and marketing. 6 Item 1. BUSINESS (continued) FOREIGN OPERATIONS The Company, through its Canadian subsidiary, Credident, Inc., engaged in the financing of dental equipment in Canada. In 1994 the Company sold substantially all of Credident's assets to Newcourt. Credident, Inc. was in substantially the same business as the Company, (see Note A of Notes to Consolidated Financial Statements). The Company has ceased to underwrite any new business in Canada. See "Management's Discussion and Analysis of Financial Condition - Results of Operations Fiscal 1994 Compared to 1993" in the 1994 Annual Report. EXPORT SALES The Company does not have any export sales. Item 2. PROPERTIES The Company leases approximately 8,320 square feet of office space at 60 State Street, Boston, Massachusetts from Trustees of 60 State Street Trust; approximately 2,431 square feet at 433 South Main Street, West Hartford, Connecticut are leased by its wholly-owned subsidiary, American Commercial Finance Corporation, and 1,520 square feet at 15455 Conway Road, Chesterfield, Missouri by its Midwest Division. The Company also rents space as required for its sales locations on a short-term basis. (See Note C of the "Notes to Consolidated Financial Statements" in the 1994 Annual Report.) Item 3. LEGAL PROCEEDINGS The Company was not subject to any material legal proceedings at December 31, 1994. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 1994. 7 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The common stock of HPSC is traded on the NASDAQ National Market System. The high and low sales prices for the common stock as reported by NASDAQ for each quarter in the last two fiscal years, as well as the approximate number of record holders and information with respect to dividend restrictions, are incorporated by reference from page 17 of the 1994 Annual Report. Item 6. SELECTED FINANCIAL DATA Selected financial data for the five years ended December 31, 1994 is incorporated by reference from page 16 of the 1994 Annual Report. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition of the Company is incorporated by reference from pages 17 through 19 of the 1994 Annual Report. The information required by this item together with the Report of Independent Accountants is incorporated by reference from pages 4 through 14 and page 16 of the 1994 Annual Report. (See also the "Financial Statement Schedule" filed under Item 14 of this Form 10-K.) Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 8 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Certain information concerning the directors and executive officers of the Company is incorporated by reference from the sections entitled "Nominees for Directorship" and "Executive Officers" in the Proxy Statement of the Company to be filed on or about March 28, 1995 (the "1995 Proxy Statement"). Item 11. EXECUTIVE COMPENSATION Information regarding executive compensation is incorporated by reference from the sections entitled "Executive Compensation - Summary Compensation Table", "Executive Compensation - Option Grant Table", "Executive Compensation - Aggregated Option Exercises and Year-End Option Value Table" and "Executive Compensation - Employment Agreements" in the 1995 Proxy Statement. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The stock ownership of each person known to HPSC to be the beneficial owner of more than 5% of its common stock and the stock ownership of directors and executive officers and of all directors and executive officers as a group are incorporated by reference from the section entitled "Voting Securities" in the 1995 Proxy Statement. See "Business-General" for information with respect to HPSC stock formerly held by Healthco. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions is incorporated by reference from the sections entitled "Executive Compensation - Stock Loan Program" and "Certain Relationships and Related Transactions" in the 1995 Proxy Statement. 9 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K Page Number In (a) 1. FINANCIAL STATEMENTS ANNUAL REPORT Incorporated by reference from the Company's Annual Report to Stockholders for the fiscal year ended December 31, 1994: Report of Independent Accountants Consolidated Balance Sheets at December 31, 1994 and December 25, 1993 4 Consolidated Statements of Income for each of the three years in the period ended December 31, 1994 5 Consolidated Statements of Changes in Stock- holders' Equity for each of the three years in the period ended December 31, 1994 6 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1994 7 Notes to Consolidated Financial Statements 8-13 Page Number in (a) 2. FINANCIAL STATEMENT SCHEDULES FORM 10-K Included in Part IV of this report: Schedule VIII - Valuation and Qualifying Accounts for each of the three years in the period ended December 31, 1994 21 10 (a) 3. Exhibits Location of Documents Pertaining to Executive Compensation Plans and Arrangements Item in Name of Document this Report Cross Reference ---------------- ----------- --------------- 1. HPSC, Inc. Stock Option 10.2 Incorporated by Plan dated March 5, 1986 reference to Exhibit 10.6 to HPSC's Annual Report on Form 10-K for the fiscal year ended December 30, 1989 2. Amended and Restated 10.3 Incorporated by Employee Purchase Plan reference to Exhibit effective January 5, 1987 4.3 to HPSC's restated May 18, 1993 Quarterly Report on Form 10-Q for the quarter ended September 25, 1993 3. Employment Agreement 10.4 Incorporated by between the Company and reference to Exhibit John W. Everets, dated 10.1 to HPSC's July 19, 1993 Quarterly Report on Form 10-Q for the quarter ended September 25, 1993 4. Employment Agreement 10.5 Incorporated by between the Company and reference to Exhibit Raymond R. Doherty dated 10.2 to HPSC's as of August 2, 1993 Quarterly Report on Form 10-Q for the quarter ended September 25, 1993 5. HPSC, Inc. Employee Stock 10.9 Incorporated by Ownership Plan Agreement reference to HPSC's dated December 22, 1993 Annual Report on Form between HPSC, Inc. and John 10-K for the fiscal Everets and Raymond year ended Doherty, as trustees December 25, 1993 6. HPSC, Inc. 401 (k) Plan 10.15 Incorporated by dated February, 1993 reference to HPSC's between HPSC, Inc. and Annual Report on Form Metropolitan Life Insurance 10-K for the fiscal Company year ended December 25, 1993 7. First Amendment effective 10.10 Incorporated by January 1, 1993 to HPSC, reference to Exhibit Inc. Employee Stock 10.2 to HPSC's Ownership Plan Quarterly Report on Form 10-Q 8. Second Amendment effective 10.11 Filed herewith. January 1, 1994 to HPSC, Inc., Employee Stock Ownership Plan 9. Third Amendment effective 10.12 Filed herewith January 1, 1993 to HPSC, Inc. Employee Stock Ownership Plan 10. HPSC, Inc. Supplemental 10.13 Incorporated by Employee Stock Ownership reference to Exhibit Plan and Trust dated 10.3 to HPSC's July 25, 1994 Quarterly Report on Form 10-Q for the quarter ended June 25, 1994 11 (a) 3. Exhibits Location of Documents Pertaining to Executive Compensation Plans and Arrangements (cont'd) Item in Name of Document this Report Cross Reference ---------------- ----------- --------------- 11. HPSC, Inc. 1994 Stock Plan 10.14 Incorporated by dated as of March 23, 1994 reference to Exhibit and related forms of 10.4 to HPSC's Nonqualified Option Grant Quarterly Report on and Option Exercise Form Form 10-Q for the quarter ended June 25, 1994 12. Employment Agreement 10.8 Incorporated by between HPSC, Inc. and Rene reference to Exhibit Lefebvre dated April 6, 10.5 to HPSC's 1994 Quarterly Report on Form 10-Q for the quarter ended June 25, 1994 13. Amendment dated as of May 10.6 Incorporated by 25, 1994 to Employment reference to Exhibit Agreement between HPSC, 10.6 to HPSC's Inc. and John W. Everets Quarterly Report on Form 10-Q for the quarter ended June 25, 1994 14. Amendment dated as of May 10.7 Incorporated by 25, 1994 to Employment reference to Exhibit Agreement between HPSC, 10.7 to HPSC's Inc. and Raymond R. Doherty Quarterly Report on Form 10-Q for the quarter ended June 25, 1994 12 EXHIBITS Exhibit Title Method of Filing ------- ----- ---------------- No. -- 3.1 Form of Restated Certificate Incorporated by reference of Incorporation of HPSC, Inc. to Exhibit 3.1 to HPSC's Registration Statement on Form S-1 filed April 27, 1983 (File No. 2-83334) 3.2 Certificate of Designation of Incorporated by reference HPSC, Inc.'s Series A to Exhibit 3.3 to HPSC's Preferred Stock Annual Report on Form 10-K for the fiscal year ended December 25, 1993 3.3 Amended and Restated By-Laws Incorporated by reference to Exhibit 3.1 to HPSC's Quarterly Report on Form 10-Q for the quarter ended June 25, 1994 4.1 Rights Agreement dated as of Incorporated by reference August 3, 1993 between the to Exhibit 4 to HPSC's Company and The First National Amendment No. 1 to its Bank of Boston, N.A., Current Report on Form 8-K including as Exhibit B thereto filed August 11, 1993. the form of Rights Certificate 10.1 Lease dated as of March 8, Filed herewith. 1994 between the Trustees of 60 State Street Trust September 10, 1970 and HPSC, Inc. relating to the principal executive offices of HPSC, Inc. at 60 State Street, Boston, Massachusetts 10.2 HPSC, Inc. Stock Option Plan, Incorporated by reference dated March 5, 1986 to Exhibit 10.6 to HPSC's Annual Report on Form 10-K for the fiscal year ended December 30, 1989 10.3 Amended and Restated Employee Incorporated by reference Stock Purchase Plan effective to Exhibit 4.3 to HPSC's January 5, 1987 restated May Quarterly Report on Form 18, 1993 10-Q for the quarter ended September 25, 1993 13 EXHIBITS (CONTINUED) Exhibit Title Method of Filing ------- ----- ---------------- No. -- 10.4 Employment Agreement between Incorporated by reference the Company and to Exhibit 10.1 to HPSC's John W. Everets, dated Quarterly Report on Form July 19, 1993 10-Q for the quarter ended September 25, 1993 10.5 Employment Agreement between Incorporated by reference the Company and Raymond R. to Exhibit 10.2 to HPSC's Doherty dated Quarterly Report on Form as of August 2, 1993 10-Q for the quarter ended September 25, 1993 10.6 Amendment dated as of May 25, Incorporated by reference 1994 to Employment Agreement to Exhibit 10.6 to HPSC's between HPSC, Inc. and Quarterly Report on Form John W. Everets 10-Q for the quarter ended June 25, 1994 10.7 Amendment dated as of May 25, Incorporated by reference 1994 to Employment Agreement to Exhibit 10.7 to HPSC's between HPSC, Inc. and Raymond Quarterly Report on Form R. Doherty 10-Q for the quarter ended June 25, 1994 10.8 Employment Agreement between Incorporated by reference HPSC, Inc. and Rene Lefebvre to Exhibit 10.5 to HPSC's dated April 6, 1994 Quarterly Report on Form 10-Q for the quarter ended June 25, 1994 10.9 HPSC, Inc. Employee Stock Incorporated by reference Ownership Plan Agreement dated to HPSC's Annual Report on December 22, 1993 between Form 10-K for the fiscal HPSC, Inc. and John W. Everets year ended December 25, and Raymond R. Doherty, as 1993 trustees 10.10 First Amendment effective Incorporated by reference January 1, 1993 to HPSC, Inc. to Exhibit 10.2 to HPSC's Employee Stock Ownership Plan Quarterly Report on Form 10-Q for the quarter ended June 25, 1994 10.11 Second Amendment effective Filed herewith January 1, 1994 to HPSC, Inc. Employee Stock Ownership Plan 10.12 Third Amendment effective Filed herewith January 1, 1993 to HPSC, Inc. Employee Stock Ownership Plan 14 EXHIBITS (CONTINUED) Exhibit Title Method of Filing ------- ----- ---------------- No. -- 10.13 HPSC, Inc. Supplemental Incorporated by reference Employee Stock Ownership Plan to Exhibit 10.3 to HPSC's and Trust dated July 25, 1994 Quarterly Report on Form 10-Q for the quarter ended June 25, 1994 10.14 HPSC, Inc. 1994 Stock Plan Incorporated by reference dated as of March 23, 1994 and to Exhibit 10.4 to HPSC's related forms of Nonqualified Quarterly Report on Form Option Grant and Option 10-Q for the quarter ended Exercise Form June 25, 1994 10.15 HPSC, Inc. 401(k) Plan dated Incorporated by reference February, 1993 between HPSC, to HPSC's Annual Report on Inc. and Metropolitan Life Form 10-K for the fiscal Insurance Company year ended December 25, 1993 10.16 Indenture and Service Incorporated by reference Agreement dated as of December to HPSC's Annual Report on 23, 1993 by and among HPSC Form 10-K for the fiscal Funding Corp. I, HPSC, Inc. year ended December 25, and State Street Bank and 1993 Trust company of Connecticut, N.A. 10.17 Sale and Contribution Incorporated by reference Agreement dated as of December to HPSC's Annual Report on 23, 1993 between HPSC Funding Form 10-K for the fiscal Corp I and HPSC, Inc. year ended December 25, 1993 10.18 Note Purchase Agreement dated Incorporated by reference as of December 23, 1993 among to HPSC's Annual Report on HPSC Funding Corp. I, HPSC, Form 10-K for the fiscal Inc. and the Prudential Life year ended December 25, Insurance Company of America 1993 10.19 Insurance Agreement dated as Incorporated by reference of December 23, 1993 among to HPSC's Annual Report on Municipal Bond Investors Form 10-K for the fiscal Assurance Corporation, HPSC year ended December 25, Funding Corp. I, HPSC, Inc. 1993 and State Street Bank and Trust Company of Connecticut, N.A. 10.20 Undertaking with respect to Incorporated by reference Exhibits to certain Agreements to HPSC's Annual Report on Form 10-K for the fiscal year ended December 25, 1993 15 EXHIBITS (CONTINUED) Exhibit Title Method of Filing ------- ----- ---------------- No. -- 10.21 Revolving Credit Agreement Incorporated by reference dated as of June 23, 1994 to Exhibit 10.1 to HPSC's among HPSC, Inc., The First Quarterly Report on Form National Bank of Boston, 10-Q for the quarter ended individually and as agent, and June 25, 1994 Continental Bank, N.A., individually and as Co-agent 10.22 First Amendment, dated as of Incorporated by reference September 2, 1994, to to Exhibit 10.1 to HPSC's Revolving Credit Agreement Quarterly Report on Form dated as of June 23, 1994, 10-Q for the quarter ended among HPSC, Inc., The First September 24, 1994 National Bank of Boston, individually and as Agent, and Continental Bank, N.A., individually and as Co-Agent 10.23 Amendment and Restatement, Incorporated by reference dated November 4, 1994, of to Exhibit 10.2 to HPSC's First Amendment, dated as of Quarterly Report on Form September 2, 1994, to 10-Q for the quarter ended Revolving Credit Agreement, September 24, 1994 dated as of June 23, 1993, among HPSC, Inc., The First National Bank of Boston, individually and as Agent, and Bank of America, Illinois, individually and as Co-Agent 10.24 Second Amendment, dated as of Filed herewith November 8, 1994, to Revolving Credit Agreement dated as of June 23, 1994, among HPSC, Inc., The First National Bank of Boston, individually and as Agent, and Bank of America Illinois, individually and a Co-Agent 10.25 Third Amendment, dated as of Filed herewith November 22, 1994, to Revolving Credit Agreement dated as of June 23, 1994, among HPSC, Inc., The First National Bank of Boston, individually and as Agent, and Bank of America Illinois, individually and as Co-Agent 16 EXHIBITS (CONTINUED) Exhibit Title Method of Filing ------- ----- ---------------- No. -- 10.26 Fourth Amendment, dated as of Filed herewith December 22, 1994, to Revolving Credit Agreement dated as of June 23, 1994, among HPSC, Inc., The First National Bank of Boston, individually and as Agent, and Bank of America Illinois, individually and as Co-Agent 10.27 Fifth Amendment, dated as of Filed herewith January 6, 1995, to Revolving Credit Agreement dated as of June 23, 1994, among HPSC, Inc., The First National Bank of Boston, individually and as Agent, and Bank of America Illinois, individually and as Co-Agent 10.28 Sixth Amendment, dated as of Filed herewith February 3, 1995, to Revolving Credit Agreement dated as of June 23, 1994, among HPSC, Inc., The First National Bank of Boston, individually and as Agent, and Bank of America Illinois, individually and as Co-Agent 10.29 Seventh Amendment, dated as of Filed herewith February 6, 1995, to Revolving Credit Agreement dated as of June 23, 1994, among HPSC, Inc., The First National Bank of Boston, individually and as Agent, and Bank of America Illinois, individually and as Agent. 10.30 Stock Purchase Agreement, Incorporated by reference dated as of November 1, 1994, to Exhibit 10.3 to HPSC's by and among HPSC, Inc. and Quarterly Report on Form each of Chemical Bank; The CIT 10-Q for the quarter ended Group/Business Credit, Inc.; September 24, 1994 Van Kampen Merritt Prime Rate Income Trust; the Nippon Credit Bank, Ltd.; Union Bank of Finland, Grand Cayman Branch; SPBC, Inc.; The Bank of Tokyo Trust Company; and Morgens, Waterfall, Vintiadis & Co. Inc., and related Schedules 17 EXHIBITS (CONTINUED) Exhibit Title Method of Filing ------- ----- ---------------- No. -- 10.31 Purchase and Contribution Filed herewith Agreement dated as of January 31, 1995 between HPSC, Inc. and HPSC Bravo Funding Corp. 10.32 Credit Agreement dated as of Filed herewith January 31, 1995 among HPSC Bravo Funding Corp., Triple-A One Funding Corporation, as lender, and CapMAC, as Administrative Agent and as Collateral Agent 10.33 Agreement to Furnish Copies Filed herewith of Omitted Exhibits to Certain Agreements with HPSC Bravo Funding Corp. 13 Annual Report to Stockholders Filed herewith for the fiscal year ended December 31, 1994 21 Subsidiaries of HPSC, Inc. Filed herewith 23 Report of Coopers & Lybrand, Filed herewith L.L.P. 27 HPSC, Inc. Financial Data Filed herewith Schedule Copies of Exhibits may be obtained for a nominal charge by writing to: Investor Relations HPSC, Inc. 60 State Street Boston, Massachusetts 02019 (b) Reports on Form 8-K None 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, HPSC, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HPSC, Inc. By: John W. Everets ------------------- Dated: March 23, 1995 John W. Everets Chairman, Chief Executive Officer and Director (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of HPSC, Inc. and in the capacities and on the dates indicated. NAME TITLE DATED By: Rene Lefebvre Vice President, Chief March 23, 1995 ----------------------- Financial Officer and Rene Lefebvre Treasurer (Principal Financial Officer) By: Raymond R. Doherty President and Director March 23, 1995 ----------------------- Raymond R. Doherty By: Dennis J. McMahon Vice President March 23, 1995 ----------------------- Administration Dennis J. McMahon (Principal Accounting Officer) By: Louis J.P. Calisti Director March 23, 1995 ----------------------- Louis J.P. Calisti By: Dollie A. Cole Director March 23, 1995 ----------------------- Dollie A. Cole By: Thomas M. McDougal Director March 23, 1995 ----------------------- Thomas M. McDougal By: Samuel P. Cooley Director March 23, 1995 ----------------------- Samuel P. Cooley By: Joseph A. Biernat Director March 23, 1995 ----------------------- Joseph A. Biernat By: J. Kermit Birchfield Director March 23, 1995 ----------------------- J. Kermit Birchfield 19 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of HPSC, Inc.: Our report on the consolidated financial statements of HPSC, Inc. has been incorporated by reference in this Form 10-K from page 14 of the 1994 Annual Report to Stockholders of HPSC, Inc. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in Item 14(a)2 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Coopers & Lybrand, L.L.P. COOPERS & LYBRAND, L.L.P. Boston, Massachusetts March 15, 1995 SCHEDULE VIII HPSC, INC. VALUATION AND QUALIFYING ACCOUNTS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1994 (IN THOUSANDS)
------------------------------------------------------------------------- Balance at Charged to Balance Beginning Costs and Deductions at end of Description of Year Expenses (1) year ------------------------------------------------------------------------- Allowance for losses 1994 $6,897 $754 $3,056 $4,595 ------------------------------------------------------------------------- Allowance for losses 1993 9,216 15,104 17,423 6,897 ------------------------------------------------------------------------- Allowance for losses 1992 11,033 4,307 6,124 9,216 ------------------------------------------------------------------------- (1) Deductions are write-offs net of recoveries.
EX-10.1 2 EXHIBIT 10.1 EXHIBIT 10.1 LEASE BETWEEN TRUSTEES OF 60 STATE STREET TRUST AND HPSC, INC. Dated: March 8, 1994 BROWN, RUDNICK, FREED & GESMER ONE FINANCIAL CENTER BOSTON, MASSACHUSETTS 02111 Portion of Thirty-Fifth (35th) Floor 60 State Street Boston, Massachusetts LEASE dated as of March 8, 1994 ARTICLE I Reference Data 1.1 Subjects Referred To. Each reference in this Lease to any of the following subjects shall be construed to incorporate the data stated for that subject in this Article: LANDLORD: Trustees of 60 State Street Trust under Declaration of Trust dated September 10, 1970, and recorded with Suffolk Deeds in Book 8389, Page 286, as amended. LANDLORD'S ORIGINAL ADDRESS: c/o Koll Management Services 60 State Street Boston, Massachusetts 02109 TENANT: HPSC, Inc. TENANT'S ORIGINAL ADDRESS: 470 Atlantic Avenue 2nd Floor Boston, Massachusetts 02210 TENANT'S NOTICE ADDRESS AFTER THE COMMENCEMENT DATE: 60 State Street Boston, Massachusetts 02109 PREMISES: That portion of the floor, shown on Exhibit A, of the building (the "Building") erected by Landlord on the land described in Exhibit B, plus or minus any additions or deletions thereto or therefrom resulting from the change of any abutting lot or street line (the "Lot"). The Building and the Lot are herein collectively referred to as the "Property." The Premises exclude exterior faces of exterior walls, the common stairways and -1- stairwells, elevators and elevator wells, fan rooms, electric and telephone closets, janitor closets, freight elevator vestibules, and pipes, ducts, conduits, wires and appurtenant fixtures serving exclusively or in common other parts of the Building, and if the Premises include less than the entire rentable area of any floor, the Premises also exclude the common corridors, elevator lobby and toilets located on such floor. TERM: A period beginning on the Commencement Date (as defined in Section 2.4) and ending one hundred twenty-two (122) full calender months thereafter, unless sooner terminated or extended as provided in this Lease. SCHEDULED COMMENCEMENT DATE: May 1, 1994 RENT COMMENCEMENT DATE: 60 days after Commencement Date BASE RENT: $191,305.95 per year ($15,942.16 per month; $23.43 per square of Rentable Floor Area). RENTABLE FLOOR AREA OF THE PREMISES: 8,165 square feet RENTABLE FLOOR AREA OF THE BUILDING: 823,014 square feet ELECTRICITY CHARGE: $8,165.00 per year ($680.42 per month; $1.00 per square foot of Rentable Floor Area) LANDLORD'S CONSTRUCTION REPRESENTATIVE: Mr. Robert Tagliamonte TENANT'S CONSTRUCTION REPRESENTATIVE: Mr. John Everets PERMITTED USES: Office purposes, and no other purpose. BROKERS: Lynch, Murphy, Walsh & Partners and Whittier Partners -2- TENANT'S PROPORTIONATE SHARE: .99% (proportion of Rentable Floor Area of the Premises to one hundred percent (100%) of the Rentable Floor Area of the Building) OPERATING EXPENSE BASE: Tenant's Proportionate Share of Operating Expenses for the 1993 Calendar Year. TAX EXPENSE BASE: Tenant's Proportionate Share of Tax Expenses for the 1994 Fiscal Year (7/1/93 - 6/30/94). 1.2 Exhibits. There are incorporated as part of this Lease: EXHIBIT A - Tenant's Floor Plan EXHIBIT B - Lot Description EXHIBIT C - Landlord's Services EXHIBIT D - Work Letter Agreement EXHIBIT E - Leasing Rights of Other Tenants with respect to 34th and 35th floors EXHIBIT F - Forms of Subordination of Mortgage Agreements 1.3 Table of Articles and Sections. ARTICLE I - Reference Data .................................. 1 1.1 Subjects Referred To ............................. 1 1.2 Exhibits ......................................... 3 1.3 Table of Articles and Sections ................... 3 ARTICLE II - Premises, Term and Rent ........................ 5 2.1 The Premises ..................................... 5 2.2 Rights to Use Common Facilities .................. 6 2.3 Landlord's Reservations .......................... 7 2.4 Term ............................................. 7 2.5 Rent; Base Rent; Electricity Charge .............. 11 2.6 Additional Rent - Operating Expenses ............. 11 2.7 Additional Rent - Real Estate Taxes .............. 14 ARTICLE III - Initial Construction and Alterations .......... 17 3.1 Leasehold Improvements by Landlord ............... 17 3.2 Alterations by Tenant ............................ 17 -3- ARTICLE IV - Landlord's Covenants; Interruptions and Delays .............................................. 19 4.1 Landlord's Covenants ............................. 19 4.2 Interruption and Delays in Services and Repairs .. 20 4.3 Right to Stop Service or Utility System .......... 20 ARTICLE V - Tenant's Covenants .............................. 21 5.1 Repair and Yield Up .............................. 21 5.2 Use .............................................. 21 5.3 Obstructions; Items Visible From Exterior; Rules and Regulations ........................... 21 5.4 Safety Appliances; Licenses ...................... 22 5.5 Indemnity; Insurance ............................. 22 5.6 Personal Property at Tenant's Risk ............... 25 5.7 Right of Entry ................................... 25 5.8 Floor Load; Prevention of Vibration and Noise .... 25 5.9 Personal Property Taxes .......................... 25 5.10 Payment of Litigation Expenses ................... 26 5.11 Environmental Compliance ......................... 26 5.12 Compliance with Energy Conservation Controls ..... 27 ARTICLE VI - Casualty And Taking ............................ 27 6.1 Casualty ......................................... 27 6.2 Eminent Domain ................................... 30 ARTICLE VII - Rights of Parties Holding Prior Interests ..... 31 7.1 Lease Subordinate ................................ 31 7.2 Rights of Holder of Mortgage to Notice of Defaults by Landlord and to Cure Same ........... 31 7.3 Modification for Lender .......................... 32 ARTICLE VIII - Default ...................................... 32 8.1 Events of Default ................................ 32 8.2 Damages .......................................... 33 ARTICLE IX - Assignment and Subletting ...................... 35 9.1 Definitions ...................................... 35 9.2 Tenant's Request for Consent ..................... 35 9.3 Landlord's Option to Cancel ...................... 36 9.4 Terms of Assignment or Sublease .................. 36 9.5 Provisions in Sublease or Assignment ............. 37 9.6 Related Expenses ................................. 37 9.7 No Default by Tenant; Prohibited Assignments ..... 37 ARTICLE X - Miscellaneous ................................... 37 10.1 Headings; Recordation; Consent or Approval; Notices; Bind and Inure; "Including"; "Laws" ... 37 10.2 Landlord's Failure to Enforce .................... 39 10.3 Acceptance of Partial Payments of Rent; Delivery of Keys ................................ 39 10.4 Partial Invalidity ............................... 39 10.5 Landlord's Option to Cure ........................ 40 10.6 Tenant's Estoppel Certificate and Financial Statements ...................................... 40 -4- 10.7 Waiver of Subrogation ............................ 41 10.8 All Agreements Contained ......................... 41 10.9 Brokerage ........................................ 41 10.10 Submission Not An Option ......................... 41 10.11 Applicable Law ................................... 41 10.12 Massachusetts Jurisdiction ....................... 42 10.13 Waiver of Jury Trial ............................. 42 10.14 Holdover ......................................... 42 10.15 Surrender of Premises ............................ 42 10.16 Late Payment ..................................... 42 10.17 Time ............................................. 43 10.18 Harmony .......................................... 43 10.19 Limitation On Liability .......................... 43 10.20 Authority ........................................ 44 ARTICLE II Premises, Term and Rent 2.1 The Premises. 2.1.1 Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, the Premises. 2.1.2 Upon six months prior notice to Tenant, one time during the Term, Landlord may at any time relocate the Premises to comparable space within the Building. For the purpose of the previous sentence, "comparable" shall mean of equal or greater area with similar directional views and on floor 18 of the Building or above. Landlord shall pay all costs of any relocation of the Premises, including the installation of leasehold improvements of design and quality comparable to those in the Premises. In the event of any relocation of the Premises, this Lease shall be amended as necessary to substitute the new Premises. 2.1.3. Subject to existing leasing rights of other tenants in the Building as more particularly described in Exhibit E, and provided such space is available, Landlord shall offer to Tenant any space becoming available during the initial 122 month Term of the Lease on the 34th and the 35th Floor of the Building (the "Expansion Space") by written notice, setting forth the description of the Expansion Space, the estimated date on which the Expansion Space will become available, and the Base Rent for the Expansion Space, and Tenant shall have the right to add the Expansion Space to the Premises on the terms and conditions hereinafter described, provided that (i) Tenant shall not be in default under any of the terms of this Lease continuing beyond any applicable notice and cure period, (ii) Tenant shall not have assigned this Lease or sublet any portion of the Rentable Floor Area of the Premises, (iii) Tenant continues to occupy all portions of the Premises, (iv) Tenant has not exercised its Termination Option as set forth in Article 2.4.2, and (v) if between 12 -5- and 24 months remain in the initial Term and Tenant exercises its Extension Option as set forth in Section 2.4.1, or if less than 12 months remain in the initial Term and Tenant previously exercised its Extension Option. The lease of the Expansion Space shall be co-terminus with this Lease and shall be on all of the terms and conditions of this Lease except as set forth in Section 2.1.6 below and provided the Base Rent for the Expansion Space shall be at the Market Rent (as hereinafter defined in Section 2.4.1), taking into account the fact that Additional Rent shall be paid at the same rate as shall then be paid for the Premises and the length of the term of such Expansion Space. If any Expansion Space is offered by Landlord, Tenant shall notify Landlord in writing within 10 days after receipt of Landlord's notice as to whether Tenant desires to lease the Expansion Space. If Tenant determines that the Base Rent proposed by Landlord is not the Market Rent, then Tenant shall set forth such determination in its notice exercising its right to lease the Expansion Space and Market Rent shall be determined in accordance with the procedure set forth in Section 2.4.1. Tenant's failure to so object shall be deemed an acceptance of Landlord's proposed Base Rent. If Tenant elects to lease the Expansion Space, the parties promptly shall execute an amendment to this Lease reflecting the addition of the Expansion Space. 2.1.4. Except as provided in Section 2.1.3 above, Tenant acknowledges that Landlord shall not be obligated to provide any Expansion Space to Tenant and that Landlord shall have the unfettered right to lease any and all space in the Building and that the Expansion Space shall be offered to Tenant only if such space will be available during the initial Term. 2.1.5. Tenant acknowledges that if Tenant does not accept (or fails to timely accept) an offer made by Landlord pursuant to the provisions of this Article 2.1, Landlord shall be under no further obligation with respect to such Expansion Space by reason of this Article 2.1. Time is of the essence. 2.1.6. Tenant agrees to accept the Expansion Space in its condition and state of repair existing as of the date it is offered to Tenant, reasonable wear and tear accepted, and agrees that Landlord shall not be required to perform any work, supply any materials or incur any expense to prepare such space for Tenant's occupancy. 2.2 Rights to Use Common Facilities. Tenant shall have the non-exclusive right to use in common with others the following portions of the Building: (a) the Building lobbies, corridors, stairways and elevators that provide access to the Premises, the loading platform, and the pipes, ducts, conduits, wires and appurtenant meters and equipment serving the Premises, (b) walkways and driveways that provide access to the Building, -6- and (c) if the Premises include less than the entire rentable floor area of any floor, the common toilets, corridors and elevator lobbies of such floor. Tenant shall have no parking rights except as may be provided by separate agreement. 2.3 Landlord's Reservations. Landlord reserves the right, from time to time, provided Landlord uses reasonable efforts to limit unreasonable interference with Tenant's use: (a) to install, use, maintain, repair, replace and relocate for service to the Premises and other parts of the Building, or either, pipes, ducts, conduits, wires and appurtenant fixtures, wherever located in the Premises or Building, and (b) to alter or relocate any other common facility, provided that substitutions are substantially equivalent to or better than the original. Installations, replacements and relocations referred to in clause (a) above shall be located so far as reasonable in the central core area of the Building, above ceiling surfaces, below floor surfaces or within perimeter walls of the Premises. Landlord also reserves the right, from time to time, to: (x) change the name or street address of the Building, (y) install and maintain signs on the exterior and the interior of the Building (other than in the Premises), and (z) possess pass keys to the Premises. 2.4 Term. Tenant shall have and hold the Premises for the Term. The Commencement Date for the Term shall be the earlier of the date the Premises are Ready for Occupancy, provided that Landlord has given Tenant at least fifteen days' prior notice of such date, or the date Tenant occupies any portion of the Premises for the conduct of its business. The Premises shall be Ready for Occupancy when construction of the Leasehold Improvements has been substantially completed in accordance with the Final Plans, as reasonably determined by Landlord, and any certificate or approval required by local governmental authority for occupancy of the Premises has been obtained. Landlord shall use reasonable efforts to have the Premises Ready for Occupancy on the Scheduled Commencement Date. If the Premises are not Ready for Occupancy on the Scheduled Commencement Date, Landlord shall not be liable for such failure, and such failure shall not affect the validity of this Lease. If, however, the Premises are not Ready for Occupancy because Tenant has failed to comply with Tenant's obligations under Section 3.1 or under the Work Letter Agreement attached as Exhibit D, if any, or has otherwise delayed Landlord in preparing the Premises or in obtaining any such certificate or approval for the Premises, then the Commencement Date shall be the date that the Premises would have been Ready for Occupancy except for such Tenant-caused delay, as reasonably determined by Landlord. Notwithstanding the foregoing to the contrary, because Landlord shall not have the Premises Ready for Occupancy by March 31, 1994 (which is the date on which Tenant's lease for its existing space expires) Tenant promptly shall request in writing that Tenant's existing landlord permit Tenant to remain in Tenant's existing space, on the same terms and conditions as Tenant currently is occupying such space, until -7- April 30, 1994 and shall exercise reasonable efforts to obtain its current landlord's consent to such extended occupancy. In the event Tenant is unable to secure the right to extend its occupancy of its existing space on the same terms and conditions by March 1, 1994, Tenant promptly shall so notify Landlord. If Tenant so notifies Landlord, then on or before March 15, 1994, Landlord shall identify, and offer to lease to Tenant interim space in the Building with an area of at least 8,000 square feet ("Interim Space") at the same rentable square foot rate of Base Rent, on the same terms for Additional Rent as provided herein for the Premises, and on the other terms and conditions set forth in this Lease except that (i) Landlord shall deliver the Interim Space to Tenant in "as is" condition, (ii) Tenant shall not make any structural or non-structural changes to the Interim Space, (iii) Tenant shall surrender the Interim Space within three (3) days of the date the Premises are Ready for Occupancy and, (iv) if the Interim Space has a Rentable Floor Area in excess of 8,165 square feet, the Base Rent and Additional Rent shall be calculated as if the Rentable Floor Area of the Interim Space was 8,165 square feet. Tenant shall respond to the Landlord's offer of Interim Space within five (5) days from the date the offer is made, and Tenant's failure to respond shall be deemed a rejection of the offer. If Tenant has not elected to accept Landlord's offer of the Interim Space for April 1, 1994 occupancy and Landlord determines that the Premises will not be Ready for Occupancy by May 1, 1994, then Landlord promptly shall so notify Tenant ("Delay Notice"). Thereafter, Landlord shall provide Tenant with forty-five (45) days prior written notice of the date on which Landlord expects to have the Premises Ready for Occupancy ("Estimated Delivery Date"). At any time after the Delay Notice and up to ten (10) days after Tenant's receipt of the notice of the Estimated Delivery Date, Tenant shall have the right to lease the Interim Space which right Tenant shall exercise by written notice to Landlord. The lease of the Interim Space shall commence on the earlier of the date set forth in such notice from Tenant or on the date which is thirty (30) days prior to the Estimated Delivery Date. Landlord shall pay up to one hundred percent (100%) of the reasonable, documented costs of Tenant's relocation from the Interim Space to the Premises up to a maximum Landlord payment equal to the lesser of (x) Two Dollars and 00/100 ($2.00) per square foot of the Premises or (y) seventy-five percent (75%) of the actual documented costs of Tenant's relocation to the Interim Space. At the request of either party at any time after the Commencement Date, Landlord and Tenant shall promptly enter into an agreement fixing the Commencement Date. 2.4.1. Tenant shall have the option to extend the Term (the "Extension Option") for one sixty (60) month period (the "Extension Period"), by giving written notice to Landlord of Tenant's exercise of its Extension Option 12 months prior to the expiration of the Term, provided that, at the time such Extension Option is exercised and at the commencement of the Extension -8- Period, (i) Tenant shall not be in default under any of the terms of this Lease (continuing beyond any applicable notice and cure period), (ii) Tenant shall not have assigned this Lease or sublet any portion of the Rentable Floor Area of the Premises, and (iii) Tenant continues to occupy all portions of the Premises. Any failure by Tenant to give timely notice of the exercise of its Extension Option shall be deemed to be an irrevocable waiver of all right to exercise its Extension Option. Time is of the essence. All of the terms, conditions, covenants and agreements contained herein shall apply during the Extension Period, except that (i) Base Rent for the Premises during the Extension Period shall be the fair market rental established by Landlord based on new leases for comparable space in the Building and comparable downtown Boston office towers ("Market Rent") but in no event less than Base Rent during the initial Term), (ii) Landlord shall not be obligated to undertake any additional leasehold improvements or to provide any so called "free rent" or other tenant inducements, and (iii) Tenant shall have no further option to extend this Lease. Landlord shall notify Tenant in writing ("Landlord's Notice") of the Market Rent within thirty (30) days of receipt by Landlord of Tenant's notice exercising its option. If Tenant disagrees with Landlord's designation of Market Rent, Tenant shall notify Landlord in writing of Tenant's disagreement not later than ten (10) days after the receipt of Landlord's Notice. Each party, at its cost and by giving notice to the other party, shall appoint a qualified M.A.I. real estate appraiser with at least 5 years' full-time commercial appraisal experience in the Boston metropolitan area to appraise and set the Market Rent for the Premises. If a party does not appoint such an appraiser within said ten (10) day period, the single appraiser appointed shall be the sole appraiser and shall set the Market Rent for the Premises. If two (2) appraisers are appointed by the parties as stated in this paragraph, the appraisers shall meet promptly and attempt to establish the Market Rent for the Premises. If they are unable to agree within thirty (30) days after the second appraiser has been appointed, they shall attempt to elect a third appraiser meeting the qualifications stated in this paragraph within ten (10) days after the last day the two appraisers are given to set the Market Rent. If they are unable to agree on the third appraiser, either of the parties to this Lease, by giving ten (10) days' notice to the other party, can appeal to the then president of the Greater Boston Real Estate Board for the selection of a third appraiser who meets the qualifications stated in this paragraph. Each of the parties shall bear one-half (1/2) of the cost of appointing and paying the fee of the third appraiser. The third appraiser, however selected, shall be a person who has not previously acted in any capacity for either party. -9- Within thirty (30) days after the selection of the third appraiser, a majority of the appraisers shall set the Market Rent for the Premises. If a majority of the appraisers are unable to set the Market Rent within the stipulated period of time, the three (3) appraisals shall be added together and their total divided by three (3); the resulting quotient shall be the Market Rent. If, however, the low appraisal and/or the high appraisal are more than ten percent (10%) lower and/or higher than the middle appraisal, the low appraisal and/or the high appraisal shall be disregarded. If only one (1) appraisal is disregarded, the remaining two (2) appraisals shall be added together and their total divided by two (2); the resulting quotient shall be the Market Rent. If both the low appraisal and the high appraisal are disregarded as stated in this paragraph, the middle appraisal shall be the Market Rent. In making the determination, each appraiser shall base Market Rent on new leases for space in the Building. If the dispute between the parties as to Market Rent has not been resolved before the commencement of Tenant's obligation to pay Base Rent based upon such Market Rent, then Tenant shall pay Base Rent in respect of the Premises based upon the Market Rent first designated by Landlord until a decision of the appraisers has been finalized, at which time Tenant shall pay any under payment of rent and other charges to Landlord or Landlord shall refund any overpayment of Rent and other charges to Tenant. The decision of the appraisers shall be final and once Tenant has notified Landlord of its election to rely on the appraisers, Tenant shall not have the right to revoke the exercise of the Extension Option, even if Tenant disagrees with the decision of the appraisers. 2.4.2 Notwithstanding the foregoing, Tenant shall have the one time option to terminate this Lease ("Termination Option") effective as of the last day of the sixty-second (62nd) full calender month of the Term provided (i) Tenant shall not be in default under any of the terms of the Lease (continuing beyond any applicable notice and cure period); (ii) Tenant pays to Landlord with Tenant's notice exercising the Termination Option a termination fee equal to the sum of (a) three (3) months Base Rent plus Additional Rent, calculated based on Landlord's reasonable estimate of Additional Rent for the twelve month period following the date of termination, and (b) Landlord's reasonable, out-of-pocket transaction costs associated with the lease of the Expansion Space to Tenant, and (iii) Tenant exercises the Termination Option by written notice to Landlord received on or before the last day of the fiftieth (50th) full calender month of the Term. Furthermore, Tenant's exercise of the Termination Option shall be irrevocable and shall be deemed an irrevocable waiver of all right to exercise any Expansion Option provided for in Section 2.4. -10- 2.5 Rent; Base Rent; Electricity Charge. 2.5.1 Tenant shall pay to Landlord at the Original Address of Landlord (or such other place as Landlord may by notice to Tenant from time to time direct) the Rent. The Rent shall mean Base Rent and Additional Rent. Additional Rent shall mean (i) payments required to be made by Tenant pursuant to Sections 2.6 and 2.7 and (ii) all other charges, costs and expenses due and owing Landlord from Tenant under the terms of this Lease, including the Electricity Charge. The Rent shall be paid by Tenant to Landlord without abatement, offset or deduction at the times specified in this Lease, or if no time is specified, within fifteen (15) days after demand by Landlord. 2.5.2 On the Rent Commencement Date and on the first day of each calendar month thereafter, Tenant shall pay to Landlord the monthly Base Rent. On the Commencement Date and on the first day of each calendar month thereafter, Tenant shall pay the Landlord the monthly Electricity Charge. All payments shall be in advance for each full calendar month of the Term, and the corresponding fraction for any fraction of a calendar month at the beginning or end of the Term, and payments shall be without notice or demand. 2.6 Additional Rent - Operating Expenses. Tenant shall pay Additional Rent to Landlord for Operating Expenses in accordance with the following provisions: 2.6.1 Terms used herein are defined as follows: (a) Operating Expenses means the cost of operation, maintenance and repair of the Property which shall exclude costs of special services rendered to tenants (including Tenant) for which a separate charge is made, but shall include the following: (i) premiums for insurance carried with respect to the Property (including insurance against loss of monthly installments of Base Rent and any Additional Rent which may be due under this Lease and other leases of space in the Building in case of fire or casualty and, if there be any first mortgage of the Property, including such insurance as may be required by the holder of any such mortgage); (ii) compensation and all fringe benefits, workers' compensation insurance premiums and payroll taxes paid by Landlord to, for or with respect to all persons engaged in the operating, maintaining, or cleaning of the Building -11- or Lot, provided that if a person divides his or her time between the Building and other properties of Landlord then only a portion of such person's compensation and fringe benefits shall be included, which portion shall be based on the portion of the person's time devoted to the Building; (iii) steam, water, sewer, electric (including electricity covered by the Electricity Charge), gas, oil and telephone charges (excluding utility charges separately chargeable to tenants for additional or special services); (iv) cost of building and cleaning supplies and equipment; (v) cost of maintenance, cleaning (including window cleaning) and repairs (other than repairs not properly chargeable against income or for which Landlord has received reimbursement from contractors under guaranties); (vi) cost of snow removal and care of landscaping; (vii) payments under service contracts with independent contractors, including security services, legal (other than legal fees associated with lease negotiations and legal actions against tenants and other than legal fees related to Landlord's organization and non-real estate tax matters), accounting (other than accounting fees related to Landlord's income and similar non-real estate taxes and other than accounting expenses related to Landlord's ownership entity, as opposed to the Building) and other reasonable and competitive professional fees, and reasonable and competitive management fees; (viii) costs (including financing charges) of improvements to the Property that were included in Base Operating Expenses until fully amortized and of improvements that are designed to increase safety or reduce or limit increases in Operating Expenses (to the extent of reasonably projected savings therefrom) or are required to comply with any law imposed after the date of this Lease, all such improvements to be amortized over the useful life of the improvement as defined in the Internal Revenue Code; and (ix) all other reasonable or necessary expenses paid in connection with the operation, maintenance and repair of the Property and properly -12- chargeable against income. Any of the above services may be performed by Landlord or its affiliates, provided that fees for the performance of such services shall be reasonable and competitive with fees charged by unaffiliated entities for the performance of such services in comparable buildings in the City of Boston. Operating Expenses shall not include leasing commissions, repair costs paid by insurance proceeds, costs paid by any tenant or third party, depreciation of the Building or any part thereof except as specifically set forth above, any debt service or cost of capital improvements except as specifically set forth above, or any tenant improvements provided for any tenant. Operating Expenses shall not include costs reimbursed from condemnation proceeds; salaries and other employment related expenses for executives or principals of Landlord above the grade of building manager (except that an equitable portion of the Director of Engineering's compensation shall be included); expenses incurred in connection with removal or remediation of oil or hazardous materials (as defined in Massachusetts G.L. c. 21E or the regulations pursuant thereto), or modifications to the Building required to comply with laws or regulations existing as of the date hereof, including those relating to access by handicapped persons and sprinkler installation except to the extent included in the Base Operating Expenses; Landlord's off-site general and administrative expenses. Regardless of the actual percentage of occupancy of the Building, for the purpose of this Section 2.6, (i) the components of Operating Expenses that vary with occupancy will be extrapolated or proportionately reduced (consistent with the extent of variability) as though the Building were one hundred percent (100%) occupied; and (ii) in the case of any services that are not rendered to all Building areas on a comparable basis, the proportion of the expense of such service allocable to the Premises shall be in the same proportion -13- which the Rentable Floor Area of the Premises to which the service is rendered bears to the total Rentable Floor Area to which such service is rendered. (b) Fiscal Year means any twelve-month period selected by Landlord for operating purposes. Landlord may change its Fiscal Year and interim accounting periods, so long as the periods so revised are reconciled with prior periods in accordance with generally accepted accounting principles. 2.6.2 For each Fiscal Year during the Term, Tenant shall pay Tenant's Proportionate Share of Operating Expenses in excess of the Operating Expense Base. The Operating Expense Base includes the Electricity Charge. For any partial Fiscal Year at the beginning or end of the Term, Tenant's Proportionate Share of Operating Expenses shall be adjusted proportionately for the part of the Fiscal Year falling within the Term. Tenant's Proportionate Share may change if the Property is changed or reconfigured, but shall in all cases be equal to the percentage that the Rentable Floor Area of the Premises bears to one hundred percent (100%) of the total Rentable Floor Area of the Building, calculated on a consistent basis. 2.6.3 Before each Fiscal Year, Landlord shall give Tenant an estimate of the reasonably expected Operating Expenses for the coming Fiscal Year, and an estimate of Tenant's Additional Rent for such Operating Expenses. Tenant shall pay such estimated Additional Rent (calculated on a monthly basis) each month with its payment of Base Rent. After each Fiscal Year, Landlord shall give Tenant a statement showing the actual Operating Expenses for that Fiscal Year, and a calculation of the actual amount of Additional Rent related thereto. Any underpayment by Tenant shall be made up by cash payment to Landlord within thirty (30) days; any overpayment shall be credited against the next due Base Rent and Additional Rent, provided that, unless Tenant is in default under the Lease, any overpayment shall be paid in cash to Tenant within thirty (30) days if the Term has ended. 2.7 Additional Rent - Real Estate Taxes. Tenant shall pay Additional Rent to Landlord for Real Estate Taxes in accordance with the following provisions: 2.7.1 Terms used herein are defined as follows: (a) Tax Year means the 12-month period beginning July 1 of each year during the Term, or if the appropriate governmental tax fiscal period shall begin on any date other than July 1, then such other date. -14- (b) Tax Expenses with respect to any Tax Year means the aggregate Real Estate Taxes on the Property with respect to that Tax Year, reduced by any abatement receipts with respect to that Tax Year. (c) Real Estate Taxes means all taxes and special assessments of every kind and nature assessed by any governmental authority on the Property or any part thereof which Landlord shall become obligated to pay because of or in connection with the ownership, leasing and operation of the Property (including the excise prescribed by M.G.L. c.121A, {10 (1988 ed.) and amounts in excess thereof paid to the City of Boston pursuant to agreement between Landlord and the City), and reasonable expenses of any proceedings for the contesting or the abatement of taxes. The amount of special taxes or special assessments to be included shall be limited to the amount of the installment (plus any interest, other than penalty interest, payable thereon) of such special tax or special assessment required to be paid during the year in respect of which such taxes are being determined. There shall be excluded from such taxes all income, estate, succession, inheritance and transfer taxes; provided, however, that if at any time during the Term the present system of ad valorem taxation of real property shall be changed so that as a substitute for, or in addition to, the whole or any part of the ad valorem tax on real property, there shall be assessed on Landlord any tax including a capital levy or other tax on the gross rents received with respect to the Property, or a federal, state, county, municipal, or other local income, franchise, excise or similar tax, assessment, levy or charge (distinct from any now in effect in the jurisdiction in which the Property is located), and whether or not now customary or in the contemplation of the parties, measured by or based, in whole or in part, upon any -15- such gross rents, then any and all of such taxes, assessments, levies or charges, to the extent so measured or based, shall be deemed to be included within the term Real Estate Taxes. 2.7.2 For each Tax Year during the Term, Tenant shall pay Tenant's Proportionate Share of Tax Expenses in excess of the Tax Expense Base. For any partial Tax Year at the beginning or end of the Term, Tenant's Proportionate Share of Tax Expenses shall be adjusted proportionately for the part of the Tax Year falling within the Term. 2.7.3 Before each Tax Year, Landlord shall give Tenant an estimate of the reasonably expected Tax Expenses for the coming Tax Year, and an estimate of Tenant's Additional Rent for such Tax Expenses. Tenant shall pay such estimated Additional Rent (calculated on a monthly basis) each month with its payment of Base Rent. After each Tax Year, Landlord shall give Tenant a statement showing the actual Tax Expenses for that Tax Year, and a calculation of the actual amount of Additional Rent related thereto. Any underpayment by Tenant shall be made up by cash payment to Landlord within thirty (30) days; any overpayment shall be credited against the next due Base Rent and Additional Rent, provided that, unless Tenant is in default under the Lease, any overpayment shall be paid in cash to Tenant within thirty (30) days if the Term has ended. 2.7.4 Whenever tenants of more than thirty percent (30%) of the total Rentable Floor Area of the Building (whether or not including Tenant) shall timely request Landlord to do so, Landlord shall use reasonable efforts to obtain an abatement of any tax or assessment for public betterment or improvement, and Landlord shall have the right in its discretion to do so without such request. The amount of any abatement proceeds with respect to any year on account of which Tenant shall have made a payment of Additional Rent for Tax Expenses under Section 2.7 shall, after deduction therefrom of any expenses reasonably incurred in their collection and not included in Real Estate Taxes for said year, be allocated to Tenant in the same proportion as was used to determine Tenant's payment of such Additional Rent for Tax Expenses, and Landlord shall at its option either pay such amount to Tenant or credit such amount against monthly installments of Base Rent and Additional Rent next thereafter ensuing, except with respect to such abatement proceeds as are received after the end of the Term, with respect to which Landlord shall make payment to Tenant forthwith upon receipt. -16- ARTICLE III Initial Construction and Alterations 3.1 Leasehold Improvements by Landlord. Landlord and Tenant have approved the preliminary plans and outline specifications ("Preliminary Plans") identified in Exhibit D for improvements of the Premises to be installed by Landlord ("Leasehold Improvements"). Landlord at its initial expense shall prepare final plans and specifications ("Final Plans"), which need not include working or shop drawings, in substantial conformance with the Preliminary Plans and deliver them to Tenant as soon as reasonably possible. Within ten (10) days after delivery of the Final Plans, Tenant shall give notice of any changes necessary to bring the Final Plans into substantial conformance with the Preliminary Plans; Tenant shall not object to any logical development or refinement of the Preliminary Plans or any change required by applicable law. Tenant's failure to give Landlord timely notice of such changes shall constitute its approval of the Final Plans. Landlord shall install the Leasehold Improvements at its expense in accordance with the Final Plans and the Work Letter Agreement. The Leasehold Improvements shall be a part of the Premises and shall remain the property of Landlord. Within fifteen (15) days after the Commencement Date, Tenant shall give Landlord a "punch list" of any items needing correction; any matters not shown on the punch list, other than latent defects, shall be deemed approved by Tenant. Landlord shall, with reasonable diligence, correct any items on such list that, in Landlord's reasonable judgment, require correction. Except as set forth herein, Landlord shall have no obligation to improve the Premises. 3.2 Alterations by Tenant. 3.2.1 Tenant shall not make any alterations, decorations, additions, installations, substitutes or improvements (hereinafter collectively called "Alterations") in and to the Premises, without first obtaining Landlord's consent. Landlord shall not unreasonably withhold or delay its consent; however, it shall have no obligation to consent to Alterations that would violate the Certificate of Occupancy or any applicable law, or the terms of any superior lease or mortgage affecting the Property, adversely affect the appearance, value, or structure of the Building, require excessive removal expenses, affect any other part of the Building, adversely affect the mechanical, electrical, sanitary or other service systems of the Building, or involve the installation of any materials subject to any liens or conditional sales contracts. Tenant shall pay Landlord's reasonable costs of reviewing or inspecting any proposed Alterations and plans therefor. -17- 3.2.2 All work on any Alterations shall be done at reasonable times in a first-class workmanlike manner, by contractors approved by Landlord, according to plans and specifications approved by Landlord. All work shall be done in compliance with all applicable laws and with all regulations of the Board of Fire Underwriters or any similar insurance body or bodies. Tenant shall be solely responsible for the effect of any Alterations on the Building's structure and systems, whether or not Landlord has consented to the Alterations and Tenant's plans therefor, and shall reimburse Landlord on demand for any costs incurred by Landlord by reason of any faulty work done, or damage caused, by Tenant or its contractors. Upon completion of any Alterations, Tenant shall provide Landlord with a complete set of "as-built" plans. 3.2.3 Tenant shall keep the Property and Tenant's leasehold interest therein free of any liens or claims of liens, and shall discharge any such liens within ten (10) days of their filing. Before commencement of any work, Tenant's contractor shall provide any lien indemnity bond required by Landlord, and Tenant shall provide evidence of such insurance as Landlord may require, naming Landlord as an additional insured. Tenant shall indemnify Landlord and hold it harmless from and against any cost, claim, or liability arising from any work done or caused to be done by Tenant. All work shall be done so as to minimize, to the extent reasonably practicable, interference with other tenants and with Landlord's operation of the Building or other construction work being done by Landlord. Landlord may post any notices it considers necessary to protect it from responsibility or liability for any Alterations, and Tenant shall give sufficient notice to Landlord to permit such posting. 3.2.4 All Alterations affixed to the Premises shall become part thereof and remain therein at the end of the Term. However, if Landlord gives Tenant a notice, at least thirty (30) days before the end of the Term, to remove any Alterations, Tenant shall do so, and shall pay the cost of removal and any repair required by such removal. Upon Tenant's written request, Landlord shall notify Tenant at the time of approval of any Alterations as to whether Tenant will be required to remove such Alterations. All of Tenant's personal property, furnishings, trade fixtures, equipment, furniture, movable partitions, and any Alterations not affixed to the Premises shall remain Tenant's property ("Tenant's Property"), removable at any time, and shall be removed by Tenant at the end of the Term. If Tenant fails to remove any such Tenant's Property at the end of the Term, Landlord may do so and store it at Tenant's expense, without Landlord being liable to Tenant, and may, in accordance with any applicable law, sell and/or dispose of Tenant's Property at public or private sale and apply the proceeds to any amounts due hereunder, including costs of removal, storage and sale. -18- ARTICLE IV Landlord's Covenants; Interruptions and Delays 4.1 Landlord's Covenants. 4.1.1 Landlord shall furnish services, utilities, facilities and supplies set forth in Exhibit C. 4.1.2 Landlord shall furnish, at Tenant's expense, reasonable additional Building services which are usual and customary in similar office buildings in Boston upon reasonable advance request of Tenant at reasonable rates from time to time established by Landlord. 4.1.3 Except as otherwise provided in Article V or VI, Landlord shall make such repairs to the roof, exterior walls (including exterior windows), floor slabs, Building heating, ventilating and air conditioning system, plumbing and electrical and other mechanical systems, elevators and all other common areas and facilities as may be necessary to keep them in serviceable condition. 4.1.4 Landlord shall provide and install, at Tenant's expense, letters or numerals on doors to the Premises to identify Tenant's official name and Building address; all such letters and numerals shall be in the building standard graphics and no others shall be used or permitted on the Premises. 4.1.5 Landlord covenants that, with respect to claims made by, through or under Landlord, Tenant, on paying Rent and performing the tenant obligations in this Lease, shall peacefully and quietly have, hold and enjoy the Premises, subject to all of the terms and provisions of this Lease and any mortgage to which this Lease is subordinate. 4.1.6 Landlord agrees to maintain throughout the Term of this Lease casualty, property and liability coverage in amounts customarily maintained for first class office towers in the downtown Boston area or in such higher amounts as may be required by Landlord's mortgagees or as Landlord may determine to be appropriate, and the cost thereof shall be included in Operating Expenses. 4.1.7 Landlord shall defend, save harmless, and indemnify Tenant from any liability for injury, loss, accident or damage (but in no event any consequential damages) to any person or property, and from any claims, actions, proceedings and expenses and costs in connection therewith (including actual counsel fees) arising from negligence or other misconduct of Landlord, its employees, agents and contractors. Furthermore, Landlord agrees that Landlord's insurance shall be primary with respect to the Building's common areas except with respect to -19- liability arising from the omission, fault, willful act, negligence or other misconduct of Tenant, its employees, agents and contractors. Notwithstanding the foregoing, Landlord shall be fully exculpated from any loss or damage described in Sections 4.2, 5.6 and 6.1.7. 4.1.8 Throughout the Term, Landlord shall maintain property insurance on the Building and on Leasehold Improvements and Alterations affixed to the Premises (in accordance with Section 6.1.6) for the full replacement cost thereof with an agreed amount endorsement provided such insurance may provide for a commercially reasonably deductible. The cost of such insurance and any deductible (except to the extent such deductible is charged to a specific tenant) shall be included in Operating Expenses. 4.2 Interruption and Delays in Services and Repairs. 4.2.1 Landlord shall not be liable to Tenant for any compensation or reduction of rent by reason of inconvenience or annoyance or for loss of business arising from the necessity of Landlord or its agents entering the Premises for any of the purposes authorized in this Lease, or for repairing the Premises or any portion of the Building, however the necessity may occur, unless such necessity for entering or repairing is due to Landlord's negligence or willful misconduct. Landlord shall use reasonable efforts to minimize inconvenience, annoyance and loss of business to Tenant. 4.2.2 In case Landlord is prevented or delayed from making any repairs, alterations or improvements, or furnishing any services or performing any other covenant or duty to be performed on Landlord's part, by reason of any cause beyond Landlord's control, including governmental regulation, scarcity of or inability to obtain labor or materials, labor difficulties, or casualty, Landlord shall not be liable to Tenant therefor, nor, except as expressly otherwise provided in Article VI, shall Tenant be entitled to any abatement or reduction of Rent by reason thereof, nor shall the same give rise to a claim in Tenant's favor that such failure constitutes actual or constructive, total or partial, eviction from the Premises. 4.3 Right to Stop Service or Utility System. Landlord reserves the right to stop any service or utility system when necessary by reason of casualty or emergency; provided, however, that in each instance of stoppage, Landlord shall exercise reasonable diligence to make necessary repairs or otherwise to eliminate the cause thereof. Except in the case of emergency repairs, Landlord shall give Tenant reasonable advance notice of any contemplated stoppage and will use reasonable efforts to avoid unnecessary inconvenience to Tenant by reason thereof. -20- ARTICLE V Tenant's Covenants 5.1 Repair and Yield Up. Except as otherwise provided in Article VI and Section 4.1.3, Tenant shall (a) keep the Premises in good order, repair and condition, reasonable wear and tear only excepted, and all glass in windows (except glass in exterior walls, unless the damage thereto is attributable to Tenant's negligence or misuse) and doors of the Premises whole and in good condition with glass the same quality as that injured or broken, damage by fire or other casualty only excepted; and (b) reimburse Landlord for its costs to repair damage caused elsewhere in the Building which is attributable to Tenant's acts and omissions including negligence. Tenant shall promptly give Landlord notice of any damage to, or defect in, the Premises. At the end of the Term, Tenant shall peaceably yield up the Premises, including Leasehold Improvements and all Alterations affixed to the Premises (except to the extent Landlord has given notice pursuant to Section 3.2.4 requiring Tenant to remove any Alterations), in good order, repair and condition, reasonable wear and tear and damage by fire excepted, first removing all Tenant's Property, and repairing any damage caused by such removal and restoring the Premises and leaving them clean and neat. The exception for reasonable wear and tear shall not permit Tenant to maintain the Premises in less than good condition. 5.2 Use. From the Commencement Date, Tenant shall not use the Premises other than for the Permitted Uses, and shall not injure or deface the Premises, Building or Lot, nor permit in the Premises any auction sale, vending machines (other than for Tenant's use), or inflammable fluids or chemicals, or nuisance, or the emission from the Premises of any objectionable noise, odor, vibration nor any use thereof which is inconsistent with the maintenance of the Building as an office building of first class quality in maintenance, use and occupancy, or which is improper, offensive, contrary to law or liable to invalidate, or increase the premiums, for any insurance on the Building or its contents or liable to render necessary any alteration or addition to the Building. Tenant agrees that the ratio of the number of people regularly occupying the Premises between the hours of 8:00 a.m. and 6:00 p.m., Monday through Friday, inclusive, will not exceed one (1) person per two hundred (200) rentable square feet. 5.3 Obstructions; Items Visible From Exterior; Rules and Regulations. Tenant shall not obstruct in any manner any portion of the Property not included within the Premises; and shall not, without the prior consent of Landlord, permit the painting or placing of any curtains, blinds, shades, awnings, aerials or flagpoles or the like, visible from outside the Premises; and shall comply with reasonable rules and regulations ("Rules and Regulations") of substantially general applicability now or hereafter made by Landlord, of which Tenant has been given prior -21- notice, for the care and use of the Property and its facilities and approaches. Landlord shall not be liable to Tenant for the failure of other occupants of the Building to conform to such Rules and Regulations. Landlord agrees to use reasonable efforts to enforce the rules and regulations in a substantially non- discriminatory manner, taking into account the particulars of each situation and the terms of the other tenants' leases. 5.4 Safety Appliances; Licenses. Tenant shall keep the Premises equipped with all safety appliances required by law because of any use made by Tenant other than generic office use, and shall procure all licenses and permits so required because of such use and, if requested by Landlord, shall do any work so required because of such use, it being understood that the foregoing provisions shall not be construed to broaden in any way Tenant's Permitted Uses. 5.5 Indemnity; Insurance. 5.5.1 Tenant shall defend with counsel first approved by Landlord, save harmless, and indemnify Landlord from any liability for injury, loss, accident or damage to any person or property, and from any claims, actions, proceedings and expenses and costs in connection therewith (including actual counsel fees) (i) arising from (A) the omission, fault, willful act, negligence or other misconduct of Tenant, its employees, agents and contractors, or (B) any use made or thing done or occurring on the Premises not due to the omission, fault, willful act, negligence or other misconduct of Landlord, its employees, agents and contractors, or (ii) resulting from the failure of Tenant to perform and discharge its covenants and obligations under this Lease. 5.5.2 Tenant shall obtain, at Tenant's sole cost and expense, during the entire Term, and maintain and keep in full force and effect, the following insurance: (a) (i) Property insurance including fire, extended coverage, vandalism, malicious mischief, sprinkler leakage, and all risks coverage upon property of every description and kind owned by Tenant and located in the Building or for which Tenant is legally liable or installed by or on behalf of Tenant including Tenant's Property (but excluding Leasehold Improvements and Alterations affixed to the Premises insured by Landlord pursuant to Section 6.1.6), in an amount not less than one hundred -22- percent (100%) of the full replacement cost thereof in new condition without deduction for depreciation and in amounts that meet any co-insurance clauses of the policies of insurance. (ii) Extra expense insurance in an amount sufficient to reimburse Tenant for loss of use of the Premises attributable to the prevention of access to the Building or Premises as a result of the perils insured in clause (i) above. (b) A policy of comprehensive liability insurance coverage to include personal injury, bodily injury, broad form property damage, premises/operations, owner's protective coverage, blanket contractual liability including assumed liability for use of the Premises including performance by Tenant of the indemnity agreements set forth in this Lease, products and completed operations liability, fire legal liability, premises medical expenses in limits not less than Five Million and 00/100 Dollars ($5,000,000.00), inclusive. Such policy shall name Landlord and Landlord's mortgagees and ground lessor as additional insureds and shall contain the following provision: "Such insurance as afforded by this policy for the benefit of Landlord shall be primary as respects any claims, losses or liabilities arising out of the use of the Property or Premises by the Tenant or by Tenant's operation and any insurance carried by Landlord shall be excess and non-contributing." (c) Worker's Compensation insurance or similar statutory coverage containing statutorily prescribed limits and Employer's Liability with limits of at least $1,000,000 bodily injury by accident for each accident, $1,000,000 bodily injury by disease for each person and $1,000,000 bodily injury by disease policy limit. -23- (d) Any other form or forms of insurance in amounts and against such risks as Landlord or the mortgagees or ground lessor of Landlord may reasonably require from time to time. 5.5.3 All policies shall be taken out with insurers having a rating of not less than A:XII in Best's Key Rating Guide, or which is otherwise acceptable to Landlord and in form satisfactory to Landlord from time to time and contain a cross-liability endorsement or severability of interest clause acceptable to Landlord and be primary as to all claims thereunder and provide that any insurance carried by Landlord is not excess and in non-contributing with any insurance requirement of Tenant. Tenant shall deliver certificates of insurance in a form and substance satisfactory to Landlord or, if at any time required by the mortgagees or ground lessor of Landlord, certified copies of each such insurance policy, to Landlord as soon as practicable after the placing of the required insurance, but in no event later than ten (10) days prior to the Commencement Date. All policies shall contain an undertaking by the insurers to notify Landlord and the mortgagees or ground lessor of Landlord in writing not less than thirty (30) days prior to any change, reduction in coverage, cancellation or other termination thereof. 5.5.4 Intentionally Deleted. 5.5.5 Tenant shall not keep or use in or upon the Premises any article which may be prohibited by any insurance policy in force from time to time covering the Premises or the Property. If Tenant's occupancy or conduct of business in or on the Premises, whether or not Landlord has consented to the same, results in any increase in premiums for the insurance carried from time to time by Landlord with respect to the Building, Tenant shall pay any such increase in premiums as Additional Rent within ten (10) days after being billed therefor by Landlord. In determining whether increased premiums are a result of Tenant's use or occupancy of the Premises, a schedule issued by the or- ganization computing the insurance rate on the Property showing the various components of such rate shall be conclusive evidence of the several items and charges which make up such rate. Tenant shall promptly comply with all reasonable requirements of the insurance authority or of any insurer now or hereafter in effect relating to the Premises. 5.5.6 If (i) any insurance policy carried by Landlord with respect to the Property shall be cancelled or cancellation shall be threatened or the coverage thereunder reduced or threatened to be reduced in any way by reason of the use or occupation of the Premises or any part thereof by Tenant and (ii) Tenant fails to remedy the condition giving rise to cancellation, threatened cancellation or reduction of coverage within 48 hours after notice thereof, such failure shall be deemed a -24- default under this Lease, and Landlord may exercise its option to either terminate this Lease or to enter upon the Premises and attempt to remedy such condition, in which event Tenant shall pay immediately to Landlord the costs associated with such termination or entry and attempt to remedy as Additional Rent. Landlord shall not be liable for any damage or injury caused to any pro- perty of Tenant or of others located in the Premises as a result of such an entry. 5.6 Personal Property at Tenant's Risk. Notwithstanding any provisions hereof to the contrary, Landlord shall not be liable for any damage to property entrusted to employees of the Building, nor for loss of or damage to any property by theft or otherwise, nor for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak from any part of the Building or from the pipes, appliances or plumbing works therein or from the roof, street or subsurface or from any other place or resulting from dampness or any other patent or latent cause whatsoever. Landlord shall not be liable for interference with the light or other incorporeal hereditaments. 5.7 Right of Entry. Tenant shall permit Landlord and its agents to examine the Premises at reasonable times and, if Landlord shall so elect, to make any repairs or replacements Landlord may deem necessary; to remove, at Tenant's expense, any Alterations, additions, signs, curtains, blinds, shades, awnings, aerials, flagpoles, or the like not consented to by Landlord; and to show the Premises to prospective tenants during the twelve (12) months preceding expiration of the Term and to prospective purchasers and mortgagees at all reasonable times. 5.8 Floor Load; Prevention of Vibration and Noise. Tenant shall not place a load upon the Premises exceeding an average rate of 75 pounds of live load per square foot of floor area (partitions shall be considered as part of the live load) without Landlord's prior consent. Landlord reserves the right to prescribe the weight and position of all safes, files and heavy equipment which Tenant desires to place in the Premises so as properly to distribute the weight thereof. Tenant's business machines and mechanical equipment which cause vibration or noise that may be transmitted to the Building structure or to any other space in the Building shall be so installed, maintained and used by Tenant, at Tenant's expense, so as to eliminate such vibration or noise. Tenant shall pay the cost of all structural engineering required to determine structural load of unusual installations and all acoustical engineering required to address any noise or vibration caused by Tenant. 5.9 Personal Property Taxes. Tenant shall pay promptly when due all taxes which may be imposed upon personal property (including fixtures taxed as personal property) in the Premises to whomever assessed. -25- 5.10 Payment of Litigation Expenses. Tenant shall pay promptly on demand all attorneys' fees and reasonable costs and other fees incurred by Landlord in connection with the successful enforcement by Landlord of any obligations of Tenant under this Lease. 5.11 Environmental Compliance. Tenant shall not cause or permit any biologically or chemically active or other hazardous or toxic wastes, substances or materials (collectively, "Hazardous Materials") to be used, generated, stored or disposed of on, under or about, or transported to or from, the Premises or anywhere on the Property (collectively, "Hazardous Materials Activities") without first receiving Landlord's written consent, which may be withheld for any reason and revoked at any time, provided that Tenant may use ordinary office products in quantities appropriate for the size of the Premises and the Permitted Use provided the same are stored, used and disposed of in accordance with the applicable manufacturer's instructions and all applicable laws ("Permitted Hazardous Materials"). If Landlord consents to any such Hazardous Materials Activities, Tenant shall conduct them in strict compliance (at Tenant's expense) with all applicable Regulations, as hereinafter defined, and using all necessary and appropriate precautions. Landlord shall not be liable to Tenant for any Hazardous Materials Activities by Tenant, Tenant's employees, agents, contractors, licensees or invitees, whether or not consented to by Landlord. Tenant shall indemnify, defend with counsel acceptable to Landlord and hold Landlord harmless from and against any claims, damages, costs and liabilities arising out of Tenant's Hazardous Materials Activities. For purposes hereof, Hazardous Materials shall include substances defined as "hazardous substances," "toxic substances," or "hazardous wastes" in the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended; the federal Hazardous Materials Transportation Act, as amended; and the federal Resource Conservation and Recovery Act, as amended ("RCRA"); those substances defined as "hazardous wastes" in the Massachusetts Hazardous Waste Facility Siting Act, as amended (Massachusetts General Laws Chapter 21D); those substances defined as "hazardous materials" or "oil" in Massachusetts General Laws Chapter 21E, as amended; and as such substances are defined in any regulations adopted and publications promulgated pursuant to said laws (collectively, "Regulations"). Prior to using, storing or maintaining any Hazardous Materials on or about the Premises, Tenant shall provide Landlord with a list of the types and quantities thereof, and shall update such list as necessary for continued accuracy. Tenant shall also provide Landlord with a copy of any Hazardous Materials inventory statement required by any applicable Regulations, and any update filed in accordance with any applicable Regulations. If Tenant's activities violate or create a risk of violation of any Regulations, Tenant shall cease such activities immediately upon notice from Landlord. Tenant shall -26- immediately notify Landlord both by telephone and in writing of any spill or unauthorized discharge of Hazardous Materials or of any condition constituting an "imminent hazard" under RCRA, except that such notice shall not be required with respect to Permitted Hazardous Materials. If any mortgagee or governmental agency shall ever require testing to ascertain whether or not there has been any release of Hazardous Materials by Tenant or with respect to the Premises as a result of any Hazardous Materials Activities on the Premises or otherwise, then the reasonable costs thereof shall be reimbursed by Tenant to Landlord upon demand, as Additional Rent, if and to the extent such testing reveals any such release by Tenant. In addition, Tenant shall execute affidavits, representations and the like from time to time at Landlord's request concerning Tenant's best knowledge and belief regarding the presence of Hazardous Materials and any Hazardous Materials Activities relating to the Premises. Without limiting the generality of any other provision of this Section or this Lease, Tenant shall defend with counsel acceptable to Landlord, hold harmless and indemnify Landlord from any release of Hazardous Materials on the Premises or the Property to the extent relating to the activities of Tenant. All references in this Section to Tenant shall include Tenant's agents, employees, contractors, invitees and all other parties claiming by, through or under Tenant. The covenants of this Section shall survive the expiration or earlier termination of the Term of this Lease. 5.12 Compliance with Energy Conservation Controls. Tenant shall comply with all applicable mandatory and, if requested by Landlord and, if they do not unreasonably interfere with Tenant's use of the Premises, voluntary, energy conservation controls and requirements imposed or instituted by federal, state or local governments or by the applicable utility provider including controls on the permitted range of temperature settings and requirements necessitating curtailment of the volume of energy consumption or the hours of operation. ARTICLE VI Casualty And Taking 6.1 Casualty. 6.1.1 If, during the Term of this Lease, the Premises or the Building are wholly or partially damaged or destroyed by fire or other casualty, and the casualty renders the Premises totally or partially inaccessible or unusable by Tenant in the ordinary conduct of Tenant's business, then Landlord shall, within thirty (30) days of the date of the damage, give Tenant a notice ("Damage Notice") stating whether, according to Landlord's good faith estimate, the damage can be repaired within -27- three hundred sixty-five (365) days from the date of damage ("Repair Period"), without the payment of overtime or other premiums. The parties' rights and obligations then shall be governed according to whether the casualty is an Insured Casualty or an Uninsured Casualty as set forth in the following sections. 6.1.2 If the casualty results from a risk, the loss to Landlord from which is covered by insurance maintained, or would have been covered by insurance required to be maintained, by Landlord or for Landlord's benefit (except for any deductible amount), it shall be an "Insured Casualty" and governed by this Section 6.1.2. In such event, if the Damage Notice states that the repairs can be completed within the Repair Period without the payment of overtime or other premiums, then Landlord shall proceed with reasonable promptness to make the repairs, this Lease shall remain in full force and effect, and Base Rent shall be reduced, during the period between the casualty and substantial completion of the repairs, in proportion to the portion of the Premises that is inaccessible or unusable during that period and which is, in fact, not utilized by Tenant. Base Rent shall not be reduced by reason of any portion of the Premises being unusable or inaccessible for a period of five (5) business days or less. If Landlord does not substantially complete such repair within the Repair Period, Tenant may terminate this Lease upon sixty (60) days written notice to Landlord which termination shall be effective only if Landlord does not substantially complete the repair within said sixty (60) day period. If the Damage Notice states that the repairs cannot, in Landlord's estimate, be completed within the Repair Period without the payment of overtime or other premiums, then either party may, by written notice to the other, terminate this Lease as of the date of the occurrence of such damage or destruction, by notice given to the other within thirty (30) days after the giving of the Damage Notice. If neither party so terminates, then this Lease shall remain in effect, Landlord shall make repairs, and Base Rent shall be proportionately reduced as set forth above during the period when the Premises is inaccessible or unusable and is not used by Tenant. 6.1.3 If the casualty is not an Insured Casualty as set forth in the previous section, it shall be an "Uninsured Casualty" governed by this Section 6.1.3. In such event, if the Damage Notice states that the repairs can be completed within the Repair Period without the payment of overtime or other premiums, Landlord may elect, by notice given to Tenant within thirty (30) days after the Damage Notice, to make the repairs, in which event this Lease shall remain in effect and Base Rent shall be proportionately reduced as set forth above. If Landlord does not so elect to make the repairs, or if the Damage Notice states that the repairs cannot be made within the Repair Period, this Lease shall terminate as of the date of the casualty. -28- 6.1.4 Notwithstanding the foregoing, if the Premises or the Building are wholly or partially damaged or destroyed as a result of the willful misconduct of Tenant or its agents, employees, licensees, invitees or contractors, and Landlord elects to undertake to repair or restore all such damage or destruction, such repair and restoration shall be at Tenant's sole cost and expense, and this Lease shall continue in full force and effect without any abatement or reduction in Base Rent or other payments owed by Tenant; provided, however, that Tenant shall be relieved of its obligation pursuant to this Section 6.1.4 to the extent that insurance proceeds are collected by Landlord pursuant to insurance policies carried by Landlord, in which case Tenant shall be responsible for the payment of the deductible and that portion not covered by insurance. 6.1.5 Notwithstanding anything to the contrary contained in this Section 6.1, if the Premises or the Building are wholly or partially damaged or destroyed within the final six months of the Term of this Lease, Landlord shall not be required to repair such casualty and either Landlord or Tenant may elect to terminate this Lease as of the date of the occurrence of such damage or destruction if Landlord does not notify Tenant within thirty (30) days of the occurrence of such casualty that Landlord has elected to repair such casualty. 6.1.6 Under no circumstances shall Landlord be required to repair any damage to, or make any repairs to or replacements of, Tenant's Property. However, as part of Operating Expenses, Landlord shall insure the Leasehold Improvements and any Alterations that are not Tenant's Property and of which Landlord has received notice and approved, and shall cause such Leasehold Improvements and Alterations to be repaired and restored to the extent of the proceeds of insurance (less the costs of obtaining same including reasonable fee for attorneys and insurance adjusters), except that Tenant shall pay for such portion which is covered by the deductible. Landlord shall have no responsibility for any contents placed or kept in or on the Premises or the Building by Tenant or Tenant's agents, employees, invitees or contractors. 6.1.7 This Section 6.1 shall be Tenant's sole and exclusive remedy in the event of damage or destruction to the Premises or the Building. No damages, compensation or claim shall be payable by Landlord for any inconvenience, any interruption or cessation of Tenant's business, or any annoyance, arising from any damage to or destruction of all or any portion of the Premises or the Building, regardless of the cause. -29- 6.2 Eminent Domain. 6.2.1 If the whole of the Premises, or so much of the Premises as to render the balance unusable by Tenant, shall be taken or appropriated under the power of eminent domain or condemnation (a "Taking"), this Lease shall automatically terminate as of the earlier of the date of final judgment in such Taking proceedings, or the date possession is taken by the Taking authority. If any part of the Property is the subject of a Taking and such Taking materially affects the normal operation of the Building or common areas, Landlord may elect to terminate this Lease. A sale by Landlord to the taking authority under threat of a Taking shall constitute a Taking for the purpose of this Section 6.2. No award for any partial or entire Taking shall be apportioned. Landlord shall receive (subject to the rights of Landlord's mortgagees) and Tenant hereby assigns to Landlord any award which may be made and any other proceeds in connection with such Taking, together with all rights of Tenant to such award or proceeds, including any award or compensation for the value of all or any part of the leasehold estate; provided that nothing contained in this Section 6.2.1 shall be deemed to give Landlord any interest in or to require Tenant to assign to Landlord any separate award made to Tenant for (a) the taking of Tenant's Property, or (b) interruption of or damage to Tenant's business, or (c) Tenant's moving and relocation costs. 6.2.2 In the event of a Taking which does not result in a termination of the Lease, Base Rent shall be proportionately reduced based on the portion of the Premises rendered unusable, and Landlord shall restore the Premises or the Building to the extent of the available proceeds or awards from such Taking which are applicable to the Premises. Landlord shall not be required to repair or restore any damage to Tenant's Property or any Alterations that are not affixed to the Premises. 6.2.3 No temporary Taking of the Premises or any part of the Premises or of Tenant's rights to the Premises or under this Lease shall terminate this Lease or give Tenant any right to any abatement of any payments owed to Landlord pursuant to this Lease; any award made to Tenant by reason of such temporary Taking shall belong entirely to Tenant. For purposes hereof, a temporary Taking shall mean a taking of two hundred seventy (270) days or less. 6.2.4 This Section 6.2 sets forth Tenant's and Landlord's sole remedies for any Taking. Upon termination of this Lease pursuant to this Section 6.2, Tenant and Landlord hereby agree to release such other from any and all obligations and liabilities with respect to this Lease except such obligations and liabilities which arise or accrue prior to such termination. -30- ARTICLE VII Rights of Parties Holding Prior Interests 7.1 Lease Subordinate. 7.1.1 Upon request of Landlord or its mortgagees or any ground lessor, Tenant shall, within ten (10) days, deliver a recordable instrument subordinating its rights under this Lease (each, a "Subordination") to: (a) all ground leases or underlying leases which may now exist or hereafter be executed affecting the Building or the Lot, or both, and (b) the lien of any mortgage which may now exist or hereafter be executed in any amount for which the Building, the Lot, ground leases or underlying leases, or Landlord's interest or estate in any of said items is specified as security. Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated any such ground leases or underlying leases or any such liens to this Lease. Landlord shall request from all mortgagees of Landlord's leasehold interest a so-called non-disturbance agreement for Tenant. Landlord shall obtain from the current mortgagees of Landlord's leasehold interest Subordination of Mortgage Agreements in the forms attached hereto as Exhibit F. Tenant shall be required to deliver a Subordination to a mortgagee or ground lessor which holds an interest which is not otherwise superior to this Lease only if such future mortgagee or ground lessor provides Tenant with a written instrument acknowledging that Tenant's quiet enjoyment shall not be disturbed unless Tenant fails to perform its obligations or this Lease is otherwise terminated in accordance with its terms. 7.1.2 If any ground lease or underlying lease terminates for any reason or any mortgage is foreclosed or a conveyance in lieu of foreclosure with respect to any such mortgage is made for any reason, and the successor in interest to Landlord shall elect or be required under the terms of any non-disturbance agreement to recognize this Lease, then Tenant shall attorn to and become the tenant of such successor. 7.1.3 Tenant shall within ten (10) days of receipt thereof execute and deliver, upon demand by Landlord and in the form requested by Landlord, any additional documents evidencing the priority or subordination of this Lease with respect to any such ground leases or underlying leases or the lien of any such mortgage. 7.2 Rights of Holder of Mortgage to Notice of Defaults by Landlord and to Cure Same. No act or failure to act on the part of Landlord which would entitle Tenant under the terms of this Lease, or by law, to be relieved of Tenant's obligations hereunder or to terminate this Lease, shall result in a release or termination of such obligation or a termination of this Lease unless (i) Tenant shall have first given notice of Landlord's act -31- or failure to act to Landlord's mortgagees of record, if any, specifying the act or failure to act on the part of Landlord which could or would give basis to Tenant's rights, and (ii) such mortgagees, after receipt of such notice, have failed or refused to correct or cure the condition complained of within a reasonable time thereafter; but nothing contained in this Section 7.2 shall be deemed to impose any obligation on any such mortgagees to correct or cure any condition. "Reasonable time" as used above means and includes a reasonable time to obtain possession of the mortgaged premises if the mortgagee elects to do so and a reasonable time to correct or cure the condition if such condition is determined to exist. 7.3 Modification for Lender. If, in connection with obtaining construction, interim, permanent financing or refinancing for the Building, the lender shall request reasonable modifications in this Lease as a condition to such financing or refinancing, Tenant shall not unreasonably withhold, delay or defer its consent thereto, provided that such modifications do not increase the obligations of Tenant hereunder or adversely affect the leasehold interest created hereby or Tenant's rights hereunder. ARTICLE VIII Default 8.1 Events of Default. 8.1.1 The occurrence of any one or more of the following events shall constitute a default hereunder by Tenant: (a) The failure by Tenant to make any payment of Rent or any other payment required hereunder, as and when due, where such failure shall continue for a period of five (5) days after notice thereof from Landlord to Tenant. (b) The vacating or abandonment of the Premises by Tenant. (c) The failure by Tenant to observe or perform any of the express or implied covenants or provisions of this Lease to be observed or performed by Tenant, other than as specified in clauses (a) and (b) above, where such failure shall continue for a period of more than thirty (30) days after notice thereof from Landlord to Tenant; provided, further, that if the nature of Tenant's default is such that -32- more than thirty (30) days are reasonably required for its cure, thenTenant shall not be deemed to be in default if Tenant shall commence such cure within said ten day period and thereafter diligently prosecute such cure to completion, which completion shall occur not later than ninety (90) days from the date of such notice from Landlord. (d) The failure by Tenant or any guarantor of any of Tenant's obligations under this Lease to pay its debts as they become due, or Tenant or any such guarantor becoming insolvent, filing or having filed against it a petition under any chapter of the United States Bankruptcy Code, 11 U.S.C. Section 101 et seq. (or any similar petition under any applicable insolvency law), proposing any dissolution, liquidation, composition, financial reorganization or recapitalization with creditors, making an assignment or trust mortgage for the benefit of creditors, or if a receiver, trustee, custodian or similar agent is appointed or takes possession with respect to any property or business of Tenant or such guarantor. (e) Attachment, execution, or other judicial seizure of all or substantially all of Tenant's assets, or this leasehold, or any other voluntary or involuntary encumbrance of Tenant's leasehold interest hereunder. 8.1.2 In the event of any such default by Tenant, whether or not the Term shall have begun, in addition to any other remedies available to Landlord at law or in equity, Landlord shall have the immediate option, or the option at any time while such default exists and without further notice, to terminate this Lease and all rights of Tenant hereunder; and Tenant shall then quit and surrender the Premises to Landlord, but Tenant shall remain liable as hereinafter provided. 8.2 Damages. 8.2.1 If this Lease is terminated under any of the provisions contained in Section 8.1 or shall be otherwise terminated for breach of any obligation of Tenant, Tenant shall pay forthwith to Landlord, as compensation, the excess of the total Rent reserved for the residue of the stated Term over the rental value of the Premises for said residue of the stated Term. As an -33- additional and cumulative obligation after any such ending, Tenant shall pay punctually to Landlord all the sums which Tenant covenants in this Lease to pay at the same time as if this Lease had not been terminated. In calculating the amounts to be paid by Tenant under the immediately preceding covenant Tenant shall be credited with any amount paid to Landlord as compensation as in this Section 8.2 provided and also with the net proceeds of any rent obtained by Landlord by reletting the Premises, after deducting all Landlord's reasonable expenses in connection with such reletting, amortized over the term of the reletting, including all repossession costs, brokerage commissions, fees for legal services and expenses of preparing the Premises for such reletting, it being agreed by Tenant that Landlord may (i) relet the Premises or any part or parts thereof, for a term or terms which may at Landlord's option be equal to or less than or exceed the period which would otherwise have constituted the balance of the stated Term and may grant such concessions and free rent as Landlord in its sole judgment considers advisable or necessary to relet the same and (ii) make such alterations, repairs and decorations in the Premises as Landlord in its sole judgment considers advisable or necessary to relet the same, and no action of Landlord in accordance with the foregoing or failure to relet or to collect rent under reletting shall operate or be construed to release or reduce Tenant's liability as aforesaid. 8.2.2 In lieu of any other damages or indemnity and in lieu of full recovery by Landlord of all sums payable under all the foregoing provisions of this Section 8.2. Landlord may by notice to Tenant, at any time after this Lease is terminated under any of the provisions contained in Section 8.1 or is otherwise terminated for breach of any obligation of Tenant and before such full recovery, elect to recover, and Tenant shall thereupon pay, as liquidated damages, an amount equal to the aggregate of the Base Rent and Additional Rent accrued under Sections 2.5, 2.6 and 2.7 in the 12 months next prior to such termination plus the amount of Base Rent and Additional Rent of any kind accrued and unpaid at the time of termination and less the amount of recovery by Landlord under the foregoing provision of this Section 8.2 up to the time of payment of such liquidated damages. 8.2.3 Nothing contained in this Lease shall limit or prejudice the right of Landlord to prove for and obtain in proceedings for bankruptcy or insolvency by reason of the termination of this Lease an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be provided, whether or not the amount be greater, equal to, or less than the amount of the loss or damages referred to above. -34- 8.2.4 The specific remedies to which Landlord may resort under the provisions of this Lease are cumulative and are not intended to be exclusive of any other remedies or means of redress to which it may be entitled lawfully in case of any breach or threatened breach by Tenant of any provisions of this Lease. In addition to other remedies provided in this Lease, Landlord shall be entitled to the restraint by injunction of the violation or attempted or threatened violation of any of the covenants, conditions or provisions of the Lease or to a decree compelling specific performance of any such covenants, conditions or provisions. ARTICLE IX Assignment and Subletting 9.1 Definitions. For the purposes of this Article IX, "assignment" shall include the following events: if Tenant is a partnership, a withdrawal or change (voluntary, involuntary, by operation of law or otherwise) of any of the general partners thereof, or of general and limited partners owning in the aggregate fifty percent (50%) or more of the capital and profits of the partnership, or the dissolution of the partnership; or if Tenant consists of more than one person, a purported assignment, transfer, mortgage or encumbrance (voluntary, involuntary, by operation of law or otherwise) from one thereof unto the other or others thereof; or, if Tenant is a corporation, any dissolution, merger, consolidation or other reorganization of Tenant or any change in the ownership (voluntary, involuntary, by operation of law or otherwise) of fifty percent (50%) or more of its capital stock or fifty percent (50%) or more of its voting stock from the ownership existing on the date of execution hereof; or, the sale of fifty percent (50%) or more of the value of the assets of Tenant. During such time as the stock of Tenant is listed on a nationally recognized stock exchange, the sale or transfer of Tenant's stock shall not be deemed an assignment under this Lease. 9.2 Tenant's Request for Consent. Tenant shall not, without prior consent of Landlord and any mortgagee of Landlord requiring such consent, assign, mortgage, pledge or otherwise transfer this Lease, make any sublease, or permit occupancy of the Premises or any part thereof by anyone other than Tenant. In connection with any request by Tenant for such consent to assignment or subletting, Tenant shall submit to Landlord (i) the name of the proposed assignee or subtenant, (ii) such information as to its financial responsibility and standing as Landlord may reasonably require, and (iii) all of the terms and provisions upon which the proposed assignment or subletting is to be made. Notwithstanding the foregoing, Landlord shall not unreasonably withhold its consent provided that the net worth of the assignee is not less than Five Million Dollars and 00/100 ($5,000,000.00). -35- 9.3 Landlord's Option to Cancel. Upon receipt from Tenant of such request and information, Landlord shall have an option to be exercised within thirty (30) days after its receipt from Tenant of such request and information if the request is to assign the Lease or to sublet all of the Premises for the remainder of the Term, to cancel or terminate this Lease, or, if the request is to sublet more than forty percent (40%) or the sublease would result in more than forty percent (40%) of the Premises in the aggregate being sublet, to cancel and terminate this Lease with respect to such portion for, at Landlord's election, the term of the proposed sublease or for the balance of the stated Term, or, if the request is to sublet less than forty percent (40%) or the sublease would not result in more than forty percent (40%) of the Premises in the aggregate being sublet, to cancel and terminate this Lease with respect to such portion for the term of the proposed sublease, in each case as of the date set forth in Landlord's notice of exercise of such option, which shall be not less than sixty (60) days nor more than one hundred twenty (120) days following the giving of such notice. In the event Landlord shall exercise such option, Tenant shall surrender possession of the entire Premises, or the portion which is the subject of the option, as the case may be, on the date set forth in such notice in accordance with the provisions of this Lease relating to surrender of the Premises at the expiration of the Term. If this Lease shall be cancelled as to a portion of the Premises only, Rent shall thereafter be abated proportionately according to the ratio that the number of rentable square feet in the portion of the space surrendered bears to the Rentable Floor Area of the Premises. 9.4 Terms of Assignment or Sublease. If Landlord shall not exercise its option to cancel this Lease pursuant to the foregoing provisions, and Landlord shall consent to the requested assignment or subletting, the terms and provisions of such assignment or subletting shall specifically make applicable to the assignee or sublessee all of the provisions of this Article IX so that Landlord shall have against the assignee or sublessee all rights with respect to any further assignment and subletting which are set forth herein; no assignment or subletting shall affect the continuing primary liability of Tenant (which, following assignment, shall be joint and several with assignee); no consent to any of the foregoing in a specific instance shall operate as a waiver in a subsequent instance; and no assignment shall be binding upon Landlord or any of Landlord's mortgagees, unless Tenant shall deliver to Landlord an instrument in recordable form which contains a covenant of assumption by the assignee running to Landlord and all persons claiming by, through or under Landlord, but the failure or refusal of the assignee to execute such instrument of assumption shall not release or discharge assignee from its liability as Tenant hereunder. If Landlord -36- shall not exercise its option to cancel this Lease pursuant to the foregoing provisions, Landlord shall be entitled to receive one hundred percent (100%) of all amounts received by Tenant in excess of the Base Rent and Additional Rent reserved in this Lease applicable to the space being so assigned or sublet. 9.5 Provisions in Sublease or Assignment. Tenant shall include in each permitted assignment, sublease, license, concession or other agreement for use or occupancy of the Premises provisions that neither Tenant nor any other person having an interest in the possession, use or occupancy of the Premises shall enter into any lease, sublease, license, concession or other agreement for use of the Premises which provides for rental or other payment for such use or occupancy based, in whole or in part, on the net income or profits derived any person or entity from the space leased, occupied or used (other than an amount based on a fixed percentage or percentages of gross receipts or gross sales). Any such purported lease, sublease, license, concession or other transfer shall be absolutely void and ineffective as a conveyance of any right or interest in the possession, use or occupancy of any part of the Premises. 9.6 Related Expenses. As Additional Rent, Tenant shall reimburse Landlord promptly for reasonable legal and other expense incurred by Landlord in connection with any request by Tenant for consent to assignment or subletting, including fees and expenses payable to any mortgagee. 9.7 No Default by Tenant; Prohibited Assignments. Notwithstanding any contrary provision of this Lease, Tenant shall have no right to assign this Lease or sublet all or any portion of the Premises, unless on both (i) the date on which Tenant notifies Landlord of its intention to enter into any assignment or sublease and (ii) the date on which such assignment or sublease is to take effect, Tenant is not in default of any of its obligations under this Lease. Tenant shall have no right to assign this Lease or sublet all or any portion of the Premises to government agencies, current tenants in the Building, or any tenants with whom Landlord shall have negotiated in the six months immediately preceding such attempted assignment or subletting. ARTICLE X Miscellaneous 10.1 Headings; Recordation; Consent or Approval; Notices; Bind and Inure; "Including"; "Laws". 10.1.1 The titles of the Articles and Sections are for convenience only and are not to be considered in construing this Lease. -37- 10.1.2 Tenant agrees not to record this Lease, but upon request of either party both parties shall execute and deliver a notice of this Lease in form appropriate for recording or registration, and if this Lease is terminated before the Term expires, an instrument in such form acknowledging the date of termination. 10.1.3 Any notice, approval, consent, request or election given or made pursuant to this Lease shall be in writing. Communications and payments shall be addressed if to Landlord at Landlord's Original Address or at such other address or addresses as may have been specified by prior notice to Tenant, with a copy to Koll Management Services, 60 State Street, Boston, Massachusetts 02109; and if to Tenant, at Tenant's Original Address or at such other place as may have been specified by prior notice to Landlord. Any communication so addressed shall be deemed duly given when delivered by hand, one day after being sent by a guaranteed one-day delivery service, or three (3) days after being mailed by registered or certified mail, return receipt requested. If Landlord by notice to Tenant at any time designates some other person to receive payments or notices, all payments or notices thereafter by Tenant shall be paid or given to the person designated until notice to the contrary is received by Tenant from Landlord. 10.1.4 The obligations of this Lease shall run with the land, and this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that only the original Landlord named herein shall be liable for obligations accruing before the beginning of the Term, and thereafter the original Landlord named herein and each successive owner of the Premises shall be liable only for obligations accruing during the period of their respective ownership. 10.1.5 As used in this Lease, any list of one or more items preceded by the words "including" or "include" shall not be deemed limited to the stated items, but shall be deemed without limitation. 10.1.6 In the event of the imposition by law of restrictions on the use or consumption of energy or other utilities during the Term, both Landlord and Tenant shall be bound thereby. In the event of a difference in interpretation of any law between Landlord and Tenant, the interpretation of Landlord shall prevail, and Landlord shall have the right to enforce compliance, including the right of entry into the Premises to effect compliance. -38- 10.1.7 As used in this Lease, the word "law" shall be deemed to mean all applicable provisions of law, including federal, state, county and city laws, ordinances and regulations, building codes, police, fire and sanitary regulations, and any other governmental, quasi-governmental or municipal regulations that affect the subject matter of the Lease provision in which the word "law" is used. 10.2 Landlord's Failure to Enforce. The failure of Landlord to seek redress for violation of, or to insist upon strict performance of, any covenant or condition of this Lease, or with respect to such failure of Landlord to enforce any of the Rules and Regulations, whether heretofore or hereafter adopted by Landlord, shall not be deemed a waiver of such violation nor prevent a subsequent act which would have originally constituted a violation from having all the force and effect of an original violation, nor shall the failure of Landlord to enforce any of said Rules and Regulations against any other tenant of the Building be deemed a waiver of any such Rule or Regulation. The receipt by Landlord of Base Rent or Additional Rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach. No provision of this Lease shall be deemed to have been waived by Landlord, or by Tenant, unless such waiver be in writing signed by the party to be charged. No consent or waiver, express or implied by Landlord or Tenant, to or of any breach of any agreement or duty shall be construed as a waiver or consent to or of any other breach of the same or any other agreement or duty. 10.3 Acceptance of Partial Payments of Rent; Delivery of Keys. No acceptance by Landlord of a lesser sum than the Base Rent or Additional Rent then due shall be deemed to be other than on account of the earliest installment of such Rent due, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as Rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such installment or pursue any other remedy in this Lease provided. The delivery of keys to any employee of Landlord or to Landlord's agent or any employee thereof shall not operate as a termination of this Lease or surrender of the Premises. 10.4 Partial Invalidity. If any provision of this Lease, or the application thereof to any person or circumstances, shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. -39- 10.5 Landlord's Option to Cure. If Tenant shall at any time default in the performance of any obligation under this Lease, Landlord shall have the right, but shall not be obligated, to enter upon the Premises and to perform such obligation, notwithstanding the fact that no specific provision for such substituted performance by Landlord is made in this Lease with respect to such default. In performing such obligation, Landlord may make any payment of money or perform any other act. All sums so paid by Landlord (together with interest at the Default Rate as hereinafter defined), and all necessary incidental costs and expenses in connection with the performance of any such act by Landlord, shall be deemed to be Additional Rent under this Lease and shall be payable to Landlord immediately on demand. Landlord may exercise the foregoing rights without waiving any other of its rights or releasing Tenant from any of its obligations under this Lease. 10.6 Tenant's Estoppel Certificate and Financial Statements. 10.6.1 Tenant agrees from time to time, upon not less than ten (10) days prior request by Landlord, to execute, acknowledge and deliver to Landlord a statement, in a form satisfactory to Landlord and the mortgagees and/or ground lessor of Landlord, certifying that this Lease is unmodified and in full force and effect and that Tenant has no defenses, offsets or counterclaims against its obligations to pay Base Rent and Additional Rent and to perform its other covenants under this Lease and that there are no uncured defaults of Landlord or Tenant under this Lease (or if there have been any modifications, that the same is in full force and effect as modified and stating the modifications and, if there are any defenses, offsets, counterclaims or defaults, setting them forth in reasonable detail), and the dates to which the Base Rent, Additional Rent and other charges have been paid. Any such statement delivered pursuant to this Section 10.6 may be relied upon by a prospective purchaser, mortgagee or ground lessor of the Premises or any prospective assignee of any mortgagee of the Premises. Upon request, Landlord shall execute and deliver to Tenant a similar statement. 10.6.2 Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant (a) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (b) that there are no uncured defaults in Landlord's performance, and (c) that not more than one month's rent has been paid in advance. 10.6.3 Tenant further agrees, from time to time, upon not less than ten (10) days prior request by Landlord, to deliver to Landlord certified financial statements and related information concerning Tenant's financial status. -40- 10.7 Waiver of Subrogation. Any insurance carried by either party with respect to the Premises or property therein or occurrences thereon shall include a clause or endorsement denying to the insurer rights of subrogation against the other party to the extent rights have been waived by the insured prior to occur- rence of injury or loss. Each party, notwithstanding any provisions of this Lease to the contrary, hereby waives any rights of recovery against the other for injury or loss due to hazards covered by such insurance to the extent of the indemnification received thereunder or which would have been covered had the insurance required hereunder been maintained. 10.8 All Agreements Contained. This Lease contains all of the agreements of the parties with respect to the subject matter thereof and supersedes all prior dealings between them with respect to such subject matter. 10.9 Brokerage. The parties recognize that the brokers who negotiated this Lease are the brokers whose names are stated in Section 1.1. Tenant shall be solely responsible for the payment of the agreed upon brokerage commissions to said brokers, and Landlord shall have no responsibility therefor. Tenant shall pay the brokerage commissions to said brokers in the amount of $53,075.50, which is based on $6.50 per square foot, upon the full execution and delivery of this Lease, and shall submit to Landlord verification that such payment has been made. As part of the consideration for the granting of this Lease, Tenant represents and warrants to Landlord that to Tenant's knowledge no other broker, agent or finder negotiated or was instrumental in negotiating or consummating this Lease and that Tenant knows of no other real estate broker, agent or finder who is, or might be, entitled to a commission in connection with this Lease. Any broker, agent or finder of Tenant whom Tenant has failed to disclose herein shall be paid by Tenant. Tenant shall hold Landlord harmless from all damages and indemnify Landlord for all said damage paid or incurred by Landlord resulting from any claims that may be asserted against Landlord by any broker, agent or finder undisclosed by Tenant herein. 10.10 Submission Not An Option. The submission of this Lease or a summary of some or all of its provisions for examination does not constitute a reservation of or option for the Premises or an offer to lease, end it is not effective as a lease or otherwise until the execution by and delivery to both Landlord and Tenant. 10.11 Applicable Law. This Lease, and the rights and obligations of the parties hereto, shall be construed and enforced in accordance with the substantive law of the Commonwealth of Massachusetts, without giving effect to the conflicts or choice of law provisions of Massachusetts or any other jurisdiction. -41- 10.12 Massachusetts Jurisdiction. With respect to any matter arising out of or connected with this Lease, Tenant submits to the jurisdiction of the federal and state courts within the Commonwealth of Massachusetts. 10.13 Waiver of Jury Trial. LANDLORD AND TENANT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER, ON OR IN RESPECT TO ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT HEREUNDER, TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR CLAIM OF INJURY OR DAMAGES. 10.14 Holdover. Should Tenant hold over in occupancy of the Premises after the expiration of the Term of this Lease, Tenant shall become a tenant at sufferance only, at a rental rate equal to one hundred fifty (150%) of the Base Rent rate in effect at the end of the Term, and otherwise subject to all the terms, covenants and conditions herein specified, so far as applicable. Acceptance by Landlord of Rent after expiration of the Term or earlier termination of the Lease shall not constitute consent to a holdover hereunder or result in a renewal or extension. If Tenant fails to surrender the Premises upon the expiration of the Term or earlier termination despite demand by Landlord to do so, Tenant shall be liable for all damages sustained by Landlord on account of such holding over and shall indemnify and hold Landlord harmless from all loss or liability, including any claim made by any succeeding tenant founded on or resulting from such failure to surrender. 10.15 Surrender of Premises. The voluntary or other surrender of this Lease by Tenant or a mutual cancellation thereof, shall not work a merger, and shall, at the option of Landlord, operate as an assignment to it of any or all subleases or subtenancies. 10.16 Late Payment. All covenants and agreements to be performed by Tenant under any provisions of this Lease shall be performed by Tenant, at Tenant's sole cost and expense, and without any abatement of Rent. Tenant acknowledges that the late payment by Tenant to Landlord of any sums due under this Lease will cause Landlord to incur costs not contemplated by this Lease, the exact amount of such costs being impractical to fix. Such costs include processing and accounting charges, and late charges that may be imposed on Landlord by the terms of the note secured by any encumbrance covering the Premises or the Building of which the Premises are a part. Therefore, if Tenant shall fail to pay any installment of Rent on or before the date when due, or if Tenant shall fail to pay any other sum of money due hereunder and such failure shall continue for ten (10) days after notice thereof by Landlord, Tenant shall pay to Landlord the greater of: (a) five percent (5%) of the overdue amount; or (b) interest on such overdue amount at an annual rate equal to -42- the prime rate announced from time to time by Chase Manhattan Bank at its main office in New York, New York, plus three (3) percentage points (the "Default Rate"), calculated from the due date of the overdue amount until the date of payment to Landlord, provided that such interest rate shall not exceed the highest rate permitted by Massachusetts law. Landlord's acceptance or any late charge or interest shall not constitute a waiver of Tenant's default with respect to the overdue amount or prevent Landlord from exercising any of the other rights and remedies available to Landlord under this Lease or any law now or hereafter in effect. 10.17 Time. Time is of the essence with respect to the performance of every provision of this Lease in which time or performance is a factor. 10.18 Harmony. Tenant agrees that with respect to all work of any nature performed during the Term for Tenant, whether related to Leasehold Improvements, Alterations or any other type or manner of work, Tenant and Tenant's agents, contractors, workers, mechanics, suppliers and invitees shall work in harmony with Landlord and with other tenants and occupants of the Building, and such other contractors, workers, mechanics, suppliers and invitees as shall be working thereon or thereat from time to time prior to or during the Term. If at any time the presence of Tenant's agents, contractors, workers, mechanics, suppliers and/or invitees shall cause or threaten to cause disharmony or otherwise interfere with the orderly operation of other businesses then in the Building, Landlord shall have the right upon written notice to Tenant, to order Tenant to cease all work on the Premises, in which event all work then in progress shall be halted and shall not be recommenced until and unless the conflict(s) which led to Landlord's delivering such notice to Tenant shall have been resolved. 10.19 Limitation On Liability. The obligations of Landlord under this Lease do not constitute personal obligations of the Landlord or trustees, partners, directors, officers or shareholders of Landlord, and Tenant shall not seek recourse against the Landlord or trustees, individual partners, directors, officers or shareholders of Landlord or any of their personal assets for satisfaction of any liability in respect to this Lease, except for Landlord's interest in the Property. Unless a court determines that Landlord has acted in bad faith, Tenant shall have no claim, and hereby waives the right to any claim, against Landlord for money damages by reason of any refusal, withholding or delaying by Landlord of any consent, approval or statement of satisfaction, and in such event, Tenant's only remedies therefor shall be an action for specific performance, injunction or declaratory judgment to enforce any such requirement. -43- 10.20 Authority. If Tenant executes this Lease as a corporation, then Tenant represents and warrants that the individuals executing this Lease on Tenant's behalf are duly authorized to execute and deliver this Lease on its behalf in accordance with a duly adopted resolution of the board of directors of Tenant, a copy of which is to be delivered to Landlord on execution hereof, and in accordance with the by-laws of Tenant and that this Lease is binding upon Tenant in accordance with its terms. If Tenant executes this Lease as a partnership, then Tenant and the persons executing this Lease on behalf of Tenant represent and warrant that the individuals executing this Lease on Tenant's behalf are general partners of the partnership, duly authorized to execute and deliver this Lease on its behalf in accordance with the terms of the partnership agreement, a copy of which is to be delivered to Landlord on execution hereof, and that this Lease is binding upon Tenant in accordance with its terms. EXECUTED as a sealed instrument in two or more counterparts the day and year first above written. LANDLORD: TRUSTEES OF 60 STATE STREET TRUST By: John A. Pirovano ----------------------------- John A. Pirovano, as Trustee of 60 State Street Trust, for self and Co-Trustee, but not individually TENANT: HPSC, INC. By: John Everets, Jr. -------------------------- its President hereunto duly authorized -44- EXHIBIT A Tenant's Floor Plan -45- EXHIBIT B Description of Lot Attached to and made part of Lease dated March 8, 1994 Between Trustees of 60 State Street Trust, Landlord and HPSC, Inc., Tenant The land in Boston, Suffolk County, Massachusetts, shown on a plan entitled "Plan of Land Showing Area to be Acquired, Boston, Mass., dated October 13, 1970, as revised to May 11, 1973, and drawn by Harry Feldman, Inc., Engineers and Surveyors, 112 Shawmut Avenue, Boston, Massachusetts," which plan is recorded with said Deeds in Book 8691, Page 596, and bounded and described as follows: Beginning at the southeasterly corner of the intersection of easterly sideline of Congress Street and the southerly sideline of Faneuil Hall Square and running S82-27-55E by Faneuil Hall Square, a distance of 112.53 feet to an angle; thence turning and running N82-24-O6E by Faneuil Hall Square, a distance of 106.32 to an angle; thence turning and running S1O-43-40E by Faneuil Hall Square. a distance of 2.00 feet to the corner of the 5-story brick building known as Faneuil Hall Square, now or formerly of Charles G. Crones; thence running S1O-43-40E by the westerly face of the said 5-story brick building, a distance of 67.27 feet to an angle; thence turning and running N79-40-00E by said land of Crones, a distance of 61.81 feet to a point on the westerly sideline of Merchants Row, subject to the existing southerly face of the building at numbers 28-36 Merchants Row as shown on sketch "C" of said Plan; thence turning and running S23-15-42E by the said westerly line of Merchants Row, a distance of 30.42 fact to an angle; thence running S23-16-57E by said line or Merchants Row, a distance of 17.50 feet to an angle: -46- thence turning and running S83-31-29W by land now or formerly of Nathan R. Miller Properties, Ltd.-5th ("Miller"), a distance of 73.22 feet to an angle; thence turning and running NO6-57-30W by said land of Miller, a distance of 8.50 feet to an angle; thence turning and running S88-41-40W by land of Miller, a distance of 30.30 feet to an angle; thence turning and running S1O-24-24E by said land of Miller, a distance of 32.40 feet to an angle; thence running S1O-51-43E by a passageway shown on said land, a distance of 21.61 feet to an angle; thence turning and running N83-10-33E by said passageway, a distance of 4.91 feet to an angle; thence turning and running SO8-52-18E by said passageway, a distance of 25.03 feet to an angle: thence turning and running N83-22-26E by said passageway, a distance of 31.47 feet to an angle: thence turning and running SO6-39-O2E by said passageway, a distance of 20.89 feet to an angle; thence turning and running N80-55-44E by said passageway, a distance of 4.03 feet to an angle; thence turning and running SO6-35-40E by said passageway, a distance of 12.72 feet to an angle; thence running S11-39-14E by said passageway, a distance of 36.92 feet to a point, said point being on the northerly sideline of State Street; thence turning and running S78-29-12W by said northerly sideline State Street, a distance of 4.10 feet to an angle; thence running S78-46-35W by State Street, 33.51 feet to an angle; thence turning and running S78-46-38W by State Street, a distance of 83.49 feet to an angle; thence running S78-45-36W by State Street, a distance of 76.04 feet to an angle; -47- thence running S78-48-57W by State Street. a distance of 15.84 feet to the point on the intersection of sidelines of State and Congress Streets; thence turning and running N12-11-O9W by the easterly sideline of Congress Street, a distance of 292.92 feet to the point of beginning. The above-described parcel contains 56,331 square feet (1.293 acres) as shown on the Plan. -48- EXHIBIT C Landlord's Services Attached to and made part of Lease dated March 8, 1994 Between Trustees of 60 State Street Trust, Landlord and HPSC, Inc., Tenant I. CLEANING A. Office Area. Daily: Monday through Friday, inclusive, holidays excepted. 1. Empty and clean all waste receptacles and ashtrays and remove waste material from the Premises: wash receptacles as necessary. 2. Sweep and dust mop all uncarpeted areas using a dust-treated mop. 3. Vacuum all rugs and carpeted areas. 4. Hand dust and wipe clean with treated cloths all horizontal surfaces including furniture, office equipment, Window sills, door ledges, chair rails, and convector tops, within normal reach. 5. Wash clean all water fountains. 6. Remove and dust under all desk equipment and telephones and replace same. 7. Wipe clean all brass and other bright work. 8. Hand dust all grill work within normal reach. 9. Upon completion of cleaning, all lights will be turned off and doors locked, leaving the Premises in an orderly condition. -49- Weekly: 1. Dust coat racks and the like. 2. Remove all finger marks from private entrance doors, switches and doorways. Quarterly: Render high dusting not reached in daily cleaning to include: 1. Dusting all pictures, frames, charts, graphs and similar wall hangings. 2. Dusting all vertical surfaces, such as walls, partitions, doors and ducts. 3. Dusting of all pipes, ducts and high moldings. 4. Dusting of all venetian blinds. B. Lavatories. Daily: Monday through Friday, inclusive, holidays excepted. 1. Sweep and damp mop floors. 2. Clean all mirrors, powder shelves, dispensers and receptacles, bright work, flushometers, piping, and toilet seat hinges. 3. Wash both sides of all toilet seats. 4. Wash all basins, bowls and urinals. 5. Dust and clean all powder room fixtures. 6. Empty and clean paper towel and sanitary disposal receptacles. 7. Remove waste paper and refuse. 8. Refill tissue holders, soap dispensers, towel dispensers, vending sanitary dispensers; materials to be furnished by Landlord. 9. A sanitizing solution will be used in all lavatory cleaning. -50- Monthly: 1. Machine scrub lavatory floors. 2. Wash all partitions and tile walls in lavatories. C. Main Lobby, Elevators, Building Exterior and Corridors. Daily: Monday through Friday, inclusive, inclusive, holidays excepted. 1. Sweep and wash all floors. 2. Wash all rubber mats. 3. Clean elevators, wash or vacuum floors, wipe down and doors. 4. Spot clean any metal work inside lobby. 5. Spot clean any metal work surrounding Building Entrance doors. D. Window Cleaning. Windows of exterior walls will be washed at least three times per year except when rendered impracticable by inclement weather. E. Additional Services. Tenant requiring services in excess of those described above shall request same through Landlord at Tenant's expense. II. HEATING, VENTILATING, AIR CONDITIONING A. Landlord shall furnish space heating and cooling as normal seasonal changes may require to provide reasonably comfortable space temperature and ventilation for occupants of the Premises under normal business operation, daily from 8:00 a.m. to 6:00 p.m. (Saturdays to 1:00 p.m.), Sundays and holidays excepted. If Tenant shall require air conditioning or heating or ventilation outside the hours and days above specified, Landlord shall furnish such service at Tenant's expense. Currently, the charges for additional hours during the winter months (October-March) is $55.00 per hour and the charge for additional hours during the summer months (April-September) is $75.00 per hour. Such charges are subject to change during the Term of the Lease. -51- B. The air conditioning system is based upon an occupancy of not more than one person per 150 square feet of usable floor area, and upon a combined lighting and standard electrical load not to exceed 3.5 watts per square foot of usable area. In the event Tenant exceeds this condition or introduces onto the Premises equipment which overloads system, and/or in any other way causes the system not adequately to perform their proper functions, supplementary systems, may at Landlord's option be provided by Landlord at Tenant's expense. III. WATER A. Landlord shall furnish cold water at temperatures supplied by the City of Boston water mains for drinking, lavatory, kitchen, restaurant and toilet purposes and hot water for lavatory purposes only from regular building supply at prevailing temperatures; provided, however, that Landlord may, at its expense, install a meter or meters to measure the water supplied to any kitchen (including dishwashing) and restaurant areas in the Premises, in which case Tenant shall, upon Landlord's request, reimburse Landlord for the cost of the water (including heating thereof) consumed in such areas and the sewer use charges resulting therefrom. IV. ELEVATORS A. The passenger elevator system shall be in automatic operation and service to the Premises shall be available to Tenant at all times. The use of the service elevator will have to be scheduled with the Landlord and coordinated with the needs of the other tenants. V. ELECTRICAL SERVICE A. Landlord shall provide electric power for up to 2.0 watts per square foot of usable floor area for lighting plus 1.0 watts per square foot of usable floor area for office machines through standard receptacles for the typical office space. B. Landlord, at its option, may require separate metering at Tenant's expense and direct billing to Tenant for the electric power required for any special equipment (such as computers and reproduction equipment) that require either 3-phase electric power or any voltage other than -52- 120. Landlord will furnish and install at Tenant's expense all replacement lighting tubes, lamps, and ballasts required by Tenant. Landlord will clean lighting fixtures on a regularly scheduled basis at Tenant's expense. -53- EXHIBIT D Work Letter Agreement To induce Tenant to enter into the Lease and in consideration of the mutual covenants hereinafter contained, Landlord and Tenant mutually agree as follows: 1. Plans and Specifications. (a) Landlord has prepared, at Tenant's expense, Preliminary Plan entitled 93115-F1 dated 12/9/93 for improvements of the Premises, to be installed by Landlord. If the Preliminary Plans are not in sufficient detail for Landlord's contractor to undertake construction within the Premises, then the Landlord shall prepare, at Tenant's expense, the Final Plans in accordance with Section 3.1 of the Lease. In the event of a conflict between the Preliminary Plans and the Final Plans, the Final Plans shall control. (b) All working drawings for HVAC, electrical, structural, or other building systems required for Landlord's contractor to construct the Leasehold Improvements in accordance with the Preliminary Plans and the Final Plans shall be prepared by Landlord's contractor at Tenant's expense. (c) Landlord shall not be required to furnish professional interior design services to Tenant and shall not be required to pay for professional interior design services engaged by Tenant. Further, Tenant's interior furnishings, i.e., specification, supply and installation of furniture, furnishings, and moveable equipment, shall be the sole responsibility of Tenant. All of Tenant's installation of interior furnishings and equipment shall be coordinated with any work being performed by Landlord in the Premises or elsewhere in the Building in such manner as to maintain harmonious labor relations and not damage the Building or the Premises or interfere with Building operations; provided, however, that without Landlord's prior consent, Tenant may not install any interior furnishings in advance of the date on which the Premises are Ready for Occupancy. Notwithstanding the foregoing, Tenant may install in advance of the date the Premises are Ready for Occupancy, computer and communications equipment so long as Tenant notifies Landlord of the intent to do so, coordinates the schedule for same with Landlord's Construction Representative, and such installation does not interfere with the work being performed by Landlord in the Premises or elsewhere in the Building. -54- 2. Construction. Tenant shall contract directly with Landlord's construction manager and Landlord's contractor for the construction of the Leasehold Improvements. Thereafter, at Tenant's expense, Landlord's contractor (and its subcontractors) shall construct, and Landlord's construction manager shall supervise the construction of, the Leasehold Improvements in accordance with the Preliminary Plans and the Final Plans, unless a Change Order is made in accordance with Section 3 of this Agreement, subject to delays as described in Section 4 of this Agreement and delays due to governmental regulation, unusual scarcity of or inability to obtain labor or materials, labor difficulties, casualty or other causes reasonably beyond Landlord's control. 3. Change Orders. In the event Tenant desires to have the Leasehold Improvements constructed other than as set forth in the Preliminary Plans and the Final Plans, no different work shall be done unless Landlord's contractor and Tenant shall first execute a written agreement concerning the scope of the revised work or materials desired by Tenant, the cost of such work or materials and the effect of any resulting delay (each, a "Change Order"). Further, a Change Order shall be required and executed in the event Tenant selects materials or quantities that exceed the allowances specified in the Final Plans. All costs for labor and materials resulting from a Change Order, including the cost of all plans prepared pursuant thereto, plus a fee equal to fifteen percent (15%) of such costs, shall be billed directly to Tenant by Landlord upon completion of construction of the Leasehold Improvements, and Tenant shall pay the amount of such bill as Additional Rent within 30 days after receipt thereof. All Work required pursuant to a Change Order shall be undertaken by Landlord's contractor or its subcontractor and not by Tenant. 4. Tenant's Delays. If Landlord's contractor is required to work beyond the Scheduled Commencement Date as a result of Tenant-caused delays (which shall include delays caused by Tenant's decision to use materials, finishes or installations other than those set forth in the Final Plans or Tenant's request for any change in the Preliminary Plan), then Tenant shall be responsible for and shall pay to Landlord upon completion of the Leasehold Improvements the additional supervisory and general conditions costs incurred by Landlord. 6. Reimbursement. With respect to the amounts which Tenant is obligated to pay to Landlord for Landlord's cost of the Preliminary Plans, Final Plans, and all working drawings, the foregoing to include, without limitation, all architectural and engineering fees relating to the Leasehold Improvements, Tenant shall pay the amounts within thirty (30) days of receipt of a bill therefor. With respect to the amounts which Tenant is obligated to pay to Landlord's contractor and construction manager (such construction management fee to be equal to two and one-half percent (2-1/2%) of the cost incurred pursuant to the prior -55- sentence plus the costs for construction of the Leasehold Improvements including, without limitation, labor and materials), Tenant shall make such payment in accordance with its contract with such parties or, if not specified in such contract, then within thirty (30) days of receipt of a bill therefor. -56- EXHIBIT E Rights of Other Tenants of 60 State Street to Lease Space on Floors 24 and 35 1. Hale and Dorr, which has rights of First Offer and First Refusal. 2. Bay Tower, Inc., which has the right to lease 3,305 square feet on Floor 34 through April 30, 2030. 3. Cabot Partners, which has the right to lease 10,725 square feet on Floor 35 through December 31, 2000. 4. Shapiro, Weiss & Co., which has an expansion option for 3,000 - 5,000 square feet of space which may be on Floors 34 and/or 35. -57- Teachers Insurance and Annuity Association of America 730 Third Avenue New York, NY 10017 EXHIBIT F Subordination of Mortgage TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA ("TIAA") hereby grants this Subordination of Mortgage on the following terms and conditions. WHEREAS, ACME-PREMIER REALTY CORP., TRUSTEE UNDER THE SECOND RESTATE DECLARATION OF TRUST ESTABLISHING FIFTY STATE STREET TRUST dated December 29, 1992 and recorded with the Suffolk Deeds, Book 17950, Page 043/044, (which Trust was established originally under a Declaration of Trust dated December 29, 1967 and recorded with Suffolk Deeds in Book 8188, Page 137, as amended by Amendment No. 1, dated as of July 30, 1975, recorded with Suffolk Deeds, Book 8804, Page 632, and restated in a Restated declaration of Trust, dated September 4, 1975, recorded with Suffolk Deeds, Book 8816, Page 606) ("Ground Lessor") are the owners in fee simple of those certain premises situate, lying and being in the City of Boston, County of Suffolk, Commonwealth of Massachusetts, commonly known as 60 State Street, and as more particularly described in the Ground Lease (the "Ground Leased Premises"); and WHEREAS, under the terms of a certain lease dated December 29, 1967 (notice of which was recorded with said Deeds in Book 8188, Page 144), as amended by instruments dated June 20, 1968, January 7, 1971, July 30, 1975 and November 26, 1975 (notices of which amendments were recorded with said Deeds in Book 8209, Page 711; Book 8414, Page 356; Book 8804, Page 606; and Book 8836, Page 448, respectively), and as affected by Estoppel Certificate and Agreement dated December 28, 1977 (recorded with said Deeds in Book 9024, Page 244), ground Lessor did lease, let and demise the Ground Leased Premises to the Trustees of Cabot, Cabot & Forbes, Co., whose interest under the Ground Lease was assigned (by assignment dated September 1, 1971 and recorded with said Deeds in Book 8654, Page 448) to the TRUSTEES OF 60 STATE STREET TRUST (hereinafter called "Landlord"), for a term of 45 years commencing January 1, 1968 and continuing to and including December 31, 2012, with four renewal options of 10, 15, 15 and 14 years respectively (all of which were exercised pursuant to two letters dated respectively December 28, 1977 and March 30, 1990) upon the terms and conditions herein more particularly set forth; and -58- WHEREAS, TIAA is the owner and holder of four certain mortgages; two dated December 28, 1977, being Mortgage No. 1 recorded with said Deeds in Bok 9024, Page 282 and Mortgage No. 2 recorded with said Deeds in Book 9024, Page 321; one dated August 27, 1979 being Mortgage No. 3 recorded with said Deeds in Book 9266, Page 89; and one dated May 24, 1985 being Mortgage No. 4 recorded with said Deeds in Book 11621, Page 38; (said Mortgages Nos. 1, 2, 3 and 4 as modified, supplemented and consolidated of record, together with all documents setting forth any obligations of Landlord or any beneficiaries of Landlord to TIAA, are hereinafter referred to as the "TIAA Mortgages"), constituting a first, second, third and fourth mortgage upon the leasehold estate created by the Ground Lease and affecting certain adjacent property more particularly described in the TIAA Mortgages ("Mortgaged Premises"); and WHEREAS, Landlord has entered into a lease with HPSC, INC. ("Tenant") dated March 8, 1994, ("Lease") with respect to space located at 60 State Street, Boston, Massachusetts which space constitutes a portion of the Mortgaged Premises. NOW, THEREFORE, in consideration of Tenant entering into the Lease and the sum of One Dollar ($1.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, TIAA does hereby covenant and agree that the TIAA Mortgages are and shall remain SUBORDINATE to the said Lease, it being expressly agreed that the Lease has been, or should be deemed to have been, executed, delivered and recorded prior to the execution, delivery and recording of the said TIAA Mortgages. EXCEPT, HOWEVER, it is nevertheless agreed that the TIAA Mortgages shall be prior to the Lease as to the following: (a) The prior right, claim and lien of the said TIAA Mortgages in, to and upon any award or other compensation heretofore or hereafter to be made for any taking by eminent domain of any part of the Mortgaged Premises, and to the right of disposition thereof in accordance with the provisions of the TIAA Mortgages, (b) The prior right, claim, lien of the said TIAA Mortgages in, to and upon any proceeds payable under all policies of fire and rent insurance upon the Mortgaged Premises and as to the right of disposition thereof in accordance with the terms of the TIAA Mortgages, and (c) Any lien, right, power or interest, if any, which may have arisen or intervened in the period between the recording of the TIAA Mortgages and the execution of the said Lease, or any lien or judgment which may arise at any time under the terms of such Lease. -59- Copies of all notices of default from Tenant to Landlord shall be delivered to TIAA, in the manner set forth in the Lease, at Teachers Insurance and Annuity Association of America, 730 Third Avenue, New York, New York 10017 Attn: Northeast Closing Servicing Unit Re: Mortgage No. 000093000, or such other address as TIAA may specify in writing. This Subordination may be executed by the undersigned and the Tenant in counterparts, each of which, taken together, shall be deemed one original. This Subordination shall inure to the benefit of and shall be binding upon the undersigned, its successors and assigns. IN WITNESS WHEREOF, the Subordination has been duly signed and delivered by the undersigned as of this 8 day of March, 1994. TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA By: Judith L. King ---------------------------- its Director TENANT'S AGREEMENT The undersigned, as Tenant under the Lease herein described, does hereby accept and agree to the terms of the foregoing Subordination which shall inure to the benefit of and be binding upon the undersigned and the heirs, executors, administrators, legal representatives, successors and assigns of the undersigned. HPSC, INC. By: John Everets, Jr. ---------------------------- its President -60- ACKNOWLEDGEMENTS STATE OF ) ) SS: COUNTY OF ) On this ___ day of March, 1994, before me appeared___________________ to me personally known, who, being by me duly sworn, did say that he is the ____________________ of HPSC, INC. and that the seal affixed to the foregoing instrument is the corporate seal of said corporation, and that said instrument was signed and sealed on behalf of said corporation by authority of its Board of Directors, and said _________________ acknowledged said instrument to be the free act and deed of said corporation. ________________________________ , Notary Public My Commission Expires: STATE OF ) ) SS: COUNTY OF ) On this ___ day of March, 1994, before me appeared ___________________ to me personally known, who, being by me duly sworn, did say that he is the ____________________ of HPSC, INC. and that the seal affixed to the foregoing instrument is the corporate seal of said corporation, and that said instrument was signed and sealed on behalf of said corporation by authority of its Board of Directors, and said _________________ acknowledged said instrument to be the free act and deed of said corporation. ________________________________ , Notary Public My Commission Expires: -61- STATE OF NEW YORK ) ) SS: COUNTY OF ) On this ___ day of _____________, 1994, before me the undersigned, a Notary Public in and for said County and State, personally appeared _____________________ known to me to be the ________________ of TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, the corporation that executed the within instrument, and known to me to be the person who executed the within instrument on behalf of such corporation, and acknowledged to me that such corporation executed the within instrument pursuant to its bylaws or a resolution of its board of Trustees. WITNESS my hand and official seal. ________________________________ , Notary Public My Commission Expires: -62- Trust Company of the West, as Trustee of TCW Realty Fund VA TCW Realty Fund VB 30 Rowes Wharf, Suite 310 Boston, Massachusetts 02110 and 865 South Figueroa Street, Suite 3500 Los Angeles, California 90017-2543 Subordination of Mortgage TRUST COMPANY OF THE WEST, a California corporation, as Trustee of TCW Realty Fund VA and TCW Realty Fund VB, a California limited partnership, as tenants in common ("TCW") hereby grant this Subordination of Mortgage on the following terms and conditions. WHEREAS, ACME-PREMIER REALTY CORP., TRUSTEE UNDER THE SECOND RESTATED DECLARATION OF TRUST ESTABLISHING FIFTY STATE STREET TRUST dated December 29, 1992 and recorded with the Suffolk Deeds, Book 17950, Page 043/044, (which Trust was established originally under a Declaration of Trust dated December 29, 1967 and recorded with Suffolk Deeds in Book 8188, Page 137, as amended by Amendment No. 1, dated as of July 30, 1975, recorded with Suffolk Deeds, Book 8804, Page 632, and restated in a Restated Declaration of Trust, dated September 4, 1975, recorded with Suffolk Deeds, Book 8816, Page 606) ("Ground Lessor") are the owners in fee simple of those certain premises situate, lying and being in the City of Boston, County of Suffolk, Commonwealth of Massachusetts, commonly known as 60 State Street and as more particularly described in the Ground Lease (the "Ground Leased Premises"); and WHEREAS, under the terms of a certain lease dated December 29, 1967 (notice of which was recorded with said Deeds in Book 8188, Page 144), as amended by instruments dated June 20, 1968, January 7, 1971, July 30, 1975 and November 26, 1975 (notices of which amendments were recorded with said Deeds in Book 8209, Page 711; Book 8414, Page 356; Book 8804, Page 606; and Book 8836, Page 448, respectively), and as affected by Estoppel Certificate and Agreement dated December 28, 1977 (recorded with said Deeds in Book 9024, Page 244), Ground Lessor did lease, let and demise the Ground Leased Premises to the Trustees of Cabot, Cabot & Forbes, Co., whose interest under the Ground Lease was assigned (by assignment dated September 1, 1971 and recorded with said Deeds in Book 8654, Page 448) to the TRUSTEES OF 60 STATE STREET TRUST (hereinafter called "Landlord"), for a term of 45 years commencing January 1, 1968 -63- and continuing to and including December 31, 2012, with four renewal options of 10, 15, 15 and 14 years respectively (all of which were exercised pursuant to two letters dated respectively December 28, 1977 and March 30, 1990) upon the terms and conditions herein more particularly set forth; and WHEREAS, TCW is the owner and holder of that certain Mortgage and Security Agreement, dated November 1, 1990 and recorded with said Deeds in Book 16688, Page 1 as amended by a First Comprehensive Amendment Agreement recorded with said Deeds, and as may be further amended of record (said Mortgage and Security Agreement as so amended, together with all documents setting forth any obligations of Landlord and any beneficiaries of Landlord to TCW are referred to hereinafter as the "TCW Mortgage") upon the leasehold estate created by the Ground Lease and affecting certain adjacent property more particularly described in the TCW Mortgage ("Mortgage Premises"); and WHEREAS, the TCW Mortgage as of the date of the execution of this Subordination of Mortgage Agreement is subject and subordinate to certain mortgages held by Teachers Insurance and Annuity Association of America ("TIAA"); two dated December 28, 1977, being Mortgage No. 1 recorded with said Deeds in Book 9024, Page 282 and Mortgage No. 2 recorded with said Deeds in Book 9024, Page 321; one dated August 27, 1979 being Mortgage No. 3 recorded with said Deeds in Book 9266, Page 89; and one dated May 24, 1985 being Mortgage No. 4 recorded with said Deeds in Book 11621, Page 38; (said Mortgages Nos. 1, 2, 3 and 4 as modified, supplemented and consolidated of record, together with all documents setting forth any obligations of Landlord or any beneficiaries of Landlord to TIAA, are hereinafter referred to as the "TIAA Mortgages"), constituting a first, second, third and fourth mortgage upon Mortgaged Premises; and WHEREAS, Landlord has entered into a lease with HPSC, Inc. ("Tenant") dated March 8, 1994, ("Lease") with respect to space located at 60 State Street, Boston, Massachusetts ("Premises") which space constitutes a portion of the Mortgaged Premises. NOW, THEREFORE, in consideration of Tenant entering into the Lease and the sum of One Dollar ($1.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, TCW does hereby covenant and agree that the TCW Mortgage is and shall remain SUBORDINATE to the said Lease, it being expressly agreed that the Lease has been, or should be deemed to have been, executed, delivered and recorded prior to the execution, delivery and recording of the said TCW Mortgage subject to the rights of TCW hereinafter set forth. -64- EXCEPT, HOWEVER, it is nevertheless agreed that the TCW Mortgage shall be prior to the Lease as to the following: (a) The prior right, claim and lien of the said TCW Mortgage in, to and upon any award or other compensation heretofore or hereafter to be made for any taking by eminent domain of any part of the Mortgaged Premises, and to the right of disposition thereof in accordance with the provisions of the TCW Mortgage, (b) The prior right, claim, lien of the said TCW Mortgage in, to and upon any proceeds payable under all policies of fire and rent insurance upon the Mortgaged Premises and as to the right of disposition thereof in accordance with the terms of the the TCW Mortgage, and (c) Any lien, right, power or interest, if any, which may have arisen or intervened in the period between the recording of the the TCW Mortgage and the execution of the said Lease, or any lien or judgment which may arise at any time under the terms of such Lease. Notwithstanding any of the foregoing to the contrary, TCW reserves the right to make the Lease, and all rights, options, liens, or charges created thereby subject and subordinate to the TCW Mortgage and the liens created thereby and to all renewals, modifications, consolidations, replacements and extensions thereof, to the full extent of all amounts secured thereby and interest thereon from time to time, and Tenant agrees that TCW may at any time, at its elections, execute and record in the Suffolk County Registry of Deeds a Notice of Subordination reciting that the Lease is subordinate to the liens of the TCW Mortgage and from and after the recordation of such Notice of Subordination, the Lease shall be subject and subordinate to the liens of the TCW Mortgage, provided that TCW shall have the right at its election to execute and record in said Deeds a notice withdrawing the Notice of Subordination and reciting that the TCW Mortgage once again shall be subordinate to the Lease and, upon request, Tenant shall execute such documents as are necessary to confirm the subordination of the Lease to the TCW Mortgage or the subordination of the TCW Mortgage to the Lease, as may be the case. In the event TCW elects to subordinate the Lease to the TCW Mortgage, the following terms and conditions shall be applicable: (a) Tenant agrees that it will attorn to and recognize TCW upon entry on the Premises for breach or default by Landlord under the TCW Mortgage, any transferee who acquires the Premises by deed in lieu of foreclosure, and the successors and assigns of such purchasers as its landlord for the unexpired balance (and any extensions, if exercised) of the term of the Lease, upon the same terms and conditions set forth in the Lease. -65- (b) If it should become necessary to foreclose the TCW Mortgage, TCW shall not terminate the Lease nor join Tenant in summary proceedings so long as Tenant is not in default under any of the terms, covenants, or conditions of the Lease. (c) Tenant agrees that it shall give TCW a copy of each notice of default delivered to Landlord with respect to any default under the Lease, which notice shall be delivered to TCW in hand or sent by registered or certified mail to the address of TCW. Tenant further agrees that if Landlord shall have failed to cure such default within the time provided for in the Lease (including any applicable grace periods), then TCW shall have an additional 60 days within which to cure such default or, if such default cannot be cured within that period, then such additional time as may be necessary to effect such a cure if within such 60-day period TCW have commenced and are diligently pursuing the remedies necessary to cure such default (including, but not limited to, commencement of foreclosure proceedings, if necessary to effect such cure); and Tenant agrees that the Lease shall not be terminated while such remedies are being pursued. TCW shall in no event be obliged to cure a default which is personal to Landlord, and therefore not reasonably susceptible of cure by TCW. (d) If TCW shall succeed to the interest of Landlord under the Lease, TCW shall not be: (i) liable for any act or omission of any prior landlord (including Landlord); or (ii) liable for the return of any security deposits; or (iii) subject to any offsets or defenses which Tenant might have against any prior landlord (including Landlord); or (iv) bound by any rent or additional rent which Tenant might have paid for more than the current month to any prior landlord (including Landlord); or (v) bound by any amendment or modification of the Lease made without their prior written consent; or -66- (vi) bound by the consent of any prior landlord (including Landlord) to any assignment or sublease of Tenant's interest in the Lease made without also obtaining TCW's prior written consent; or (vii) personally liable for any default under the Lease or any covenant on its part to be performed thereunder as landlord, it being acknowledged that Tenant's sole remedy in the event of such default shall be to proceed against TCW's interest in 60 State Street. (e) Tenant further acknowledges and agrees: (i) that the Lease cannot be terminated (either directly or by the exercise of any option which could lead to termination) or modified in any of its terms, or consent be given to the release of any party having liability thereon, by Landlord, without the prior written consent of TCW, or their successors or assigns, and without such consent, no rent may be collected or accepted by Landlord more than one month in advance; and (ii) that the interest of Landlord in the Lease has been or may be assigned to TCW for the purposes specified in any lease assignments, and TCW, its successors or assigns, assume no duty, liability or obligation under the Lease or any extension or renewal thereof. Copies of all notices of default from Tenant to Landlord shall be delivered to TCW, in the manner set forth in the Lease, at TCW Realty Advisors, 30 Rowes Wharf, Suite 310, Boston, Massachusetts 02110 and TCW Realty Advisors, 865 South Figueroa Street, Suite 3500, Los Angeles, California 90017-2543, or such other address as TCW may specify in writing. This Subordination may be executed by the undersigned and the Tenant in counterparts, each of which, taken together, shall be deemed one original. This Subordination shall inure to the benefit of and shall be binding upon the undersigned, its successors and assigns. -67- IN WITNESS WHEREOF, the Subordination has been duly signed and delivered by the undersigned as of this 8th day of March, 1994. TRUST COMPANY OF THE WEST, a California corporation, as trustee for TCW REALTY FUND VA, as tenant in common By: /s/ Authorized Signatory --------------------------------- Authorized Signatory By: /s/ Authorized Signatory --------------------------------- Authorized Signatory TCW REALTY FUND VB, a California limited partnership, as tenant in common By: TCW ASSET MANAGEMENT COMPANY, a California corporation, as General Partner By: /s/ Authorized Signatory --------------------------------- Authorized Signatory By: /s/ Authorized Signatory --------------------------------- Authorized Signatory By: WESTMARK REAL ESTATE INVESTMENT SERVICES, a California general partnership, as General Partner By: /s/ Authorized Signatory --------------------------------- Authorized Signatory By: /s/ Authorized Signatory --------------------------------- Authorized Signatory -68- TENANT'S AGREEMENT The undersigned, as Tenant under the Lease herein described, does hereby accept and agree to the terms of the foregoing Subordination which shall inure to the benefit of and be binding upon the undersigned and the heirs, executors, administrators, legal representatives, successors and assigns of the undersigned. HPSC, INC. By: /s/ John Everets, Jr ---------------------- John Everets, Jr its President hereunto duly authorized ACKNOWLEDGEMENTS STATE OF ) )SS: COUNTY OF ) On this ____ day of March, 1994, before me appeared _________________________ to me personally known, who, being by me duly sworn, did say that he is the ___________________ of HPSC, INC. and that the seal affixed to the foregoing instrument is the corporate seal of said corporation, and that said instrument was signed and sealed in behalf of said corporation by authority of its Board of Directors, and said ___________________ acknowledged said instrument to be the free act and deed of said corporation. ________________________________ , Notary Public My Commission Expires: STATE OF _______________________ ______________, ss. ______________, 1994 Then personally appeared the above-named ____________________ as an authorized signatory of TRUST COMPANY OF THE WEST, a California corporation, as trustee for TCW REALTY FUND VA and acknowledged the foregoing to be his free act and deed and the free act and deed of said corporation as trustee, before me, ________________________________ , Notary Public My Commission Expires: -69- STATE OF _____________________ ______________, ss. ______________, 1994 Then personally appeared the above-named ____________________ as an authorized signatory of TRUST COMPANY OF THE WEST, a California corporation, as trustee for TCW REALTY FUND VA and acknowledged the foregoing to be his free act and deed and the free act and deed of said corporation as trustee, before me, ________________________________ , Notary Public My Commission Expires: STATE OF _____________________ _____________, ss. _____________, 1994 Then personally appeared the above-named ____________________ as an authorized signatory of TCW ASSET MANAGEMENT COMPANY, a California corporation and General Partner of TCW Realty Fund VB, a California limited partnership, and acknowledged the foregoing to be his free act and deed and the free act and deed of said corporation and said limited partnership, before me, ________________________________ , Notary Public My Commission Expires: STATE OF ____________________ ______________, ss. _____________, 1994 Then personally appeared the above-named ____________________ as an authorized signatory of TCW ASSET MANAGEMENT COMPANY, a California corporation and General Partner of TCW Realty Fund VB, a California limited partnership, and acknowledged the foregoing to be his free act and deed and the free act and deed of said corporation and said limited partnership, before me, ________________________________ , Notary Public My Commission Expires: -70- COMMONWEALTH OF MASSACHUSETTS _____________, ss. _____________, 1994 Then personally appeared the above-named ___________________, as an authorized signatory of WESTMARK REAL ESTATE INVESTMENT SERVICES, a California general partnership which is a General Partner of TCW Realty Fund VB, a California general partnership, and acknowledged the foregoing to be his free act and deed and the free act and deed of each of said general partnerships, before me, ________________________________ , Notary Public My Commission Expires: COMMONWEALTH OF MASSACHUSETTS _____________, ss. _____________, 1994 Then personally appeared the above-named ___________________, as an authorized signatory of WESTMARK REAL ESTATE INVESTMENT SERVICES, a California general partnership which is a General Partner of TCW Realty Fund VB, a California general partnership, and acknowledged the foregoing to be his free act and deed and the free act and deed of each of said general partnerships, before me, ________________________________ , Notary Public My Commission Expires: -71- CONSENT OF LENDERS The undersigned hereby acknowledge notice of the Lease between Trustees of 60 State Street Trust and HPSC, Inc. dated March 8, 1994, and consent to the Lease. TRUST COMPANY OF THE WEST, a California corporation, as trustee for TCW REALTY FUND VA, as tenant in common By: /s/ Authorized Signatory --------------------------------- Authorized Signatory By: /s/ Authorized Signatory --------------------------------- Authorized Signatory TCW REALTY FUND VB, a California limited partnership, as tenant in common By: TCW ASSET MANAGEMENT COMPANY, a California corporation, as General Partner By: /s/ Authorized Signatory --------------------------------- Authorized Signatory By: /s/ Authorized Signatory --------------------------------- Authorized Signatory By: WESTMARK REAL ESTATE INVESTMENT SERVICES, a California general partnership, as General Partner By: /s/ Authorized Signatory --------------------------------- Authorized Signatory By: /s/ Authorized Signatory --------------------------------- Authorized Signatory -72- CONSENT OF LENDERS The undersigned hereby acknowledge notice of the Lease between Trustees of 60 State Street Trust and HPSC, Inc. dated March 8, 1994, and consent to the Lease. TEACHERS INSURANCE ANNUITY ASSOCIATION OF AMERICA By: /s/ Authorized Signatory --------------------------------- Authorized Signatory its hereunto duly authorized -73- EX-10.11 3 EXHIBIT 10.11 EXHIBIT 10.11 SECOND AMENDMENT TO THE HPSC, INC. EMPLOYEE STOCK OWNERSHIP PLAN This Second Amendment to the HPSC, Inc. Employee Stock Ownership Plan (the "Plan"), is adopted effective as of January 1, 1994, unless otherwise indicated, by HPSC, Inc. (the "Company"), in accordance with Article XVI of the Plan and the requirements of the Tax Reform Act of 1986 ("TRA '86") and Code Section 414(q)(6)(C), Code Section 401(a)(17), as appearing in the Model Amendment of IRS Revenue Procedure 94-13, Code Section 411(a)(11), as appearing in the Model Amendment of IRS Revenue Procedure 93-47, and Code Section 401(a)(31), as appearing in the Model Amendment of IRS Revenue Procedure 93-12. The Company hereby amends the Plan as follows: 1. Section 2.6 of Article II is amended by adding the following paragraphs after paragraph one. The family aggregation rules of Code Section 414(q)(6)(C), as modified by Code Section 401(a)(17), and regulations thereunder shall apply to Compensation in the following manner. In the case of an Employee who is either a 5% owner or is both a highly compensated employee (within the meaning of Code Section 414(q)(6)) and one of the ten most highly compensated employees, the Employee, the Employee's spouse, and any lineal descendants of such Employee who have not attained age 19 before the close of the Year shall be treated as a single Employee (a "family unit") with one Compensation to which the annual compensation limit under the Plan applies. If Compensation for the family unit exceeds the annual compensation limit under Code Section 401(a)(17), then the Plan shall allocate the limit among the members of the family unit pro rata to their Compensation. However, if the Plan provides for permitted disparity under Code Section 401(1), this proration shall not be applied for purposes of determining the portion of each individual's Compensation ("Covered Compensation") that is below the integration level. In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, for Plan Years beginning on or after January 1, 1994, the annual compensation of each employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000 as adjusted by the Commissioner for increases in the cost of living in accordance with section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months over which Compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For Plan Years beginning on or after January 1, 1994, any reference in this Plan to the limitation under section 401(a)(17) of the Code shall mean the OBRA '93 annual compensation limit set forth in this provision. If Compensation for any prior determination period is taken into account in determining an employee's benefits accruing in the current Plan Year, the Compensation for that prior determination period is subject to the OBRA '93 annual compensation limit in effect for that prior determination period. For this purpose, for determination periods beginning before the first day of the first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual compensation limit is $150,000. 2. Section 10.5.04 of Article X is deleted in its entirety and replaced with the following: .04 PROCEDURES: NOTICE. As required by section l.411(a)-11(c) of the Income Tax Regulations, not less than 30 days and not more than 90 days before payment or commencement of a benefit, the Plan Administrator shall give notice to a Participant or Beneficiary concerning the alternative methods by which such benefits are to be paid. .001 After receiving such notice, and subject to Paragraph .002 below, a Participant or Beneficiary shall elect a form of benefit (if applicable) and a method of distribution on a form provided by the Plan Administrator. .002 If a distribution is one to which sections 4O1(a)(11) and 4l7 of the Internal Revenue Code do not apply, such distribution may commence less than 30 days after the notice required under section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that: .0001 the Plan Administrator clearly informs the Participant or Beneficiary that such individual has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and .0002 such Participant or Beneficiary, after receiving the notice, affirmatively elects a distribution. 2 Except as specifically amended hereby, the Plan is hereby reaffirmed in all respects. Signed as a sealed instrument effective as of the dates stated above. HPSC, INC. Dated: ,1994 By: John Everets -------------------------- ------------------------------- John Everets, Chairman By their signatures below, the initial Trustees of the HPSC, Inc. Employee Stock Ownership Plan hereby consent to the foregoing amendment and all of its terms. John Everets --------------------------------------- John Everets, as Trustee and not individually Raymond Doherty --------------------------------------- Raymond Doherty, as Trustee and not individually 3 EX-10.12 4 EXHIBIT 10.12 EXHIBIT 10.12 THIRD AMENDMENT TO THE HPSC, INC. EMPLOYEE STOCK OWNERSHIP PLAN This Third Amendment to the HPSC, Inc. Employee Stock Ownership Plan (the "Plan"), is adopted effective as of January 1,1993, unless otherwise indicated, by HPSC, Inc. (the "Company"). In accordance with Article XVI of the Plan the Company hereby amends the Plan as follows: 1. SECTION 13.7.03.002 OF ARTICLE XIII IS DELETED AND REPLACED WITH THE FOLLOWING: * * * * .002. In lieu of distribution under .001, the qualified Participant whose Plan benefit exceeds $3,500 and who has the right to receive such a distribution may direct the Trustee to transfer the portion of the Participant's account that is covered by the election to another qualified plan of the Employer that accepts such transfers; provided that such plan permits participant-directed investment in at least three investment options and does not invest in Employer securities to a substantial degree. Such transfer shall be made no later than 90 days after the last day of the period during which the election may be made. 2. THE FINAL SENTENCE OF SECTION 14.1 OF ARTICLE XIV IS DELETED AND REPLACED WITH THE FOLLOWING: 14.1 * * * * The three such required investment options shall be three mutual funds with the following investment objectives: (1) growth, through investment substantially in equity securities; (2) income, through investment substantially in fixed-income securities; and (3) either a balanced (growth and income) fund or a low-risk fund, such as an insured debt or governmental debt fund; provided that the Trustee may (at the Trustee's sole discretion) offer additional investment alternatives from time to time under the Fund. The Trustee shall determine the valuation of the Fund at the fair market value of the assets in the Fund and apportion any increase or decrease in the value of the Fund at periodic intervals, not less frequently than annually, in proportion to the account balance in the Fund on the date of such valuation (prior to taking into account any other credits or changes to the account made as of such date) of each Participant having an interest in the Fund. Except as specifically amended hereby, the Plan is hereby reaffirmed in all respects. Signed as a sealed instrument effective as of the date stated above. HPSC, INC. Dated: , 1995 By: John Everets -------------------- --------------------------- John Everets, Chairman By their signatures below, the current Trustees of the HPSC, Inc. Employee Stock Ownership Plan hereby consent to the foregoing amendment and all of its terms. John Everets --------------------------------- John Everets, as Trustee and not individually Raymond Doherty ---------------------------------- Raymond Doherty, as Trustee and not individually 2 EX-10.24 5 EXHIBIT 10.24 EXHIBIT 10.24 SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT This SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT (this "Second Amendment") dated as of November 8, 1994, by and among HPSC, INC. (the "Borrower"), a Delaware corporation, THE FIRST NATIONAL BANK OF BOSTON ("FNBB"), a national banking association, BANK OF AMERICA ILLINOIS (formerly know as Continental Bank N.A.) ("BoAI", and together with FNBB, the "Banks"), and THE FIRST NATIONAL BANK OF BOSTON as Agent for the Banks and BoAI as co-agent for the Banks. Capitalized terms used herein without definition shall have the meanings set forth in the Credit Agreement (as defined below). -2- WHEREAS, the Borrower, the Agent and the Banks are parties to that certain Revolving Credit Agreement dated as of June 23, 1994 (as amended by that certain First Amendment dated as of September 2, 1994 and as may be further amended, modified or supplemented and in effect from time to time, the "Credit Agreement"); WHEREAS, the Borrower has requested that certain terms and provisions of the Credit Agreement be amended to enable the Borrower to enter into a Stock Purchase Agreement dated as of November 1, 1994, by and among the Borrower, the other parties thereto and the Chemical Bank, as agent, substantially in the form of EXHIBIT A attached hereto and made a part hereof; and WHEREAS, pursuant to the terms of the Stock Purchase Agreement, the Borrower must deliver a letter of credit in favor of Chemical Bank, as agent; WHEREAS, the Borrower has requested that a letter of credit facility be added to the existing Credit Agreement in order to enable it to comply with its obligations under the Stock Purchase Agreement; -3- WHEREAS, the Agent and the Banks, subject to the terms and provisions hereof have agreed to amend the Credit Agreement; NOW, THEREFORE, in consideration of the premises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: THE STOCK PURCHASE AGREEMENT. EXHIBIT I to the Credit Agreement is replaced with EXHIBIT A attached hereto and made a part hereof. -4- AMENDMENT TO THE CREDIT AGREEMENT. DEFINITIONS. Section 1.1 of the Credit Agreement is hereby amended by inserting the following new definitions in the appropriate place in the alphabetical sequence: "APPLICABLE RATE. See Section 3A.6. LETTER OF CREDIT. See Section 3A.1. LETTER OF CREDIT APPLICATION. See Section 3A.1.1. LETTER OF CREDIT FEE. See Section 3A.6. LETTER OF CREDIT PARTICIPATION. See Section 3A.1.4. -5- MAXIMUM DRAWING AMOUNT. The maximum aggregate amount from time to time that the beneficiaries may draw under outstanding Letters of Credit, as such aggregate amount may be reduced from time to time pursuant to the terms of the Letters of Credit. REIMBURSEMENT OBLIGATION. The Borrower's obligation to reimburse the Agent and the Banks on account of any drawing under any Letter of Credit as provided in Section 3A.2. UNIFORM CUSTOMS. With respect to any Letter of Credit, the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, or any successor version thereto adopted by the Agent in the ordinary course of its business as a letter of credit issuer and in effect at the time of issuance of such Letter of Credit. UNPAID REIMBURSEMENT OBLIGATION. Any Reimbursement Obligation for which the Borrower does not reimburse the Agent and the Banks on the date specified in, and in accordance with, Section 3A.2." -6- CHANGES IN CERTAIN DEFINITIONS. Section 1 of the Credit Agreement is hereby further amended by amending certain definitions therein. (a) The definition of "Commitment" is hereby deleted in its entirety and replaced with the following: "COMMITMENT. With respect to each Bank, the amount set forth on SCHEDULE 1 hereto as the amount of such Bank's commitment to make Loans to, and to participate in the issuance, extension and renewal of Letters of Credit for the account of, the Borrower, as the same may be reduced from time to time; or if such commitment is terminated pursuant to the provisions hereof, zero." (b) The definition of "Loan Documents" is hereby deleted in its entirety and replaced with the following: -7- "LOAN DOCUMENTS. This Credit Agreement, the Notes, the Letter of Credit Applications, the Letters of Credit and the Security Documents. (c) The definition of "Obligations" is hereby deleted in its entirety and replaced with the following: "OBLIGATIONS. All Indebtedness, obligations and liabilities of any of the Borrower and its Subsidiaries to any of the Banks and the Agent, individually or collectively, existing on the date of this Credit Agreement or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, arising or incurred under this Credit Agreement or any of the other Loan Documents or in respect of any of the Revolving Credit Loans made or Reimbursement Obligations incurred or any of the Notes, Letter of Credit Applications, Letters of Credit or other instruments at any time evidencing any thereof." (d) The definition of "Stock Purchase Agreement" is hereby deleted in its entirety and replaced with the following: -8- "STOCK PURCHASE AGREEMENT. That certain Stock Purchase Agreement dated as of November 1, 1994 by and among the Borrower the other parties thereto and the Chemical Bank, as agent, which is attached hereto and made a part hereof as EXHIBIT I." COMMITMENT TO LEND. Section 2.1 of the Credit Agreement is hereby amended by deleting the first sentence thereof and replacing it with the following: "Subject to the terms and conditions set forth in this Credit Agreement, each of the Banks severally agrees to lend to the Borrower and the Borrower may borrow, repay, and reborrow from time to time between the Closing Date and the Revolving Credit Loan Maturity Date upon notice by the Borrower to the Agent given in accordance with Section 2.6, such sums as are requested by the Borrower up to a maximum aggregate principal amount outstanding (after giving effect to all amounts requested) at any one time equal to such Bank's Commitment MINUS such Bank's Commitment Percentage of the sum of the Maximum Drawing Amount and all Unpaid Reimbursement -9- Obligations, PROVIDED that the sum of the outstanding amount of the Revolving Credit Loans (after giving effect to all amounts requested) PLUS the Maximum Drawing Amount and all Unpaid Reimbursement Obligations shall not at any time exceed the lesser of (i) the Total Commitment and (ii) the Borrowing Base." COMMITMENT FEE. Section 2.2 of the Credit Agreement is hereby amended by inserting, in the seventh line thereof, the words "MINUS the sum of the Maximum Drawing Amount and all Unpaid Reimbursement Obligations" between the words "which the Total Commitment" and the words "exceeds the outstanding amount". MANDATORY REPAYMENTS. Section 3.2 of the Credit Agreement is hereby amended by deleting the first sentence thereof in its entirety and replacing it with the following: -10- "(e) MANDATORY REPAYMENTS. If at any time the sum of the outstanding amount of the Revolving Credit Loans, the Maximum Drawing Amount and all Unpaid Reimbursement Obligations exceeds the lesser of (i) the Total Commitment and (ii) the Borrowing Base, for more than five (5) consecutive Business Days, then the Borrower shall immediately pay the amount of such excess to the Agent for the respective accounts of the Banks for application: first, to any Unpaid Reimbursement Obligations; second, to the Revolving Credit Loans; and third, to provide to the Agent cash collateral for Reimbursement Obligations as contemplated by Section 3A.2(b) and (c). Each payment of any Unpaid Reimbursement Obligations or prepayment of the Revolving Credit Loans shall be allocated among the Banks, in proportion, as nearly as practicable, to the Reimbursement Obligation owing to each such Bank or (as the case may be) the respective unpaid principal amount of each Bank's Revolving Credit Note, with adjustments to the extent practicable to equalize any prior payments or repayments not exactly in proportion." LETTERS OF CREDIT. -11- The Credit Agreement shall be amended by inserting the following new Section 3A between the end of existing Section 3.3 and the beginning of existing Section 4: "Section 3A. LETTERS OF CREDIT. Section 3A.1. LETTER OF CREDIT COMMITMENTS. 3A.1.1. COMMITMENT TO ISSUE LETTERS OF CREDIT. Subject to the terms and conditions hereof and the execution and delivery by the Borrower of a letter of credit application on the Agent's customary form (a "Letter of Credit Application"), the Agent on behalf of the Banks and in reliance upon the agreement of the Banks set forth in Section 3A.1.4 and upon the representations and warranties of the Borrower contained herein, agrees, in its individual capacity, to issue, extend and renew for the account of the Borrower one or more standby letters of credit (individually, a "Letter of Credit"), in such form as may be requested by the Borrower and agreed to by the Agent in order to comply with the requirements of Section 7.2 of the Stock Purchase Agreement; PROVIDED, HOWEVER, that, after giving effect to such request, (a) the sum of the aggregate Maximum Drawing Amount and all Unpaid Reimbursement Obligations shall not exceed One Million Five Hundred Thousand Dollars ($1,500,000.00) at any one time and (b) the sum of (i) the Maximum Drawing Amount on all Letters of Credit, (ii) all Unpaid Reimbursement Obligations, and (iii) the amount of all Loans outstanding shall not exceed the lesser of (A) the Total Commitment and (B) the Borrowing Base. -12 3A.1.2. LETTER OF CREDIT APPLICATIONS. Each Letter of Credit Application shall be completed to the satisfaction of the Agent. In the event that any provision of any Letter of Credit Application shall be inconsistent with any provision of this Credit Agreement, then the provisions of this Agreement shall, to the extent of any such inconsistency, govern. 3A.1.3. TERMS OF LETTERS OF CREDIT. Each Letter of Credit issued, extended or renewed hereunder shall, among other things, (i) provide for the payment of sight drafts for honor thereunder when presented in accordance with the terms thereof and when accompanied by the documents described therein and (ii) have an expiry date no later than the date which is fourteen (14) Business Days prior to the Revolving Credit Loan Final Maturity Date. Each Letter of Credit so issued, extended or renewed shall be subject to the Uniform Customs. 3A.1.4. REIMBURSEMENT OBLIGATIONS OF BANKS. Each Bank severally agrees that it shall be absolutely liable, without regard to the occurrence of any Default or Event of Default or any other condition precedent whatsoever, to the extent of such Bank's Commitment Percentage, to reimburse the Agent on demand for the amount of each draft paid by the Agent under each Letter of Credit to the extent that such amount is not reimbursed by the Borrower pursuant to Section 3A.2 (such agreement for a Bank being called herein the "Letter of Credit Participation" of such Bank). -13- 3A.1.5. PARTICIPATIONS OF BANKS. Each such payment made by a Bank shall be treated as the purchase by such Bank of a participating interest in the Borrower's Reimbursement Obligation under Section 3A.2 in an amount equal to such payment. Each Bank shall share in accordance with its participating interest in any interest which accrues pursuant to Section 3A.2. Section 3A.2. REIMBURSEMENT OBLIGATION OF THE BORROWER. In order to induce the Agent to issue, extend and renew each Letter of Credit and the Banks to participate therein, the Borrower hereby agrees to reimburse or pay to the Agent, for the account of the Agent or (as the case may be) the Banks, with respect to each Letter of Credit issued, extended or renewed by the Agent hereunder, (a) except as otherwise expressly provided in Section 3A.2(b) and (c), on each date that any draft presented under such Letter of Credit is honored by the Agent, or the Agent otherwise makes a payment under or pursuant to such Letter of Credit, (i) the amount paid by the Agent under or pursuant to such Letter of Credit, and (ii) the amount of any customary taxes, fees, charges or other reasonable costs and expenses whatsoever incurred by the Agent or any Bank in connection with any payment made by the Agent or any Bank under, or pursuant to, such Letter of Credit, (b) upon the reduction (but not termination) of the Total Commitment to an amount less than the Maximum Drawing Amount, an amount equal to such difference, which amount shall be held by the -14- Agent for the benefit of the Banks and the Agent as cash collateral for all Reimbursement Obligations, and (c) upon the termination of the Total Commitment or the acceleration of the Reimbursement Obligations with respect to all Letters of Credit in accordance with Section 12, an amount equal to the then Maximum Drawing Amount of all Letters of Credit, which amount shall be held by the Agent for the benefit of the Banks and the Agent as cash collateral for all Reimbursement Obligations. Each such payment shall be made to the Agent at the Agent's Head Office in immediately available funds. Interest on any and all amounts remaining unpaid by the Borrower under this Section 3A.2 at any time from the date such amounts become due and payable (whether as stated in this Section 3A.2, by acceleration or otherwise) until payment in full (whether before or after judgment) shall be payable to the Agent on demand at the rate specified in Section 4.11 for overdue principal of the Loans. Section 3A.3. LETTER OF CREDIT PAYMENTS. If any draft shall be presented or other demand for payment shall be made under any Letter of Credit, the Agent shall notify the Borrower of the date and amount of the draft presented or demand for payment and of the date and time when it expects to pay such draft or honor such demand for payment. If the Borrower fails to reimburse the Agent as provided in -15- Section 3A.2 on or before the date that such draft is paid or other payment is made by the Agent, the Agent may at any time thereafter notify the Banks of the amount of any such Unpaid Reimbursement Obligation. No later than 3:00 p.m. (Boston time) on the Business Day next following the receipt of such notice, each Bank shall make available to the Agent, at its Head Office, in immediately available funds, such Bank's Commitment Percentage of such Unpaid Reimbursement Obligation, together with an amount equal to the product of (i) the average, computed for the period referred to in clause (iii) below, of the weighted average interest rate paid by the Agent for federal funds acquired by the Agent during each day included in such period, TIMES (ii) the amount equal to such Bank's Commitment Percentage of such Unpaid Reimbursement Obligation, TIMES (iii) a fraction, the numerator of which is the number of days that elapse from and including the date the Agent paid the draft presented for honor or otherwise made payment to the date on which such Bank's Commitment Percentage of such Unpaid Reimbursement Obligation shall become immediately available to the Agent, and the denominator of which is 360. The responsibility of the Agent to the Borrower and the Banks shall be only to determine that the documents (including each draft) delivered under each Letter of Credit in connection with such presentment shall be in conformity in all material respects with such Letter of Credit. Section 3A.4. OBLIGATIONS ABSOLUTE. The Borrower's obligations under this Section 3A shall be absolute and unconditional under any and all circumstances and irrespective of the occurrence of any Default or Event of Default or any condition precedent whatsoever or any setoff, counterclaim or defense to payment which the Borrower may have or have had against the Agent, any Bank or any beneficiary of a Letter of Credit. The Borrower further agrees with the Agent and the Banks that the Agent and the Banks shall not be responsible for, and the Borrower's Reimbursement Obligations under Section 3A.2 -16- shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, fraudulent or forged, or any dispute between or among the Borrower, the beneficiary of any Letter of Credit or any financing institution or other party to which any Letter of Credit may be transferred or any claims or defenses whatsoever of the Borrower against the beneficiary of any Letter of Credit or any such transferee. The Agent and the Banks shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit. The Borrower agrees that any action taken or omitted by the Agent or any Bank under or in connection with each Letter of Credit and the related drafts and documents, if done in good faith, shall be binding upon the Borrower and shall not result in any liability on the part of the Agent or any Bank to the Borrower. Section 3A.5. RELIANCE BY ISSUER. To the extent not inconsistent with Section 3A.4, the Agent shall be entitled to rely, and shall be fully protected in relying upon, any Letter of Credit, draft, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action requested by the Majority Banks unless it shall first have -17- received such advice or concurrence of the Majority Banks as it reasonably deems appropriate or it shall first be indemnified to its reasonable 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. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Majority Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon the Banks and all future holders of the Revolving Credit Notes or of a Letter of Credit Participation. Section 3A.6. LETTER OF CREDIT FEE. The Borrower shall, on the date of issuance or any extension or renewal of any Letter of Credit and at such other time or times as such charges are customarily made by the Agent, pay a fee (in each case, a "Letter of Credit Fee") to the Agent in respect of each Letter of Credit equal to the Applicable Rate (as defined below) per annum of the face amount of such Letter of Credit, PLUS the Agent's customary issuance fee. For the purposes of this Section 3A.6, "Applicable Rate" shall mean the percentage rate per annum then in effect that the Borrower would pay with respect to Eurodollar Rate Loans as the applicable margin over the Eurodollar Rate as set forth in Section 2.5 of this Credit Agreement." PAYMENTS TO AGENT. -18- Section 4.3.1 of the Credit Agreement is hereby amended by inserting the words "Reimbursement Obligations, Letter of Credit Fees," between the words "principal, interest," and the words "commitment fees and any other amounts due hereunder". COMPUTATIONS. Section 4.4 of the Credit Agreement is hereby amended by inserting the words "and Letter of Credit Fees" between the words "commitment fees," and the words "shall, unless otherwise expressly". ADDITIONAL COSTS. Section 4.7 of the Credit Agreement is hereby amended by deleting existing subsections (a) through (e) and inserting in lieu thereof the following: -19- "(a) subject any Bank or the Agent to any tax, levy, impost, duty, charge, fee, deduction or withholding of any nature with respect to this Credit Agreement, the other Loan Documents, any Letters of Credit, such Bank's Commitment or the Loans or deposits obtained to fund Loans or Letters of Credit (other than taxes based upon or measured by the net profit or income of such Bank or the Agent); or (b) materially change the basis of taxation (except for changes in taxes on income or profits) of payments to any Bank of the principal of or the interest on the Loans or any other amounts payable to any Bank or the Agent under this Credit Agreement or the other Loan Documents; or (c) impose or increase or render applicable (other than to the extent specifically provided for elsewhere in this Credit Agreement) any special deposit, assessment, liquidity, capital adequacy, or reserve or other similar requirement (whether or not having the force of law) against assets held by, or deposits in or for the account of, or loans by, or letters of credit issued by, or commitments of an office of any Bank; or -20- (d) impose on any Bank or the Agent any other conditions or requirements with respect to this Credit Agreement, the other Loan Documents, the Letters of Credit, the Loans, such Bank's Commitment, or any class of loans, letters of credit or commitments of which any of the Loans, the Letters of Credit, or such Bank's Commitment forms a part, and the result of any of the foregoing is (i) to increase the cost to any Bank of making, funding, issuing, renewing, extending or maintaining any of the Loans or such Bank's Commitment or any Letter of Credit, or (ii) to reduce the amount of principal, interest, Reimbursement Obligation or other amount payable to such Bank or the Agent hereunder on account of such Bank's Commitment, any Letter of Credit or any of the Loans, or (iii) to require such Bank or the Agent to make any payment or to forego any interest or Reimbursement Obligation or other sum payable hereunder, the amount of which payment or foregone interest or Reimbursement Obligation or other sum is calculated by reference to the gross amount of any sum receivable or deemed received by such Bank or the Agent from the Borrower hereunder, -21- then, and in each such case, the Borrower will, upon written demand made by such Bank or (as the case may be) the Agent at any time and from time to time and as often as the occasion therefor may arise, pay to such Bank or the Agent such additional amounts as will be sufficient to compensate the Bank or the Agent for such additional cost, reduction, payment or foregone interest, Reimbursement Obligation or other sum." REGULATIONS U AND X. Section 6.17 of the Credit Agreement is hereby amended by deleting it in its entirety and substituting in lieu thereof the following: "Section 6.17. REGULATIONS U AND X. The proceeds of the Loans shall be used for working capital purposes, except to the extent permitted by Section 7.12 of this Agreement. The Borrower will obtain Letters of Credit solely for the purpose of complying with the requirements of Section 7.2 of the Stock Purchase Agreement. No portion of any Loan which is to be used for the purpose of purchasing or carrying any "margin security" or "margin stock" will be secured directly or indirectly by "margin -22- security" or "margin stock" as such terms are used in Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224." USE OF PROCEEDS. Section 7.12 of the Credit Agreement is hereby amended by deleting it in its entirety and substituting in lieu thereof the following: "7.12. USE OF PROCEEDS. The Borrower will use the proceeds of the Loans solely for working capital purposes, PROVIDED, HOWEVER, that the Borrower may use up to a maximum aggregate amount equal to $7,000,000 MINUS the sum of the Maximum Drawing Amount and all Unpaid Reimbursement Obligations of proceeds of the Loans towards the purchase of 1,949,182 shares of the Borrower's Common Stock, $0.01 par value, pursuant to the terms of the Stock Purchase Agreement, and PROVIDED FURTHER that the Borrower may not use more than $1,000,000 of proceeds of the Loans for the portion of the Purchase Price (as defined in the Stock Purchase Agreement) to be paid by the Borrower on the Closing Date (as defined in the Stock Purchase Agreement). The Borrower will obtain Letters of -23- Credit solely for the purpose of complying with the requirements of Section 7.2 of the Stock Purchase Agreement." NEGATIVE COVENANTS OF THE BORROWER. The introductory text of Section 8 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "Section 8. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. The Borrower covenants and agrees that, so long as any Loan, Unpaid Reimbursement Obligation, Letter of Credit or Note is outstanding or any Bank has any obligation to make any Loans or the Agent has any obligations to issue, extend or renew any Letters of Credit hereunder:" CLOSING CONDITIONS. -24- The introductory text of Section 10 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "Section 10. CLOSING CONDITIONS. The obligations of the Banks to make the initial Revolving Credit Loans and of the Agent to issue any initial Letters of Credit shall be subject to the satisfaction of the following conditions precedent." LEGALITY OF TRANSACTIONS. Section 11.2 of the Credit Agreement is hereby amended by inserting at the end thereof the following text: -25- "or to participate in the issuance, extension or renewal of such Letter of Credit or in the reasonable opinion of the Agent would make it illegal for the Agent to issue, extend or renew such Letter of Credit." CONDITIONS TO ALL BORROWINGS. The introductory text of Section 11 of the Credit Agreement is hereby deleted in its entirety and replaced with the following text: "Section 11. CONDITIONS TO ALL BORROWINGS. The obligation of the Banks to make any Loans and of the Agent to issue, extend or renew any Letters of Credit whether on or after the Closing Date shall be subject to the satisfaction of each of the following conditions precedent:" BORROWING BASE REPORT. -26- Section 11.5 of the Credit Agreement is hereby amended by inserting before the period at the end thereof, the words "or of the date of issuance, extension or renewal of the requested Letter of Credit". EVENTS OF DEFAULT AND ACCELERATION. Section 12.1(a) of the Credit Agreement is hereby amended by inserting, in the first line thereof, the words "or any Reimbursement Obligations" between the words "principal of the Loans" and the words "when the same shall become due". Section 12.1(b) of the Credit Agreement is hereby amended by inserting, in the third line thereof, the words "any Letter of Credit Fee" between the words "commitment fee," and the words "the Agent's fee". -27- The final paragraph of Section 12.1 of the Credit Agreement (after Section 12(r) is hereby amended by inserting, in the fourth line, the text ", and all Reimbursement Obligations" between the words "the other Loan Documents" and the words "to be, and they shall thereupon". REMEDIES. Section 12.3 of the Credit Agreement is hereby amended by inserting, in the fourth line, the words "or the Reimbursement Obligations" between the words "with respect to the Loans" and the words " may proceed to protect". Section 12.3 of the Credit Agreement is hereby further amended by inserting, in the fourteenth line, the words "or purchaser of any Letter of Credit Participation" between the word "Note," and the words "is intended to be exclusive". SETOFF; SHARING; ETC. -28- Section 13 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: "Section 13. SETOFF. Regardless of the adequacy of any collateral, during the continuance of any Event of Default, any deposits or other sums credited by or due from any of the Banks to the Borrower and any securities or other property of the Borrower in the possession of such Bank may be applied to or set off by such Bank against the payment of Obligations and any and all other liabilities, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, of the Borrower to such Bank. Each of the Banks agrees with each other Bank that (i) if an amount to be set off is to be applied to Indebtedness of the Borrower to such Bank, other than Indebtedness evidenced by the Notes held by such Bank or constituting Reimbursement Obligations owed to such Bank, such amount shall be applied ratably to such other Indebtedness and to the Indebtedness evidenced by all such Notes held by such Bank or constituting Reimbursement Obligations owed to such Bank, and (ii) if such Bank shall receive from the Borrower, whether by voluntary payment, exercise of the right of setoff, counterclaim, cross action, enforcement of the claim evidenced by the Notes held by, or constituting Reimbursement Obligations owed to, such Bank by proceedings against the Borrower at law or in equity or by proof thereof in bankruptcy, reorganization, liquidation, receivership or similar proceedings, or otherwise, and shall retain and apply to the payment of the Note or Notes held by, or Reimbursement Obligations owed to, such Bank any amount in excess of its ratable portion of the payments received -29- by all of the Banks with respect to the Notes held by, and Reimbursement Obligations owed to, all of the Banks, such Bank will make such disposition and arrangements with the other Banks with respect to such excess, either by way of distribution, PRO TANTO assignment of claims, subrogation or otherwise as shall result in each Bank receiving in respect of the Notes held by it or Reimbursement Obligations owed it, its proportionate payment as contemplated by this Credit Agreement; PROVIDED that if all or any part of such excess payment is thereafter recovered from such Bank, such disposition and arrangements shall be rescinded and the amount restored to the extent of such recovery, but without interest." DELINQUENT BANKS. Section 14.5.3 of the Credit agreement is hereby deleted in its entirety and replaced with the following: "Notwithstanding anything to the contrary contained in this Credit Agreement or any of the other Loan Documents, any Bank that fails (i) to make available to the Agent its PRO RATA share of any Loan or to purchase any Letter of Credit Participation or (ii) to comply with the provisions of Section 13 with respect to making dispositions and arrangements with the other Banks, where such Bank's share of -30- any payment received, whether by setoff or otherwise, is in excess of its PRO RATA share of such payments due and payable to all of the Banks, in each case as, when and to the full extent required by the provisions of this Credit Agreement, shall be deemed delinquent (a "Delinquent Bank") and shall be deemed a Delinquent Bank until such time as such delinquency is satisfied. A Delinquent Bank shall be deemed to have assigned any and all payments due to it from the Borrower, whether on account of outstanding Loans, Unpaid Reimbursement Obligations, interest, fees or otherwise, to the remaining nondelinquent Banks for application to, and reduction of, their respective PRO RATA shares of all outstanding Loans and Unpaid Reimbursement Obligations. The Delinquent Bank hereby authorizes the Agent to distribute such payments to the nondelinquent Banks in proportion to their respective PRO RATA shares of all outstanding Loans and Unpaid Reimbursement Obligations. A Delinquent Bank shall be deemed to have satisfied in full a delinquency when and if, as a result of application of the assigned payments to all outstanding Loans and Unpaid Reimbursement Obligations of the nondelinquent Banks, the Banks' respective PRO RATA shares of all outstanding Loans and Unpaid Reimbursement Obligations have returned to those in effect immediately prior to such delinquency and without giving effect to the nonpayment causing such delinquency." HOLDERS OF NOTES. -31- Section 14.6 of the Credit Agreement is hereby amended by inserting, in the second line, the words "or the purchaser of any Letter of Credit Participation" between the words "of any Note" and the words "as the absolute owner or purchaser". CONDITIONS TO ASSIGNMENTS. Section 18.1 of the Credit Agreement is hereby amended by deleting the close parenthesis after the word "it" at the end of the forth line and inserting, in the fifth line, the words "and its participating interest in the risk relating to any Letters of Credit)" between the words "the Note or Notes held by it" and the phrase "; PROVIDED that". CERTAIN REPRESENTATIONS AND WARRANTIES; LIMITATIONS; COVENANTS. -32- Section 18.2 of the Credit Agreement is hereby amended by deleting from the end of clause (g) thereof the word "and". Section 18.2 of the Credit Agreement is hereby further amended by inserting, immediately before the period after clause (h) thereof, the words "; and (i) such assignee acknowledges that it has made arrangements with the assigning Bank satisfactory to such assignee with respect to its PRO RATA share of Letter of Credit Fees in respect of outstanding Letters of Credit". REGISTER. Section 18.3 of the Credit Agreement is hereby amended by inserting, in the fifth line thereof, the words "and Letter of Credit Participations purchased by" between the words "Revolving Credit Loans owing to" and the words ", the Banks from time to time". PARTICIPATIONS. -33- Section 18.5 of the Credit Agreement is hereby amended by inserting, in the second to last line, the words "Letter of Credit Fees" after the words "commitment fees or" and the words "to which such participant". ASSIGNEE OR PARTICIPANT AFFILIATED WITH THE BORROWER. Section 18.7 of the Credit Agreement is hereby amended by inserting, in the ninth line thereof, the words "or Reimbursement Obligations" between the words "interest in any of the Loans" and the period. Section 18.7 is hereby further amended by inserting, in the tenth line thereof, the words "or Reimbursement Obligations" between the words "participating interest in any of the Loans" and the words "to a participant,". NOTICES. -34- Section 19 of the Credit Agreement is hereby amended by inserting, in the third line thereof the words "or any Letter of Credit Applications" between the words "or the Notes" and the words "shall be in writing". CONSENTS, AMENDMENTS, WAIVERS, ETC. Section 25 of the Credit Agreement is hereby amended by inserting, in the thirteenth line thereof, the words "or Letter of Credit Fees" between the words "amount of Commitment Fee" and the words "hereunder may not". Section 25 is hereby further amended by inserting, in the seventeenth line thereof, the words "Letter of Credit Fees," between the words "Agent's Fee" and the words "and Section 14 may not". AMENDMENT TO EXHIBIT E, FORM OF ASSIGNMENT AND ACCEPTANCE. -35- Exhibit E to the Credit Agreement is hereby amended by inserting, in the third line of Paragraph 2 thereof, the words "and its participating interest in the risk relating to any outstanding Letters of Credit" between the words "hereof, its Commitment Percentage is" and the text "_____.00%". Exhibit E is hereby further amended by inserting, in the fourth line of Paragraph 2 thereof, the words "its participating interest in Unpaid Reimbursement Obligations and" between the text "_____.00%" and the text ", the aggregate outstanding". Exhibit E is hereby further amended by deleting, from the beginning of clause (vi) of Paragraph 3 thereof, the word "and". Exhibit E is hereby further amended by inserting, immediately before the period after clause (vi) thereof, the words "; and (vii) acknowledges that it has made arrangements with the Assignor satisfactory to it with respect to its PRO RATA share of Letter of Credit Fees in respect of outstanding Letters of Credit". CONDITIONS TO EFFECTIVENESS. This Second Amendment shall not become effective unless and until (a) the Bank receives counterparts of this Second Amendment executed by each of the Borrower, the Banks, the Agent and the Guarantor and (b) all proceedings in connection with the transactions contemplated by this Amendment and all documents incident hereto shall be satisfactory in form and substance to the Agent, and the Agent shall have received all information and counterpart originals or certified or other copies of such documents as the Agent may reasonably request. -36- REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The Borrower represents and warrants to the Agent and the Banks that (a) each and every one of the representations and warranties made by the Borrower to the Agent and the Banks in Section 6 or elsewhere in the Credit Agreement or in the other Loan Documents, as amended by this Second Amendment are true and correct in all material respects on and as of the date hereof except to the extent that any of such representations and warranties relate, by the express terms thereof, solely to a date prior hereto; (b) the Borrower has duly and properly performed, complied with and observed each of its covenants, agreements and obligations contained in Sections 7 and 8 or elsewhere in the Credit Agreement or the other Loan Documents, as amended by this Second Amendment; and (c) no event has occurred or is continuing and no condition exists which constitutes a Default or Event of Default. RATIFICATION, ETC. Except as expressly amended hereby, the Credit Agreement and the Loan Documents and all documents, instruments and agreements related thereto, including, but not limited to the Security -37- Documents, are hereby ratified and confirmed in all respects and shall continue in full force and effect. The Credit Agreement and this Second Amendment shall be read and construed as a single agreement. All references in the Credit Agreement or any related agreement or instrument to the Credit Agreement shall hereafter refer to the Credit Agreement as amended hereby. EXPENSES AND FEES. The Borrower hereby agrees to pay to the Agent, on demand by the Agent, all reasonable out-of-pocket costs and expenses incurred or sustained by the Agent or any of the Banks in connection with the preparation of this Second Amendment and the documents referred to herein (including reasonable legal fees). NO WAIVER. -38- Nothing contained herein shall constitute a waiver of, impair or otherwise affect any Obligations, any other obligation of the Borrower or any rights of the Agent or either of the Banks consequent thereon. COUNTERPARTS. This Second Amendment may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument. HEADINGS. Section headings in this Second Amendment are included herein for convenience of reference only and shall not constitute part of this First Amendment for any other purpose. -39- GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS). -40- IN WITNESS WHEREOF, the undersigned have duly executed this Second Amendment as a sealed instrument as of the date first set forth above. HPSC, INC. By: /s/ John Everets, Jr -------------------------- John Everets, Jr THE FIRST NATIONAL BANK OF BOSTON, individually and as Agent By: /s/ Mitchell B. Feldman -------------------------- Mitchell B. Feldman BANK OF AMERICA ILLINOIS, individually and as co-agent -41- By: /s/ Mark N. Hurley -------------------------- Mark N. Hurley CONSENTED TO BY THE UNDERSIGNED GUARANTOR: AMERICAN COMMERCIAL FINANCE CORPORATION By: /s/ John Everets, Jr -------------------------- John Everets, Jr EX-10.25 6 EXHIBIT 10.25 EXHIBIT 10.25 THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT This THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT (this "Third Amendment") dated as of November 22, 1994, by and among HPSC, INC. (the "Borrower"), a Delaware corporation, THE FIRST NATIONAL BANK OF BOSTON ("FNBB"), a national banking association, BANK OF AMERICA ILLINOIS (formerly know as Continental Bank N.A.) ("BoAI", and together with FNBB, the "Banks"), and THE FIRST NATIONAL BANK OF BOSTON as Agent for the Banks and BoAI as co-agent for the Banks. Capitalized terms used herein without definition shall have the meanings set forth in the Credit Agreement (as defined below). WHEREAS, the Borrower, the Agent and the Banks are parties to that certain Revolving Credit Agreement dated as of June 23, 1994 (as amended by the First Amendment dated September 2, 1994, the Second Amendment dated November 8, 1994 and as may be further amended, modified or supplemented and in effect from time to time, the "Credit Agreement"); WHEREAS, the Borrower has requested that certain terms and provisions of the Credit Amendment be amended and the Agent and the Banks, subject to the terms and provisions hereof have agreed to amend the Credit Agreement; NOW, THEREFORE, in consideration of the premises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: AMENDMENT TO THE CREDIT AMENDMENT. USE OF PROCEEDS. Section 7.12 of the Credit Agreement is hereby amended by deleting the number "$1,000,000" and inserting in lieu thereof the number "$2,000,000". RESTRICTIONS ON LIENS. Section 8.2 of the Credit Agreement is hereby amended by inserting the following new subsection (k) imediately following existing subsection (j): "(k) liens in favor of the Chemical Bank, as agent, on the Remainder Shares (as defined in the Stock Purchase Agreement) to secure the Note (as defined in the Stock Purchase Agreement) pursuant to Section 7.1 of the Stock Purchase Agreement." CONDITIONS TO EFFECTIVENESS. This Third Amendment shall not become effective unless and until (a) the Bank receives counterparts of this Third Amendment executed by each of the Borrower, the Banks, the Agent and the Guarantor and (b) all proceedings in connection with the transactions contemplated by this Amendment and all documents incident hereto shall be satisfactory in form and substance to the Agent, and the Agent shall have received all information and counterpart originals or certified or other copies of such documents as the Agent may reasonably request. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The Borrower represents and warrants to the Agent and the Banks that (a) each and every one of the representations and warranties made by the Borrower to the Agent and the Banks in Section 6 or elsewhere in the Credit Agreement or in the other Loan Documents, as amended by this Third Amendment are true and correct in all material respects on and as of the date hereof except to the extent that any of such representations and warranties relate, by the express terms thereof, solely to a date prior hereto; (b) the Borrower has duly and properly performed, complied with and observed each of its covenants, agreements and obligations contained in Sections 7 and 8 or elsewhere in the Credit Agreement or the other Loan Documents, as amended by this Third Amendment; and (c) no event has occurred or is continuing and no condition exists which constitutes a Default or Event of Default. RATIFICATION, ETC. Except as expressly amended hereby, the Credit Agreement and the Loan Documents and all documents, instruments and agreements related thereto, including, but not limited to the Security Documents, are hereby ratified and confirmed in all respects and shall continue in full force and effect. The Credit Agreement and this Third Amendment shall be read and construed as a single agreement. All references in the Credit Agreement or any related agreement or instrument to the Credit Agreement shall hereafter refer to the Credit Agreement as amended hereby. MISCELLANEOUS. The Borrower hereby agrees to pay to the Agent, on demand by the Agent, all reasonable out-of-pocket costs and expenses incurred or sustained by the Agent or any of the Banks in connection with the preparation of this Third Amendment and the documents referred to herein (including reasonable legal fees). Nothing contained herein shall constitute a waiver of, impair or otherwise affect any Obligations, any other obligation of the Borrower or any rights of the Agent or either of the Banks consequent thereon. This Third Amendment may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument. Section headings in this Third Amendment are included herein for convenience of reference only and shall not constitute part of this First Amendment for any other purpose. GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS). IN WITNESS WHEREOF, the undersigned have duly executed this Third Amendment as a sealed instrument as of the date first set forth above. HPSC, INC. By: /s/ John Everets, Jr. ------------------------------------- John Everets, Jr. THE FIRST NATIONAL BANK OF BOSTON, individually and as Agent By: /s/ Mitchell B. Feldman ------------------------------------- Mitchell B. Feldman BANK OF AMERICA ILLINOIS, individually and as co-agent By: /s/ Sharon Ephraim ------------------------------------- Sharon Ephraim CONSENTED TO BY THE UNDERSIGNED GUARANTOR: AMERICAN COMMERCIAL FINANCE CORPORATION By: /s/ John Everets, Jr. ------------------------- John Everets, Jr. EX-10.26 7 EXHIBIT 10.26 EXHIBIT 10.26 FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT This FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT (this "Fourth Amendment") dated as of December 22, 1994, by and among HPSC, INC. (the "Borrower"), a Delaware corporation, THE FIRST NATIONAL BANK OF BOSTON ("FNBB"), a national banking association, BANK OF AMERICA ILLINOIS (formerly know as Continental Bank N.A.) ("BoAI", and together with FNBB, the "Banks"), and THE FIRST NATIONAL BANK OF BOSTON as Agent for the Banks and BoAI as co-agent for the Banks. Capitalized terms used herein without definition shall have the meanings set forth in the Credit Agreement (as defined below). WHEREAS, the Borrower, the Agent and the Banks are parties to that certain Revolving Credit Agreement dated as of June 23, 1994 (as amended by the First Amendment dated September 2, 1994, the Second Amendment dated November 8, 1994, the Third Amendment dated November 22, 1994, and as may be further amended, modified or supplemented and in effect from time to time, the "Credit Agreement"); WHEREAS, the Borrower has requested that certain terms and provisions of the Credit Amendment be amended and the Agent and the Banks, subject to the terms and provisions hereof have agreed to amend the Credit Agreement; NOW, THEREFORE, in consideration of the premises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: AMENDMENT TO THE CREDIT AMENDMENT. Section 3A.1.1. ("COMMITMENT TO ISSUE LETTERS OF CREDIT") is hereby amended by deleting the text "One Million Five Hundred Thousand Dollars ($1,500,000.00)" where it appears and inserting in lieu thereof the text "Two Million Seven Hundred Fifty Thousand Dollars ($2,750,000.00)". CONDITIONS TO EFFECTIVENESS. This Fourth Amendment shall not become effective unless and until (a) the Bank receives counterparts of this Fourth Amendment executed by each of the Borrower, the Banks, the Agent and the Guarantor and (b) all proceedings in connection with the transactions contemplated by this Amendment and all documents incident hereto shall be satisfactory in form and substance to the Agent, and the Agent shall have received all information and counterpart originals or certified or other copies of such documents as the Agent may reasonably request. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The Borrower represents and warrants to the Agent and the Banks that (a) each and every one of the representations and warranties made by the Borrower to the Agent and the Banks in Section 6 or elsewhere in the Credit Agreement or in the other Loan Documents, as amended by this Fourth Amendment are true and correct in all material respects on and as of the date hereof except to the extent that any of such representations and warranties relate, by the express terms thereof, solely to a date prior hereto; (b) the Borrower has duly and properly performed, complied with and observed each of its covenants, agreements and obligations contained in Sections 7 and 8 or elsewhere in the Credit Agreement or the other Loan Documents, as amended by this Fourth Amendment; and (c) no event has occurred or is continuing and no condition exists which constitutes a Default or Event of Default. RATIFICATION, ETC. Except as expressly amended hereby, the Credit Agreement and the Loan Documents and all documents, instruments and agreements related thereto, including, but not limited to the Security Documents, are hereby ratified and confirmed in all respects and shall continue in full force and effect. The Credit Agreement and this Fourth Amendment shall be read and construed as a single agreement. All references in the Credit Agreement or any related agreement or instrument to the Credit Agreement shall hereafter refer to the Credit Agreement as amended hereby. MISCELLANEOUS. The Borrower hereby agrees to pay to the Agent, on demand by the Agent, all reasonable out-of-pocket costs and expenses incurred or sustained by the Agent or any of the Banks in connection with the preparation of this Fourth Amendment and the documents referred to herein (including reasonable legal fees). Nothing contained herein shall constitute a waiver of, impair or otherwise affect any Obligations, any other obligation of the Borrower or any rights of the Agent or either of the Banks consequent thereon. This Fourth Amendment may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument. Section headings in this Fourth Amendment are included herein for convenience of reference only and shall not constitute part of this First Amendment for any other purpose. This fourth amendment shall be governed by, and construed in accordance with, the laws of the commonwealth of massachusetts (without reference to conflict of laws). IN WITNESS WHEREOF, the undersigned have duly executed this Fourth Amendment as a sealed instrument as of the date first set forth above. HPSC, INC. By: /s/ John Everets, Jr -------------------------------- John Everets, Jr THE FIRST NATIONAL BANK OF BOSTON, individually and as Agent By: /s/ Mitchell B. Feldman -------------------------------- Mitchell B. Feldman BANK OF AMERICA ILLINOIS, individually and as co-agent By: /s/ Craig Monroe -------------------------------- Craig Monroe CONSENTED TO BY THE UNDERSIGNED GUARANTOR: AMERICAN COMMERCIAL FINANCE CORPORATION By: /s/ John Everets, Jr --------------------------- John Everets, Jr EX-10.27 8 EXHIBIT 10.27 EXHIBIT 10.27 FIFTH AMENDMENT TO REVOLVING CREDIT AGREEMENT This FIFTH AMENDMENT TO REVOLVING CREDIT AGREEMENT (this "Fifth Amendment") dated as of January 6, 1995, by and among HPSC, INC. (the "Borrower"), a Delaware corporation, THE FIRST NATIONAL BANK OF BOSTON ("FNBB"), a national banking association, BANK OF AMERICA ILLINOIS (formerly know as Continental Bank N.A.) ("BoAI", and together with FNBB, the "Banks"), and THE FIRST NATIONAL BANK OF BOSTON as Agent for the Banks and BoAI as co-agent for the Banks. Capitalized terms used herein without definition shall have the meanings set forth in the Credit Agreement (as defined below). WHEREAS, the Borrower, the Agent and the Banks are parties to that certain Revolving Credit Agreement dated as of June 23, 1994 (as amended by the First Amendment dated September 2, 1994, the Second Amendment dated November 8, 1994, the Third Amendment dated November 22, 1994, the Fourth Amendment dated as of December 22, 1994 and as may be further amended, modified or supplemented and in effect from time to time, the "Credit Agreement"); WHEREAS, the Borrower has requested that FNBB temporarily increase its lending commitment and FNBB, subject to the terms and provisions hereof, has agreed to temporarily increase its lending commitment and the Agent and the other Banks have approved such temporary increase; WHEREAS, the Borrower has requested that certain other terms and provisions of the Credit Amendment be amended and the Agent and the Banks, subject to the terms and provisions hereof have agreed to amend the Credit Agreement; NOW, THEREFORE, in consideration of the premises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: AMENDMENT TO THE CREDIT AMENDMENT. 1.1. CHANGES IN CERTAIN DEFINITIONS. Section 1 of the Credit Agreement is hereby amended by deleting the phrase "at least fifty-one (51%)" each time it appears in the definition of "Majority Banks" and inserting in lieu thereof in each such place, the phrase "sixty-six and two-thirds (66-2/3%)". 1.2. SUPPLEMENTAL COMMITMENT. Subject to the provisions of the Credit Agreement, for the period (the "Supplemental Period") January 5, 1995 to the earlier to occur of (i) February 15, 1995 or (ii) the effective date of that certain lease receivables-backed credit facility by and among HPSC Funding Corporation II, a Delaware corporation, Capital Markets Assurance Corporation, a New York insurance company, as surety provider, the Borrower, FNBB and either of Triple-A One Funding Corporation, a Delaware corporation or Triple-A One Plus Funding Corporation, a Delaware corporation, as more fully described in EXHIBIT B attached hereto, FNBB will make available to the Borrower a supplemental revolving credit commitment in the amount of $5,000,000 (the "Supplemental Commitment"). 1.2.1. SUPPLEMENTAL COMMITMENT FEE. The Borrower agrees to pay to FNBB, a supplemental commitment fee on the Supplemental Commitment at the rate and in the manner set forth in Section 2.6 of the Credit Agreement treating the Supplemental Loans as "Revolving Credit Loans" and the Supplemental Commitment as the "Total Commitment" for the purposes of calculating such supplemental commitment fee. 1.2.2. FUNDING OF REVOLVING CREDIT LOANS DURING SUPPLEMENTAL PERIOD. If during the Supplemental Period, the sum of the outstanding amount of the Revolving Credit Loans exceeds the Total Commitment as in effect prior to January 5, 1995, then notwithstanding the provisions of Section 2 of the Credit Agreement, any additional Revolving Credit Loans ("Supplemental Loans") will be funded solely by FNBB. 1.2.3. APPLICATION OF PAYMENTS. The Supplemental Loans shall be subject to all provisions of the Credit Agreement, PROVIDED, HOWEVER, that notwithstanding the provisions of Section 3 of the Credit Agreement, so long as Supplemental Loans are outstanding and no Event of Default has occurred and is continuing, any payments of principal by the Borrower to any Bank and any collections of Accounts Receivable, shall be applied, first, to Supplemental Loans then outstanding, and, second, to the Banks in accordance with the provisions of Section 3.3 of the Credit Agreement. If an Event of Default has occurred and is continuing, any such payments or collections shall be applied in accordance with the provisions of Section 3.3 of the Credit Agreement treating all Supplemental Loans as Revolving Credit Loans. 1.2.4 TERMINATION OF SUPPLEMENTAL COMMITMENT. On April 30, 1995, the Supplemental Commitment shall terminate and, notwithstanding the provisions of Section 3.2 of the Credit Agreement, the Borrower shall pay to the Agent for the account of FNBB, the sum of the outstanding amount of the Supplemental Loans for application to the Supplemental Loans. 1.3. COMMITMENT, COMMITMENT PERCENTAGES. SCHEDULE 1 attached hereto shall be substituted for SCHEDULE 1 attached to the Credit Agreement. 1.4. RESTRICTIONS ON INVESTMENTS. Section 8 of the Credit Agreement is hereby amended by deleting subsection (e) thereof in its entirety and inserting in lieu thereof the following new subsection (e): "(e) Investments with respect to Indebtedness permitted by Section 8.1(j) so long as (i) such entities remain Subsidiaries of the Borrower and (ii) the aggregate amount of Investments made by the Borrower and its subsidiaries in ACFC does not exceed $3,000,000 at any time during the Supplemental Period." CONDITIONS TO EFFECTIVENESS. This Fifth Amendment shall not become effective unless and until: (a) the Agent receives counterparts of this Fifth Amendment executed by each of the Borrower, the Banks, the Agent and the Guarantor; (b) the Agent receives an Amended and Restated Revolving Credit Note payable to the order of FNBB signed by the Borrower substantially in the form of EXHIBIT A attached hereto (the "Amended and Restated Note"); and (c) all proceedings in connection with the transactions contemplated by this Fifth Amendment and the Amended and Restated Note (as defined below) and all documents incident hereto shall be satisfactory in form and substance to the Agent, and the Agent shall have received all information and counterpart originals or certified or other copies of such documents as the Agent may reasonably request, including, without limitation, copies, certified by the Secretary or Assistant Secretary of the Borrower as of the date hereof, of the resolutions of the Borrower approving this Fifth Amendment and the other documents and instruments required to be delivered hereunder by the Borrower; and copies, certified by the Secretary or Assistant Secretary of the Guarantor as of the date hereof, of the resolutions of the Guarantor approving this Fifth Amendment, in a form satisfactory to the Agent; (d) the Borrower shall have paid to the Agent an amendment fee in the amount of $6,250 for the account of FNBB. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The Borrower represents and warrants to the Agent and the Banks that (a) each and every one of the representations and warranties made by the Borrower to the Agent and the Banks in Section 6 or elsewhere in the Credit Agreement or in the other Loan Documents, as amended by this Fifth Amendment and the Amended and Restated Note, are true and correct in all material respects on and as of the date hereof except to the extent that any of such representations and warranties relate, by the express terms thereof, solely to a date prior hereto; (b) the Borrower has duly and properly performed, complied with and observed each of its covenants, agreements and obligations contained in Sections 7 and 8 or elsewhere in the Credit Agreement or the other Loan Documents, as amended by this Fifth Amendment and the Amended and Restated Note; and (c) no event has occurred or is continuing and no condition exists which constitutes a Default or Event of Default. RATIFICATION, ETC. Except as expressly amended by this Amendment and the Amended and Restated Note, the Credit Agreement and the Loan Documents and all documents, instrum ents and agreements related thereto, including, but not limited to the Security Documents, are hereby ratified and confirmed in all respects and shall continue in full force and effect. The Borrower confirms and agrees that the Obligations of the Borrower to the Banks under the Loan Documents, as amended and supplemented hereby, are secured by, guarantied under, and entitled to the benefits, of the Security Documents. The Borrower, the Guarantor, the Agent and the Banks hereby acknowledge and agree that all references to the Credit Agreement and the Obligations thereunder contained in any of the Loan Documents shall be references to the Credit Agreement and the Obligations, as affected and increased hereby and as the same may be amended, modified, supplemented, or restated from time to time. The Security Documents and the perfected first priority security interests of the Banks thereunder shall continue in full force and effect, and the collateral security and guaranties provided for in the Security Documents shall not be impaired by this Amendment or the Amended and Restated Note. The Credit Agreement and this Fifth Amendment shall be read and construed as a single agreement. MISCELLANEOUS. The Borrower hereby agrees to pay to the Agent, on demand by the Agent, all reasonable out-of-pocket costs and expenses incurred or sustained by the Agent or any of the Banks in connection with the preparation of this Fifth Amendment and the documents referred to herein (including reasonable legal fees). Nothing contained herein shall constitute a waiver of, impair or otherwise affect any Obligations, any other obligation of the Borrower or any rights of the Agent or either of the Banks consequent thereon. This Fifth Amendment may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument. Section headings in this Fifth Amendment are included herein for convenience of reference only and shall not constitute part of this Fifth Amendment for any other purpose. This Fifth Amendment shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts (without reference to conflict of laws). [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.] -11- IN WITNESS WHEREOF, the undersigned have duly executed this Fifth Amendment as a sealed instrument as of the date first set forth above. HPSC, INC. By: /s/ John Everets, Jr. ----------------------------------------- John Everets, Jr. THE FIRST NATIONAL BANK OF BOSTON, individually and as Agent By: /s/ Mitchell B. Feldman ----------------------------------------- Mitchell B. Feldman BANK OF AMERICA ILLINOIS, individually and as co-agent By: /s/ Craig Monroe ----------------------------------------- Craig Monroe -12- CONSENTED TO BY THE UNDERSIGNED GUARANTOR: AMERICAN COMMERCIAL FINANCE CORPORATION By: /s/ John Everets, Jr --------------------------- John Everets, Jr EX-10.28 9 EXHIBIT 10.28 EXHIBIT 10.28 SIXTH AMENDMENT TO REVOLVING CREDIT AGREEMENT This SIXTH AMENDMENT TO REVOLVING CREDIT AGREEMENT (this "Sixth Amendment") dated as of February 3, 1995, by and among HPSC, INC. (the "Borrower"), a Delaware corporation, THE FIRST NATIONAL BANK OF BOSTON ("FNBB"), a national banking association, BANK OF AMERICA ILLINOIS (formerly known as Continental Bank N.A.) ("BoAI", and together with FNBB, the "Banks"), and THE FIRST NATIONAL BANK OF BOSTON as Agent for the Banks and BoAI as co-agent for the Banks. Capitalized terms used herein without definition shall have the meanings set forth in the Credit Agreement (as defined below). WHEREAS, the Borrower, the Agent and the Banks are parties to that certain Revolving Credit Agreement dated as of June 23, 1994 (as amended by the First Amendment dated September 2, 1994, the Second Amendment dated November 8, 1994, the Third Amendment dated November 22, 1994, the Fourth Amendment dated as of December 22, 1994, the Fifth Amendment dated January 6, 1995 and as may be further amended, modified or supplemented and in effect from time to time, the "Credit Agreement"); WHEREAS, the Borrower intends to sell and otherwise transfer certain assets to HPSC Bravo Funding Corp., a Delaware corporation ("Funding II") and wholly-owned subsidiary of the Borrower pursuant to that certain Purchase and Contribution Agreement dated as of February 6, 1995 by and between Funding II and the Borrower; WHEREAS, Funding II will purchase and otherwise acquire such transferred assets with proceeds from that certain lease receivables-backed credit facility dated as of February 6, 1995 by and among Funding II, Triple-A One Funding Corporation, a Delaware corporation ("Triple-A") and Capital Markets Assurance Corporation, a New York stock insurance company pursuant to which Triple-A will make certain loans to Funding II; WHEREAS, the Borrower has requested that certain terms and provisions of the Credit Amendment be amended to permit the above described transactions and the Agent and the Banks, subject to the terms and provisions hereof have agreed to amend the Credit Agreement; NOW, THEREFORE, in consideration of the premises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: AMENDMENT TO THE CREDIT AMENDMENT. 1.1. CHANGES IN CERTAIN DEFINITIONS. Section 1 of the Credit Agreement is hereby amended by: (a) deleting the existing definition of "Funding" and inserting in lieu thereof the following new definition: "FUNDING. Each of HPSC Funding Corp. I and HPSC Bravo Funding Corp." (b) inserting the following new definitions in the appropriate place in the alphabetical sequence of definitions: "EVENT OF TERMINATION. Any event or condition identified as an "Event of Termination" in Section 7.01 of the Purchase Agreement." "FUNDING I. HPSC Funding Corp. I., a Delaware corporation and wholly-owned subsidiary of the Borrower." "FUNDING II. HPSC Bravo Funding Corp., a Delaware corporation and wholly-owned subsidiary of the Borrower."; "FUNDING II CREDIT AGREEMENT. The lease receivables-backed credit agreement dated as of February 6, 1995 by and among the Funding II, Triple-A One Funding Corporation, a Delaware corporation and Capital Markets Assurance Corporation, a New York stock insurance company." "FUNDING II FACILITY DOCUMENTS. Collectively, the Purchase Agreement, the Funding II Credit Agreement and all other agreements, documents and instruments entered into pursuant thereto or in connection therewith." "PURCHASE AGREEMENT. The Purchase and Contribution Agreement dated as of February 6, 1995 by and between Funding II and the Borrower." "TRANSFERRED ASSETS. The accounts, chattel paper, instruments, and other assets related thereto, comprised in the Collateral which are sold or otherwise transferred to Funding II pursuant to the Purchase Agreement." "WIND-DOWN EVENT. Any event or condition identified as a "Wind-Down Event" in Section 7.01 of the Funding II Credit Agreement." (c) amending the definition of "Eligible Accounts Receivable" by inserting the following new subsections after existing subsection (xv): "(xvi) that have not been transferred to Funding II pursuant to the Purchase Agreement; and (xvii) that are not subject to any lien or negative pledge pursuant to the Funding II Credit Agreement;" 1.2. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. Section 7.4(h) of the Credit Agreement is hereby amended by inserting the text "or the Funding II Credit Agreement" between the text "from time to time copies of all reports delivered under the Funding Indenture" and the text "and such other financial data and information". 1.3. RESTRICTIONS ON INDEBTEDNESS. Section 8.1 of the Credit Agreement is hereby amended by inserting the following new subsection at the end thereof: "(l) Indebtedness incurred by Funding II pursuant to the Funding II Credit Agreement." 1.4. RESTRICTIONS ON LIENS. Section 8.2 of the Credit Agreement is hereby amended by inserting the following new subsection at the end thereof: "(l) liens granted by Funding II in connection with the Funding II Credit Agreement." 1.5. DISPOSITION OF ASSETS. Section 8.5.2 of the Credit Agreement is hereby amended by inserting the following at the end thereof: "Notwithstanding the foregoing provisions of this Section 8.5.2 and provided no Event of Default has occurred and is continuing, the Borrower and its Subsidiaries may dispose of assets pursuant to the Purchase Agreement." 1.6. OTHER DEBT. Section 8.8 of the Credit Agreement is hereby amended by inserting the following text at the end thereof "or the Funding II Credit Agreement." 1.7. EVENTS OF DEFAULT AND ACCELERATION. (A) SECTION 12.1(J) OF THE CREDIT AGREEMENT IS HEREBY AMENDED BY INSERTING THE TEXT "OR INDEBTEDNESS UNDER THE FUNDING II CREDIT AGREEMENT" BETWEEN THE TEXT "INDEBTEDNESS UNDER THE FUNDING INDENTURE" AND THE TEXT "SHALL ACCELERATE THE MATURITY". (b) Section 12.1(j) of the Credit Agreement is hereby further amended by adding to the end thereof the following text: "AND PROVIDED FURTHER that (A) the early termination of the Funding II Credit Agreement by Funding II pursuant to the terms thereof shall not constitute an acceleration by such holders and (B) payments by Funding II pursuant to Sections 2.05(b) and 2.05(c) of the Purchase Agreement shall not constitute prepayment of Indebtedness under the Funding II Credit Agreement." (C) SECTION 12.1 OF THE CREDIT AGREEMENT IS HEREBY FURTHER AMENDED BY INSERTING THE FOLLOWING NEW SUBSECTION (S) IMMEDIATELY AFTER EXISTING SUBSECTION (R) THEREOF: "(s) the occurrence of a Event of Termination and the expiration of any applicable cure period available to Funding II under the Purchase Agreement or a Wind-Down Event and the expiration of any applicable cure period available to Funding II under the Funding II Credit Agreement." 1.8. AGENT'S AUTHORIZATION. Section 14.1 of the Credit Agreement is hereby amended by adding the following new sentence at the end thereof: "EACH OF THE BANKS AND THE AGENT ACKNOWLEDGE AND AGREE THAT (I) THE AGENT IS AUTHORIZED TO RELEASE THE SECURITY INTEREST CREATED By the Security Documents in the Transferred Assets and that (ii) the Agent is authorized to execute and deliver, on behalf of the Banks and the Agent, such partial releases under the Uniform Commercial Code as may be necessary or desirable to accomplish a release of the security interest created by the Security Documents in the Transferred Assets." AMENDMENT TO THE SECURITY AGREEMENTS. Section 6 of each of the Security Agreements is hereby amended by deleting the word "The" appearing at the beginning thereof and inserting in lieu thereof the following text: "Except for transfers permitted by Section 8.5.2 of the Credit Agreement, the" CONDITIONS TO EFFECTIVENESS. This Sixth Amendment shall not become effective unless and until: (a) the Agent receives counterparts of this Sixth Amendment executed by each of the Borrower, the Banks, the Agent and the Guarantor; (b) the Agent receives a copy, certified by the Secretary or Assistant Secretary of the Borrower, of such Funding II Facility Documents as the Agent may reasonable request, including, without limitation, the Purchase Agreement and the Funding II Credit Agreement; and (b) all proceedings in connection with the transactions contemplated by this Sixth Amendment and all documents incident hereto shall be satisfactory in form and substance to the Agent, and the Agent shall have received all information and counterpart originals or certified or other copies of such documents as the Agent may reasonably request, including, without limitation, copies, certified by the Secretary or Assistant Secretary of the Borrower as of the date hereof, of the resolutions of the Borrower approving this Sixth Amendment and the other documents and instruments required to be delivered hereunder by the Borrower; and copies, certified by the Secretary or Assistant Secretary of the Guarantor as of the date hereof, of the resolutions of the Guarantor approving this Sixth Amendment, in a form satisfactory to the Agent. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The Borrower represents and warrants to the Agent and the Banks that (a) each and every one of the representations and warranties made by the Borrower to the Agent and the Banks in Section 6 or elsewhere in the Credit Agreement or in the other Loan Documents, as amended by this Sixth Amendment, are true and correct in all material respects on and as of the date hereof except to the extent that any of such representations and warranties relate, by the express terms thereof, solely to a date prior hereto; (b) the Borrower has duly and properly performed, complied with and observed each of its covenants, agreements and obligations contained in Sections 7 and 8 or elsewhere in the Credit Agreement or the other Loan Documents, as amended by this Sixth Amendment; and (c) no event has occurred or is continuing and no condition exists which constitutes a Default or Event of Default. RATIFICATION, ETC. Except as expressly amended by this Sixth Amendment, the Credit Agreement and the Loan Documents and all documents, instruments and agreements related thereto, including, but not limited to the Security Documents, are hereby ratified and confirmed in all respects and shall continue in full force and effect. The Borrower confirms and agrees that the Obligations of the Borrower to the Banks under the Loan Documents, as amended and supplemented hereby, are secured by, guarantied under, and entitled to the benefits, of the Security Documents. The Borrower, the Guarantor, the Agent and the Banks hereby acknowledge and agree that all references to the Credit Agreement and the Obligations thereunder contained in any of the Loan Documents shall be references to the Credit Agreement and the Obligations, as the same may be amended, modified, supplemented, or restated from time to time. The Security Documents and the perfected first priority security interests of the Banks thereunder shall continue in full force and effect, and the collateral security and guaranties provided for in the Security Documents shall not be impaired by this Sixth Amendment. The Credit Agreement and this Sixth Amendment shall be read and construed as a single agreement. MISCELLANEOUS. The Borrower hereby agrees to pay to the Agent, on demand by the Agent, all reasonable out-of-pocket costs and expenses incurred or sustained by the Agent or any of the Banks in connection with the preparation of this Sixth Amendment and the documents referred to herein (including reasonable legal fees). Nothing contained herein shall constitute a waiver of, impair or otherwise affect any Obligations, any other obligation of the Borrower or any rights of the Agent or either of the Banks consequent thereon. This Sixth Amendment may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument. Section headings in this Sixth Amendment are included herein for convenience of reference only and shall not constitute part of this Sixth Amendment for any other purpose. This Sixth Amendment shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts (without reference to conflict of laws). -13- IN WITNESS WHEREOF, the undersigned have duly executed this Sixth Amendment as a sealed instrument as of the date first set forth above. HPSC, INC. By: /s/ John Everets, Jr ----------------------------------------- John Everets, Jr THE FIRST NATIONAL BANK OF BOSTON, individually and as Agent By: /s/ Mitchell B. Feldman ----------------------------------------- Mitchell B. Feldman BANK OF AMERICA ILLINOIS, individually and as co-agent By: /s/ Mark N. Hurley ----------------------------------------- Mark N. Hurley CONSENTED TO BY THE UNDERSIGNED GUARANTOR: -14- AMERICAN COMMERCIAL FINANCE CORPORATION By: /s/ John Everets, Jr ------------------------------- John Everets, Jr EX-10.29 10 EXHIBIT 10.29 EXHIBIT 10.29 SEVENTH AMENDMENT TO REVOLVING CREDIT AGREEMENT This SEVENTH AMENDMENT TO REVOLVING CREDIT AGREEMENT (this "Seventh Amendment") dated as of February 6, 1995, by and among HPSC, INC. (the "Borrower"), a Delaware corporation, THE FIRST NATIONAL BANK OF BOSTON ("FNBB"), a national banking association, BANK OF AMERICA ILLINOIS (formerly known as Continental Bank N.A.) ("BoAI", and together with FNBB, the "Banks"), and THE FIRST NATIONAL BANK OF BOSTON as Agent for the Banks and BoAI as co-agent for the Banks. Capitalized terms used herein without definition shall have the meanings set forth in the Credit Agreement (as defined below). WHEREAS, the Borrower, the Agent and the Banks are parties to that certain Revolving Credit Agreement dated as of June 23, 1994 (as amended by the First Amendment dated September 2, 1994, the Second Amendment dated November 8, 1994, the Third Amendment dated November 22, 1994, the Fourth Amendment dated as of December 22, 1994, the Fifth Amendment dated as of January 6, 1995, the Sixth Amendment dated as of February 3, 1995 and as may be further amended, modified or supplemented and in effect from time to time, the "Credit Agreement"); WHEREAS, the Borrower requested that FNBB temporarily increase its lending commitment and FNBB, subject to the terms and provisions of the Fifth Amendment, agreed to temporarily increase its lending commitment and the Agent and the other Banks approved such temporary increase; WHEREAS, the Borrower has requested that the Supplemental Period (as defined in the Fifth Amendment) be extended and the Agent and the Banks, subject to the terms and provisions hereof have agreed to extend the Supplemental Period (as defined in the Fifth Amendment); NOW, THEREFORE, in consideration of the premises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: EXTENSION OF SUPPLEMENTAL PERIOD. Subject to the provisions of the credit agreement and the fifth amendment, for the period (the "Supplemental Period") January 5, 1995 to April 30, 1995, FNBB will make available to the Borrower a supplemental revolving credit commitment in the amount of the Supplemental Commitment (as defined in the Fifth Amendment). CONDITIONS TO EFFECTIVENESS. This Seventh Amendment shall not become effective unless and until: (a) the Agent receives counterparts of this Seventh Amendment executed by each of the Borrower, the Banks, the Agent and the Guarantor; and (b) all proceedings in connection with the transactions contemplated by this Seventh Amendment, including, without limitation, copies, certified by the Secretary or Assistant Secretary of the Borrower as of the date hereof, of the resolutions of the Borrower approving this Seventh Amendment; and copies, certified by the Secretary or Assistant Secretary of the Guarantor as of the date hereof, of the resolutions of the Guarantor approving this Seventh Amendment, in a form satisfactory to the Agent and all documents incident hereto shall be satisfactory in form and substance to the Agent, and the Agent shall have received all information and counterpart originals or certified or other copies of such documents as the Agent may reasonably request in a form satisfactory to the Agent. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The Borrower represents and warrants to the Agent and the Banks that (a) each and every one of the representations and warranties made by the Borrower to the Agent and the Banks in Section 6 or elsewhere in the Credit Agreement or in the other Loan Documents, as amended by this Seventh Amendment, are true and correct in all material respects on and as of the date hereof except to the extent that any of such representations and warranties relate, by the express terms thereof, solely to a date prior hereto; (b) the Borrower has duly and properly performed, complied with and observed each of its covenants, agreements and obligations contained in Sections 7 and 8 or elsewhere in the Credit Agreement or the other Loan Documents, as amended by this Seventh Amendment; and (c) no event has occurred or is continuing and no condition exists which constitutes a Default or Event of Default. RATIFICATION, ETC. Except as expressly amended by this Amendment, the Credit Agreement and the Loan Documents and all documents, instruments and agreements related thereto, including, but not limited to the Security Documents, are hereby ratified and confirmed in all respects and shall continue in full force and effect. The Borrower confirms and agrees that the Obligations of the Borrower to the Banks under the Loan Documents, as amended and supplemented hereby, are secured by, guarantied under, and entitled to the benefits, of the Security Documents. The Borrower, the Guarantor, the Agent and the Banks hereby acknowledge and agree that all references to the Credit Agreement and the Obligations thereunder contained in any of the Loan Documents shall be references to the Credit Agreement and the Obligations, as affected and increased hereby and as the same may be amended, modified, supplemented, or restated from time to time. The Security Documents and the perfected first priority security interests of the Banks thereunder shall continue in full force and effect, and the collateral security and guaranties provided for in the Security Documents shall not be impaired by this Amendment. The Credit Agreement and this Seventh Amendment shall be read and construed as a single agreement. MISCELLANEOUS. The Borrower hereby agrees to pay to the Agent, on demand by the Agent, all reasonable out-of-pocket costs and expenses incurred or sustained by the Agent or any of the Banks in connection with the preparation of this Seventh Amendment and the documents referred to herein (including reasonable legal fees). Nothing contained herein shall constitute a waiver of, impair or otherwise affect any Obligations, any other obligation of the Borrower or any rights of the Agent or either of the Banks consequent thereon. This Seventh Amendment may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument. Section headings in this Seventh Amendment are included herein for convenience of reference only and shall not constitute part of this Seventh Amendment for any other purpose. This Seventh Amendment shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts (without reference to conflict of laws). IN WITNESS WHEREOF, the undersigned have duly executed this Seventh Amendment as a sealed instrument as of the date first set forth above. HPSC, INC. By: /s/ John Everets, Jr. --------------------------- John Everets, Jr. THE FIRST NATIONAL BANK OF BOSTON, individually and as Agent By: /s/ Roberta Keeler --------------------------- Roberta Keeler BANK OF AMERICA ILLINOIS, individually and as co-agent By: /s/ Mark N. Hurley --------------------------- Mark N. Hurley CONSENTED TO BY THE UNDERSIGNED GUARANTOR: AMERICAN COMMERCIAL FINANCE CORPORATION By: /s/ John Everets, Jr --------------------------- John Everets, Jr EX-10.31 11 EXHIBIT 10.31 EXHIBIT 10.31 PURCHASE AND CONTRIBUTION AGREEMENT Dated as of January 31, 1995 Between HPSC BRAVO FUNDING CORP. AS THE BUYER and HPSC, INC. AS THE SELLER AND AS SERVICER TABLE OF CONTENTS Section Page ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms. . . . . . . . . . . 1 SECTION 1.02. Other Terms. . . . . . . . . . . . . . . . 1 SECTION 1.03. Computation of Time Periods. . . . . . . . 1 ARTICLE II AMOUNTS AND TERMS OF THE PURCHASES SECTION 2.01. Agreement to Sell and Contribute . . . . . 2 SECTION 2.02. Purchases from the Seller. . . . . . . . . 3 SECTION 2.03. Servicing of Contracts and Equipment . . . 4 SECTION 2.04. Transfer of Records. . . . . . . . . . . . 4 SECTION 2.05. Collections; Deemed Collections. . . . . . 4 SECTION 2.06. Payments and Computations, Etc.. . . . . . 6 SECTION 2.07. Perfection of Liens; Further Assurances. . 6 ARTICLE III CONDITIONS OF PURCHASES SECTION 3.01. Conditions Precedent to Initial Purchase . 7 SECTION 3.02. Conditions Precedent to All Purchases. . . 8 SECTION 3.03. Effect of Payment of Purchase Price. . . . 9 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Seller . . . . . . . . . . . . . . . . . . 9 ARTICLE V GENERAL COVENANTS OF THE SELLER -i- SECTION PAGE SECTION 5.01. Affirmative Covenants of the Seller. . . . 16 SECTION 5.02. Reporting Requirements of the Seller . . . 19 SECTION 5.03. Negative Covenants of the Seller . . . . . 20 SECTION 5.04. Financial Covenants of the Seller. . . . . 23 -ii- SECTION PAGE ARTICLE VI ADMINISTRATION AND COLLECTION SECTION 6.01. Designation of Servicer. . . . . . . . . . 25 SECTION 6.02. Duties of the Servicer . . . . . . . . . . 25 SECTION 6.03. Rights of the Buyer. . . . . . . . . . . . 28 SECTION 6.04. Further Action Evidencing Transfers. . . . 29 SECTION 6.05. Responsibilities of the Seller . . . . . . 29 SECTION 6.06. Administration of Collections by Servicer. 30 SECTION 6.07. Application of Collections . . . . . . . . 30 SECTION 6.08. Servicing Fee. . . . . . . . . . . . . . . 30 SECTION 6.09. Resignation; Successor Servicer. . . . . . 31 ARTICLE VII EVENTS OF TERMINATION SECTION 7.01. Events of Termination. . . . . . . . . . . 32 ARTICLE VIII INDEMNIFICATION SECTION 8.01. Indemnities by the Seller. . . . . . . . . 34 ARTICLE IX MISCELLANEOUS SECTION 9.01. Amendments, Etc. . . . . . . . . . . . . . 36 SECTION 9.02. Notices, Etc.. . . . . . . . . . . . . . . 36 SECTION 9.03. No Waiver; Remedies. . . . . . . . . . . . 37 SECTION 9.04. Binding Effect; Assignability. . . . . . . 37 SECTION 9.05. GOVERNING LAW; WAIVER OF JURY TRIAL. . . . 38 SECTION 9.06. Costs, Expenses and Taxes. . . . . . . . . 38 SECTION 9.07. Execution in Counterparts; Severability. . 39 -iii- LIST OF EXHIBITS EXHIBIT A List of Contracts EXHIBIT B Form of Notice of Assignment EXHIBIT C Form of Settlement Report EXHIBIT D Description of Credit and Collection Policy EXHIBIT E Form of Opinion(s) of Counsel for Seller EXHIBIT F List of Offices of Seller where Records Are Kept EXHIBIT G Form of Lock-Box Agreement EXHIBIT H List of Lock-Box Banks EXHIBIT I Trade Names and Assumed Names EXHIBIT J List of Computer Software EXHIBIT K-1 Form of Lease EXHIBIT K-2 Form of Conditional Sales Agreement EXHIBIT K-3 Form of Leasehold Improvement Note -iv- S&A DRAFT 2/1/95 PURCHASE AND CONTRIBUTION AGREEMENT Dated as of January 31, 1995 HPSC BRAVO FUNDING CORP., a Delaware corporation (the "Buyer"), and HPSC, INC., a Delaware corporation, (the "Seller") agree as follows: PRELIMINARY STATEMENTS. (1) Certain terms which are capitalized and used throughout this Agreement (in addition to those defined above) are defined in the "Definitions List" (as defined in Article I of this Agreement). (2) The Seller wishes to sell, contribute and assign to the Buyer all right, title and interest of the Seller in, to and under the Transferred Assets and the Buyer, subject to the terms wishes to purchase, accept and acquire from the Seller such Transferred Assets. NOW, THEREFORE, the parties agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. CERTAIN DEFINED TERMS. (a) As used in this Agreement, capitalized terms used herein shall, unless otherwise defined herein, have the meanings assigned to them in the Definitions List dated as of the date hereof that refers to this Agreement (the "DEFINITIONS LIST"), the terms of which are incorporated herein by reference (such meanings to be equally applicable to both the singular and plural forms of the terms defined). (b) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to Sections, subsections, Schedules and Exhibits of this Agreement unless otherwise specified. -v- SECTION 1.02. OTHER TERMS. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. SECTION 1.03. COMPUTATION OF TIME PERIODS. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." -2- ARTICLE II AMOUNTS AND TERMS OF THE PURCHASES SECTION 2.01. AGREEMENT TO SELL AND CONTRIBUTE. (a) On the terms and conditions hereinafter set forth, the Seller hereby agrees, from time to time until the Termination Date, to sell in part and to contribute in part to the Buyer, and the Buyer hereby agrees, from time to time until the Termination Date, to purchase and acquire from the Seller, all of the Seller's right, title and interest in, to and under the Receivables, the Contracts, all Equipment, all Related Security with respect to the foregoing, and all Collections and other proceeds of the foregoing. Except as provided in the immediately succeeding sentence, nothing contained in this Agreement is intended to, nor shall it be deemed to, constitute a commitment on the part of the Seller or on the part of the Buyer to consummate any Purchase hereunder, it being understood that all such Purchases shall be made at the discretion of each such party but otherwise subject to the terms and conditions set forth herein. Notwithstanding the foregoing, the Buyer agrees, subject to the satisfaction of the conditions set forth in SECTION 3.02, to consummate any Purchase requested by the Seller pursuant to SECTION 2.02(B) for which the notice of purchase specifies that the entire Purchase Price shall be paid as a contribution to the Buyer's capital and not in cash. Nothing contained in this Agreement is intended to, nor shall it be deemed to, constitute an assumption by the Buyer of any obligation under any Contract, all of which obligations shall be retained by the Seller, and the Seller hereby agrees to perform all such obligations. -3- (b) It is the intent of the Seller and the Buyer that the transfer by the Seller to the Buyer of the Transferred Assets constitute a sale, in part, and a contribution to capital, in part, which sales and contributions are absolute and irrevocable, without recourse except as otherwise provided in this Agreement, and will provide the Buyer with full ownership of the Transferred Assets. Each of Seller and the Buyer hereby agrees to treat such transfer as a sale and a contribution for tax, reporting and accounting purposes (except to the extent that such transfer is not recognized due to the reporting of taxes on a consolidated basis where applicable and the application of consolidated financial reporting principles under GAAP). The Seller agrees to respond to any inquiries with respect to the transfer hereunder by confirming the sale and contribution of the Receivables, Contracts and the Equipment to the Buyer, and to note on its financial statements that such Receivables, Contracts and Equipment have been sold and/or contributed to the Buyer. SECTION 2.02. PURCHASES FROM THE SELLER. (a) On the Closing Date, the Seller shall sell to the Buyer, and the Buyer shall purchase from the Seller, all of the Transferred Assets arising under or in connection with the Contracts described on EXHIBIT A hereto in consideration of which the Buyer will pay to the Seller $8,000.000 in cash. The remaining portion of such Transferred Assets shall be a contribution to the capital of the Buyer in return for 999 shares of the capital stock of the Buyer. (b) Each Purchase subsequent to the Closing Date shall be made on a Settlement Date upon not less than three Business Days' prior written notice to the Buyer requesting such Purchase, which notice shall contain a supplemental EXHIBIT A hereto setting forth a list of the Contracts to be transferred to the Buyer on such Settlement Date. Each such notice of a proposed Purchase shall accompany a Settlement Report and shall specify that portion of the Purchase Price which is payable in cash for the Transferred Assets to be transferred. Such notice shall be accompanied by a certification from the Seller that, after giving effect to the Purchase proposed in such notice, the conditions set forth in SECTION 3.02 hereto shall have been satisfied. The purchase price (the "PURCHASE PRICE") for the new -4- Transferred Assets included in any Purchase shall be agreed to in writing by the Buyer and the Seller on or before the applicable Settlement Date and shall be an amount not less than 95% nor more than 100% TIMES the aggregate Discounted Receivables Balance of the Receivables included in such Purchase. (c) Except as otherwise provided below in this SECTION 2.02, the Purchase Price for the Transferred Assets sold by the Seller under this Agreement shall be payable in full in cash by the Buyer, in each case on the date of each such Purchase, except that the Buyer may, with respect to any Purchase, offset against such Purchase Price any amounts owed by the Seller to the Buyer hereunder and which remain unpaid. On the date of each Purchase, the Buyer shall, upon satisfaction of the applicable conditions set forth in Article III, make available to the Seller the portion of the Purchase Price payable in cash referred to above in same day funds. (d) If, on any Settlement Date, the Buyer has insufficient funds to pay in full the Purchase Price owed on such day, then the Buyer shall so notify the Seller prior to consummating such Purchase and the Seller shall, by accepting the cash proceeds tendered by the Buyer, be deemed to have contributed to the capital of the Buyer Transferred Assets having a Purchase Price equal to the otherwise unpaid portion of the total Purchase Price otherwise owed on such day. (e) Promptly after each Purchase hereunder (including the initial Purchase), the Seller will send to each Obligor under the Contracts included in such Purchase, with the next invoice sent to such Obligor, a Notice of Assignment, substantially in the form attached hereto as EXHIBIT B, which shall, inter alia, advise such Obligor of the absolute transfer by the Seller to the Buyer of that Obligor's Contract, including the Receivables due thereunder, and any related Equipment. SECTION 2.03. SERVICING OF CONTRACTS AND EQUIPMENT. In connection with the contribution, assignment, transfer, sale and conveyance of the Transferred Assets to the Buyer, the Seller hereby agrees to service the Contracts and Equipment for the benefit of the Buyer and its successors and assigns in accordance with the terms and provisions of ARTICLE VI hereof. -5- SECTION 2.04. TRANSFER OF RECORDS. (a) The transfer of Transferred Assets hereunder shall include the transfer to the Buyer of all of the Seller's right and title to and interest in the Records relating to such Transferred Assets, which transfer shall be effected automatically on the Purchase Date for such Transferred Assets without any further documentation. In connection with such transfer, the Seller hereby grants to the Buyer an irrevocable, non- exclusive license to use, without royalty or payment of any kind, all software used by the Seller to account for the Receivables and the Contracts, to the extent necessary to administer the Transferred Assets, whether such software is owned by the Seller or is owned by others and used by the Seller under license agreements with respect thereto, such use to be subject to the terms and conditions of any such license agreements with third parties where applicable. The license granted hereby shall be irrevocable, and shall terminate on the date on which the aggregate Receivables Balance shall have been reduced to zero. (b) The Seller shall take such action requested by the Buyer, from time to time hereafter, that may be necessary or appropriate to ensure that the Buyer and its assigns have (i) an enforceable ownership interest in the Records relating to the Transferred Assets and (ii) an enforceable right (whether by license or sublicense or otherwise) to use all of the computer software used to account for the Transferred Assets and/or to recreate such Records, such use to be subject to the terms and conditions of any license agreements with third parties pursuant to which the Seller has the right to use the applicable computer software. SECTION 2.05. COLLECTIONS; DEEMED COLLECTIONS. (a) Any Collections of Receivables received (or deemed to have been received) by the Seller shall be remitted directly to the Buyer by depositing such Collections in the Lock-box Account within one Business Day of Seller's receipt. (b) If on any day the Outstanding Balance of any Receivable is either (i) reduced or adjusted as a result of any defective, rejected, returned, repossessed or foreclosed merchandise, any defective or rejected services, any cash discount or any other adjustment made or performed by the Seller or any other Person (including, without limitation, those described in the definition -6- of "DILUTION FACTORS"), or (ii) reduced or cancelled as a result of a setoff in respect of any claim by the Obligor thereof against the Seller or any other Person (whether such claim arises out of the same or a related transaction or an unrelated transaction), the Seller shall be deemed to have received on such day a Collection of such Receivable in the amount of such reduction, cancellation or adjustment. If on any day any of the representations or warranties in the first sentence of SECTION 4.01(h) is no longer true with respect to a Receivable or if the Seller has breached its obligations under Section 5.01(j), then the Seller shall be deemed to have received on such day a Collection of such Receivable: (x) if such representation, warranty or covenant relates to the non-existence of any Adverse Claims, the Seller shall be deemed to have received a Collection of such Receivable in the dollar amount of the Adverse Claims attaching thereto and (y) if such representation or warranty relates to the validity or perfection of the transfer of such Receivable under this Agreement or the perfection of the Buyer's security interest in any Equipment as against the Obligor thereunder, then the Seller be deemed to have received a Collection of such Receivable in an amount equal to the Outstanding Balance thereof. To the extent that any such deemed Collection reduces the Outstanding Balance of such Receivable to zero, then, upon the Seller's payment to the Buyer of such deemed Collection, the Buyer shall re-assign to the Seller all of its right, title and interest in and to the relevant Receivable, the Contract under which such Receivable arose and the Related Security relating thereto. Prior to the 15th day of each month (or if such day is not a Business Day, the immediately succeeding Business Day), the Seller shall prepare and forward to the Buyer, a Settlement Report as of the close of business of the Seller on the last day of the immediately preceding month, in substantially the form set forth in EXHIBIT C. (c) Although the Seller and the Buyer agree that the Seller (except in its capacity as Servicer pursuant to SECTION 6.02(a)), shall have no right to so terminate, reject or not assume a Contract, if the Seller in its capacity as Servicer (or its successor in interest, including a trustee appointed under the Bankruptcy Code) terminates, rejects or does not assume a Contract, in whole or in part, prior to the expiration of the original term of such Contract, whether such rejection, termination or non-assumption is made pursuant to an equitable -7- cause, statute, regulation, judicial proceeding or other applicable law (including, without limitation, Section 365 of the Bankruptcy Code), then (i) the Seller shall be deemed to have received Collections with respect to Receivables arising under such Contract in an amount equal to (A) in the event of a prepayment or termination consented to by the Seller at the Obligor's request, the excess, if any, of the Termination Amount over all amounts paid by the Obligor on account of such termination or (B) in the event of any other rejection or non-assumption, the amount, of the Outstanding Balance thereof that has not been, or may not be paid as a result of such rejection, termination or non-assumption. Upon the Seller's payment of any such deemed Collections described in this SECTION 2.05(c), the Buyer shall re-assign to the Seller all of its right, title and interest in and to the relevant Receivable or Receivables, the Contracts under which such Receivable(s) arose and the Related Security relating thereto. SECTION 2.06. PAYMENTS AND COMPUTATIONS, ETC. Except as otherwise provided herein, all amounts to be paid or deposited by the Seller hereunder shall be paid or deposited in accordance with the terms hereof no later than 11:00 A.M. (New York City time) on the day when due in lawful money of the United States of America in immediately available funds to a special account in the name of Buyer and maintained at Bank of Boston. The Seller shall, to the extent permitted by law, pay to the Buyer interest on all amounts not paid or deposited when due hereunder (whether owing by the Seller individually or as Servicer) at 2% per annum above the Base Rate, payable on demand; PROVIDED, HOWEVER, that such interest rate shall not at any time exceed the maximum rate permitted by applicable law. All computations of interest and other fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first but excluding the last day) elapsed. SECTION 2.07. PERFECTION OF LIENS; FURTHER ASSURANCES. Upon the request of the Buyer, the Seller shall, at its expense, promptly execute and deliver all further instruments and documents, and take all further action (including, without limitation, the execution and filing of such financing or continuation statements, or amendments thereto or assignments thereof), that may be necessary or desirable, or that the Buyer may request, in order to (i) perfect and protect any security -8- interest granted or purported to be granted by an Obligor under any Contract and (ii) perfect and protect any ownership or security interest granted or purported to be granted to the Buyer hereunder or (iii) to enable the Buyer to exercise and enforce its rights and remedies hereunder with respect to any Transferred Assets; PROVIDED that the Seller shall not be required to file financing statements to maintain the effectiveness of previously filed financing statements with respect to any Eligible Receivables the Outstanding Balance of which has been reduced below $5,000 so long as the aggregate Outstanding Balance of Receivables for which no such financing statements are in effect at any time remains less than 10% of the Discounted Receivables Balance. The Seller hereby authorizes the Buyer to file one or more financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any part of the Transferred Assets now existing or hereafter arising without the signature of the Seller where permitted by law. A carbon, photographic or other reproduction of this Agreement or any financing statement covering the Transferred Assets or any part thereof shall be sufficient as a financing statement. The Seller will furnish to the Buyer from time to time statements and schedules further identifying and describing the Transferred Assets and such other reports in connection with the Transferred Assets as the Buyer may reasonably request, all in reasonable detail. ARTICLE III CONDITIONS OF PURCHASES SECTION 3.01. CONDITIONS PRECEDENT TO INITIAL PURCHASE. The initial Purchase shall be subject to the condition precedent that the Buyer shall have received the following, each in form and substance satisfactory to the Buyer: (a) The Certificate for the Buyer; (b) This Agreement executed by the Buyer and the Seller; (c) Acknowledgment copies of proper UCC-1 Financing Statements executed by the Seller, as may be necessary or, in the -9- opinion of the Buyer, desirable under the UCC of all appropriate jurisdictions or any comparable law to perfect the Buyer's interests in all Receivables, Contracts and Related Security in which an interest may be assigned to it hereunder; (d) Certified copies of Requests for Information or Copies (Form UCC- 11) (or a similar search report certified by a party acceptable to the Buyer), dated a date reasonably near to the date hereof, listing all effective financing statements which name the Seller (under its present name and any previous names) as debtor and which are filed in the jurisdictions in which filings were made pursuant to subsection (c) of this SECTION 3.01, together with copies of such financing statements; (e) Acknowledgment copies of proper financing statements (Form UCC-3), if any, necessary to release all security interests and other rights of any Person in the Receivables, Related Security and other Transferred Assets previously granted by the Seller; (f) A copy of the resolutions of the Board of Directors of the Seller approving this Agreement and the other Facility Documents to be delivered by it hereunder and the transactions contemplated hereby, certified by its Secretary or Assistant Secretary; (g) The Certificate of Incorporation of the Seller certified by the Secretary of State of Delaware; (h) Good Standing Certificates for the Seller issued by the Secretaries of State of Delaware and Massachusetts; (i) A certificate of the Secretary or Assistant Secretary of the Seller certifying (i) the names and true signatures of the officers authorized on its behalf to sign this Agreement and the other Facility Documents to be delivered by it hereunder (on which certificate the Buyer (and the Collateral Agent) may conclusively rely until such time as the Buyer (and the Collateral Agent) shall receive from the Seller a revised certificate meeting the requirements of this subsection (h)) and (ii) a copy of the Seller's by-laws; -10- (j) The Lock-Box Agreements with the Lock-Box Banks in each case, executed by the Seller and the Buyer and acknowledged and agreed to by the applicable Lock-Box Bank together with an acknowledgment and authorization executed by the Collateral Agent, and acknowledged and agreed to by the applicable Lock-Box Bank; (k) Copies of all written agreements, if any, between each Lock-Box Bank and Seller with respect to the opening or operation of the Lock-Box Accounts; and (l) An opinion of Hill & Barlow, counsel to the Seller, in substantially the form of EXHIBIT E and as to such other matters as the Buyer may reasonably request. SECTION 3.02. CONDITIONS PRECEDENT TO ALL PURCHASES. Each Purchase (including the initial Purchase) by the Buyer from the Seller shall be subject to the further conditions precedent that (a) with respect to any such Purchase, on or prior to the date of such Purchase, the Seller shall have delivered to the Buyer (i) in form and substance satisfactory to the Buyer, a completed Settlement Report as of the end of the immediately preceding calendar month and containing such additional information as may be reasonably requested by the Buyer, (ii) a notice of purchase and list of the Contracts to be purchased as provided in SECTION 2.02(b), (iii) a completed Certificate with respect to such Contracts and (iv) a notice from the Custodian in substantially the form of Exhibit A to the Custodial Agreement confirming that the Custodian has received the Contract Files for each Contract to be included in such Purchase; (b) on the date of such Purchase the following statements shall be true and the Seller by accepting the cash portion of the Purchase Price shall be deemed to have certified that: (i) The representations and warranties contained in SECTION 4.01 are correct on and as of such day as though made on and as of such date and (ii) No event has occurred and is continuing, or would result from such Purchase which constitutes an Event of Termination or would constitute an Event of Termination but for the requirement that notice be given or time elapse or both; -11- and (c) the Buyer shall have received such other approvals or documents as the Buyer may reasonably request. SECTION 3.03. EFFECT OF PAYMENT OF PURCHASE PRICE. Upon the payment of the Purchase Price for any Purchase, (whether in cash or through a capital contribution), title to the related Transferred Assets shall vest in the Buyer, whether or not the conditions precedent to such Purchase were in fact satisfied; PROVIDED, HOWEVER, that the Buyer shall not be deemed to have waived any claim it may have under this Agreement for the failure by the Seller in fact to satisfy any such condition precedent. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents and warrants as follows: (a) DUE INCORPORATION AND GOOD STANDING. The Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction named at the beginning hereof and is duly qualified to do business, and is in good standing, in every jurisdiction in which the nature of its business requires it to be so qualified, except where the failure to be so qualified would not materially adversely affect (i) the interests hereunder of the Buyer, (ii) the collectibility of any Receivable, (iii) the business, properties, operations, prospects, profits or condition (financial or otherwise) of the Seller or (iv) the ability of the Seller (individually or as Servicer) to perform its obligations hereunder. (b) DUE AUTHORIZATION AND NO CONFLICT. The execution, delivery and performance by the Seller of this Agreement, the Certificate, and all other agreements, instruments and documents to be delivered hereunder, and the transactions contemplated hereby and thereby (including the sale and contribution to the Buyer of the Transferred Assets contemplated hereunder), are within the Seller's corporate powers, have been duly authorized by all necessary corporate action, do not contravene (i) the Seller's charter or by-laws, (ii) any law, rule or regulation -12- applicable to the Seller, (iii) any contractual restriction contained in any material indenture, loan or credit agreement, lease, mortgage, security agreement, bond, note, or other agreement or instrument binding on or affecting the Seller or its property or (iv) any order, writ, judgment, award, injunction or decree binding on or affecting the Seller or its property, and do not result in or require the creation of any Adverse Claim upon or with respect to any of its properties (other than in favor of the Buyer as contemplated hereunder); and no transaction contemplated hereby requires compliance with any bulk sales act or similar law. This Agreement and the Certificate have been duly executed and delivered on behalf of the Seller. (c) GOVERNMENTAL AND OTHER CONSENTS. Except for the filing of financing statements pursuant to the UCC required to perfect the sales of accounts and chattel paper under this Agreement and the security interests granted under the Credit Agreement or under the other Facility Documents and except for consents under certain contractual agreements which have been obtained, no authorization, consent, approval or other action by, and no registration, qualification, designation, declaration, notice to or filing with, any governmental authority or other Person is or will be necessary in connection with the execution and delivery of this Agreement, the Certificate or any other Facility Document to which the Seller is a party, or any of the other documents contemplated hereby or thereby, consummation of the transactions herein or therein contemplated, or performance of or compliance with the terms and conditions hereof or thereof, to ensure the legality, validity or enforceability hereof or thereof. (d) ENFORCEABILITY OF FACILITY DOCUMENTS. This Agreement, the Certificate and each other Facility Documents to be delivered by the Seller in connection herewith constitute the legal, valid and binding obligations of the Seller enforceable against the Seller in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws relating to or affecting creditors' rights generally and by equitable principles. (e) FINANCIAL STATEMENTS. (i) The consolidated balance sheets of the Seller and its consolidated Subsidiaries as at December 31, 1993, and the related statements of income, -13- retained earnings and cash flows of the Seller and its consolidated Subsidiaries for the fiscal year then ended, certified by Coopers & Lybrand, independent public accountants, and the unaudited interim consolidated balance sheets of the Seller and its subsidiaries as of June 30, 1994 and September 30, 1994 and the related consolidated statements of income, retained earnings and cash flows for the six months and nine months, respectively, ending on such dates (the "Interim Financials"), in each case fairly present the consolidated financial condition of the Seller and its consolidated Subsidiaries as at such dates and the consolidated results of the operations of the Seller and its consolidated Subsidiaries for the period ended on such dates, all in accordance with GAAP, and since December 31, 1993, there has been no material adverse change in any such condition or operations, except as reflected in the Interim Financials. Neither the Seller nor any of its subsidiaries has any material liabilities or obligations other than those disclosed in the financial statements referred to above or for which adequate reserves are reflected in such financial statements. (f) NO LITIGATION. There are no actions, suits or proceedings pending, or to the knowledge of the Seller threatened, against or affecting the Seller or any of its Subsidiaries, or the property of the Seller or any of its Subsidiaries, in any court, or before any arbitrator of any kind, or before or by any governmental body, which may materially adversely affect (i) the business, properties, operations, prospects, profits or condition (financial or otherwise) financial condition of the Seller or (ii) the ability of the Seller to perform its obligations under this Agreement or the Certificate or (iii) the collectibility of the Receivables. Neither the Seller nor any of its Subsidiaries is in default with respect to any order of any court, arbitrator or governmental body except for defaults with respect to orders of governmental agencies which defaults are not material to the business or operations of the Seller or any of its Subsidiaries or the Seller's ability to perform its obligations hereunder. (g) USE OF PROCEEDS. No proceeds of any Purchase will be used by the Seller to acquire any security in any transaction which is subject to Section 13 or 14 of the Securities Exchange Act of 1934, as amended. -14- (h) PERFECTION OF INTEREST IN TRANSFERRED ASSETS. Prior to the Buyer's Purchase and/or acquisition of each Transferred Asset hereunder, the Seller is or will be the lawful owner of, and have good title to, such Transferred Asset free and clear of any Adverse Claim and upon each Purchase and/or acquisition by the Buyer of Transferred Assets hereunder, the Buyer shall acquire a valid and perfected first priority ownership interest in each Receivable then existing or thereafter arising and in the Related Security, the other Transferred Assets and Collections and with respect thereto, in each case free and clear of any Adverse Claim all such Purchases of Receivables and related Transferred Assets constitute true and valid sales, and all such Purchases and contributions of Receivables and related Transferred Assets constitute true and valid transfers and assignments of all of Seller's right, title and interest in, to and under such Transferred Assets (and not merely a pledge of such Receivables and related Transferred Assets for security purposes), enforceable against creditors of the Seller and no such Transferred Assets shall constitute property of the Seller; and no effective financing statement or other instrument similar in effect covering any Receivable, the Related Security, Collections or the other Transferred Assets shall at any time be on file in any recording office except such as may be filed in favor of the Buyer (or its assignees) in accordance with this Agreement. (i) ACCURACY OF INFORMATION. No Settlement Report (if prepared by the Seller, or to the extent that information contained therein is supplied by the Seller), information, exhibit, financial statement, document, book, record or report (other than forecasts required to be delivered by the Seller hereunder) furnished or to be furnished by the Seller to the Buyer in connection with this Agreement is or shall be inaccurate in any material respect as of the date it is or shall be dated or (except as otherwise disclosed to the Buyer, as the case may be, at such time) as of the date so furnished, or contains or shall contain any material misstatement of fact or omits or shall omit to state a material fact or any fact necessary to make the statements contained therein not materially misleading. (j) LOCATION OF CHIEF EXECUTIVE OFFICE AND RECORDS. The chief place of business and chief executive office of the Seller are located at the address of the Seller referred to in -15- SECTION 9.02 hereof and the locations of the offices where the Seller keeps all the Records are listed on EXHIBIT F (or at such other locations, notified to the Buyer in accordance with SECTION 5.01(f), in jurisdictions where all action required by SECTION 6.03 has been taken and completed). (k) LOCK-BOX ACCOUNTS. Each Obligor under a Contract has, within one month of the date of Purchase of such Contract, been instructed to remit payment on the Receivables to a Post Office Box for remittance to a Lock-Box Account or directly to a Lock-Box Account substantially in the form of EXHIBIT G. From and after the Closing Date, the Seller will have no right, title and/or interest to any of the Lock-Box Accounts and will maintain no lock-box accounts in its own name for the collection of such Receivables. The Seller has delivered to the Collateral Agent a duplicate key to each Post Office Box and has filed a standing delivery order with the United States Postal Service authorizing the Collateral Agent to receive mail delivered to each such Post Office Box. The account numbers of all Lock-Box Accounts, together with the names and addresses of all the Lock-Box Banks maintaining such Lock-Box Accounts and the related Post Office Boxes, are specified in EXHIBIT H. (l) NO TRADE NAMES. Except as described in EXHIBIT I, the Seller has no trade names, fictitious names, assumed names or "doing business as" names. (m) SEPARATE CORPORATE EXISTENCE. The Seller is entering into the transactions contemplated by this Agreement in reliance on the Buyer's identity as a separate legal entity from the Seller and each of its Affiliates other than the Buyer, and acknowledges that the Buyer and the other parties to the Facility Documents are similarly entering into the transactions contemplated by the other Facility Documents in reliance on the Buyer's identity as a separate legal entity from the Seller and each such other Affiliate. (n) TAXES. The Seller has filed or caused to be filed all Federal, state and local tax returns which are required to be filed by it, and has paid or caused to be paid all taxes shown to be due and payable on such returns or on any assessments received by it, other than any taxes or assessments, the validity of which are being contested in good faith by appropriate proceedings and -16- with respect to which the Seller has set aside adequate reserves on its books in accordance with GAAP and which have not given rise to any Adverse Claims. (o) SOLVENCY. The Seller (i) is not "insolvent" (as such term is defined in Section 101(32)(A) of the Bankruptcy Code, (ii) is able to pay its debts as they mature; and (iii) does not have unreasonably small capital for the business in which it is engaged or for any business or transaction in which it is about to engage. (p) NO FRAUDULENT CONVEYANCE. The transactions contemplated by this Agreement and by each of the Facility Documents are being consummated by the Seller in furtherance of the Seller's ordinary business, with no contemplation of insolvency and with no intent to hinder, delay or defraud any of its present or future creditors. By its receipt of the Purchase Prices hereunder and its ownership of the capital stock of the Buyer, the Seller shall have received reasonably equivalent value for the Transferred Assets sold or otherwise conveyed to the Buyer under this Agreement. (q) SOFTWARE. Attached as EXHIBIT J is a list of all computer software used by the Seller to administer the Receivables and other Transferred Assets. Each of the Buyer and the Collateral Agent, as assignee of the Buyer, has (or will have, concurrently with the effectiveness hereof) an enforceable right (whether by license, sublicense or assignment) to use all of the computer software used to account for the Transferred Assets to the extent necessary to administer the Receivables and other Transferred Assets, such use to be subject to the terms and conditions of any license agreement for such software between the Seller and any third parties where applicable. (r) REPRESENTATIONS WITH RESPECT TO RECEIVABLES AND CONTRACTS. With respect to each Receivable: (i) Each such Receivable, at the time of Purchase thereof, is an Eligible Receivable. Each Contract relating to a Receivable: (a) if it constitutes a Lease, is in substantially the form of EXHIBIT K-1 hereto; (b) if it constitutes a Conditional Sales Agreement, is in substantially the form of EXHIBIT K-2 hereto and (c) if it -17- constitutes a Leasehold Improvement Note, is in substantially the form of EXHIBIT K-3 hereto. (ii) There are no facts or circumstances existing as of the Purchase Date thereof which give rise to any right of rescission, offset, counterclaim or defense, including the defense of usury, to the obligations of any Obligor, including the obligation of such Obligor to pay all amounts due thereunder, with respect to any Contract to which such Obligor is a party; and neither the operation of any of the terms of any Contract nor the exercise of any right thereunder will render such Contract unenforceable in whole or in part or subject to any right of rescission, offset, counterclaim or defense, including the defense of usury (other than limitations on enforcement which may subsequently arise as a result of bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors, rights generally and by general equitable principles), and no such right of rescission, offset, counterclaim or defense has been asserted with respect thereto. (iii) As of the Cut-Off Date, (i) the aggregate Discounted Receivables Balance of Contracts that are Leases is $5,239,644, (ii) the aggregate Discounted Receivables Balance of Contracts that are Conditional Sale Agreements is $2,963,452, (iii) the aggregate Discounted Receivables Balance of Contracts that are Leasehold Improvement Notes is $1,439,116 and (iv) the aggregate discounted book value of anticipated residuals on the Equipment subject to Leases is, net of security deposits, $290,283. (iv) Each Lease requires the Obligor to assume all risk of loss or malfunction of the related Equipment. Each Lease and Conditional Sale Agreement requires the Obligor to pay all sales, use, property, excise and other similar taxes imposed on or with respect to the related Equipment and permits the rights with respect to such Contract, and all collateral related thereto, to be assigned by the Seller without the consent of any Person. No Contract permits early termination or prepayment, unless the amount required to be paid by or on behalf of Obligor in respect thereof is equal to or greater than the applicable Termination Amount. -18- No Contract provides for the substitution, exchange or addition of any Equipment subject thereto which would result in any reduction of the amount of payments or change the timing of payments due under such Contract. (v) Each Lease requires the related Obligor to maintain the related Equipment, if any, in good and workable order. Each Lease and Conditional Sale Agreement requires the related Obligor to obtain and maintain physical damage insurance on the Equipment subject thereto and to name the lessor or lender thereunder as loss payee and an additional insured with respect thereto. The Collateral Agent is named as loss payee under all physical damage insurance on the Equipment that is carried by the Seller or the Buyer. To the best of Seller's knowledge, the Equipment was properly delivered to the Obligor in good repair, without defects and in satisfactory order and the related Equipment, if any, is in good operating condition and repair. To the best of the Seller's knowledge, the related Equipment was accepted by the Obligor after reasonable opportunity to inspect and test the same and no Obligor has informed the Seller of any defects therein. (vi) On each Purchase Date, after giving effect to the Purchases to be made on such date, the aggregate Discounted Receivables Balance of all Contracts with Obligors located in any one state does not exceed 30% of the Discounted Receivables Balance. (vii) On the Cut-Off Date, the Weighted Average Remaining Term of the Contracts included in the initial Purchase was 49 months. On each subsequent Purchase Date, after giving effect to the Purchases to be made on such date, the Weighted Average Remaining Term does not exceed 57 months. (viii) On the Cut-Off Date, the lowest Outstanding Balance of the Receivables under any Contract included in the Purchases to be made on such date is no less than $224 and the highest Outstanding Balance of the Receivables under any Contract included in the Purchases to be made on such date is no greater than $130,667. As of each Purchase Date, after giving effect to the Purchases to be made on such -19- date, the average Outstanding Balance of the Receivables is no greater than $30,000. (ix) As of the Purchase Date thereof, the Seller has delivered the Contract File for the related Contract to the Buyer or to the Custodian on the Buyer's behalf together with duly executed instruments of transfer or assignment in blank for each Contract constituting an instrument or chattel paper. (x) As of the Purchase Date thereof, the average original terms of the Contracts included in such Purchase does not exceed 4.75 years. (s) OTHER INDEBTEDNESS. The Seller is not in default under any material indenture, loan or credit agreement with respect to any Indebtedness, the effect of which is to cause, or which would, with the giving of notice of the lapse of time or both, permit the holder or holders thereof to cause, such Indebtedness to become due prior to its stated maturity. (t) INVESTMENT COMPANY. The Seller is not an "investment company" or a company controlled by an "investment company" within the meaning of the Investment Company Act of 1940. (u) ERISA. Neither the Seller nor any of its ERISA Affiliates maintains, contributes to or has any obligation to contribute to any Plan which could reasonably be expected to, individually or in the aggregate, materially adversely affect the ability of the Seller to perform its obligations under this Agreement or any other Facility Document to which it is a party or which could expose the Buyer to any material liability under ERISA. No accumulated or waived funding deficiency (as defined in Section 302(a)(2) of ERISA or Section 412(a) of the Internal Revenue Code) exists with respect to any Benefit Plan, and the Seller has not failed to satisfy the minimum funding requirements under ERISA or the Internal Revenue Code with respect to any Benefit Plan. Neither the Seller nor any of its ERISA Affiliates has incurred any liability to or on account of a Benefit Plan or Multiemployer Plan pursuant to Section 515, 4062, 4063, 4064, 4201 or 4204 of ERISA or expects to incur any liability under any of the foregoing sections on account of the termination of -20- participation in or contributions to any such Plan or Multiemployer Plan. ARTICLE V GENERAL COVENANTS OF THE SELLER SECTION 5.01. AFFIRMATIVE COVENANTS OF THE SELLER. From the Closing Date until the later of the Termination Date or the Collection Date, the Seller will, unless the Buyer shall otherwise consent in writing: (a) COMPLIANCE WITH LAWS, ETC. Comply in all material respects with all applicable laws, rules, regulations and orders with respect to it, its business and properties and all Receivables and related Contracts. (b) PRESERVATION OF CORPORATE EXISTENCE. Preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction except where the failure to preserve and maintain such existence, rights, franchises, privileges and qualifications would not materially adversely affect (i) the interests hereunder of the Buyer, (ii) the collectibility of any Receivable, (iii) the business, properties, operations, prospects, profits or condition (financial or otherwise) condition of the Seller or (iv) the ability of the Seller (individually or as Servicer) to perform its obligations hereunder and under the other Facility Documents to which it is a party. (c) AUDITS. At any time and from time to time upon prior written notice to the Seller and during regular business hours, permit the Buyer and its designees (including the Collateral Agent), or their respective agents or representatives, (i) to examine and make copies of and abstracts from all Records, and (ii) to visit the offices and properties of the Seller for the purpose of examining such Records, and to discuss matters relating to the Receivables or the Seller's performance hereunder with any of the officers or employees of the Seller having knowledge of such matters. Each such audit shall be at the sole -21- expense of the Seller; PROVIDED, however, that so long as no Event of Termination has occurred in any calendar year, the annual costs of the audits during such year for which the Seller is responsible shall not exceed $22,000. (d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing the Receivables in the event of the destruction of the originals thereof) and keep and maintain, all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the daily identification of all Collections of and adjustments to each Receivable). (e) PERFORMANCE AND COMPLIANCE WITH RECEIVABLES AND CONTRACTS. At its expense timely and fully perform and comply, in all material respects, with all material provisions, covenants and other promises required to be observed by it under the Contracts. (f) LOCATION OF RECORDS. Keep its chief place of business and chief executive office, and the offices where it keeps the Records, at the address(es) of the Seller referred to in SECTION 4.01(j), or, in any such case, upon 30 days' prior written notice to the Buyer, at such other locations within the United States where all action required by SECTION 2.08 and by SECTION 6.04 shall have been taken and completed. (g) CREDIT AND COLLECTION POLICIES. Comply in all material respects with its Credit and Collection Policy attached hereto as EXHIBIT D in regard to each Receivable and the related Contract. (h) COLLECTIONS. Instruct all Obligors to cause all Collections to be deposited directly to a Post Office Box or Lock-Box Account and if the Seller shall receive any Collections (including, without limitation, any Collections deemed to have been received pursuant to SECTION 2.05), the Seller shall hold such Collections in trust for the benefit of the Buyer and remit such Collections to the Buyer by depositing such Collections into a Lock-Box Account within one Business Day following Seller's -22- identification thereof and in any event within four Business Days following Seller's receipt thereof. (i) COMPLIANCE WITH ERISA. Establish, maintain and operate all Plans to comply in all material respects with the provisions of ERISA, the IRC, and all other applicable laws, and the regulations and interpretations thereunder. (j) PERFECTED SECURITY INTEREST UNDER CONTRACTS. Take such action with respect to each Receivable as is necessary to ensure that the Buyer maintains, as against the Obligor thereunder, a perfected security interest in any Equipment relating thereto free and clear of Adverse Claims or, in the case of any Lease, to ensure that the Buyer would maintain such a perfected priority security interest in the event that a court or other Person were to determine that such Lease purported to transfer to the Obligor an ownership (rather than a leasehold) interest in the Equipment subject thereto; PROVIDED, that Seller shall not be required to file financing statements to maintain the effectiveness of previously filed financing statements with respect to any Eligible Receivables the Outstanding Balance of which has been reduced below $5,000 so long as the aggregate Outstanding Balance of Receivables for which no such financing statements are in effect at any time remains less than 10% of the Discounted Receivables Balance. (k) MAINTENANCE OF INSURANCE. Maintain, or cause each Obligor to maintain, with respect to the Contracts and the Equipment related thereto, casualty and general liability insurance which provide at least the same coverage as a fire and extended coverage insurance policy as is comparable for other companies in related businesses. Such insurance policies (and self- insurance where permitted) shall be maintained in an amount which is not less than the Discounted Value for the Receivables arising under the relevant Contracts. Each such casualty and liability policy if maintained by an Obligor, shall name the Seller or the Buyer as loss payee and additional insured and the Seller shall have assigned any such interest to the Buyer. The Seller shall remit, or shall cause to be remitted, the proceeds of any such insurance policy to a Lock-Box Account. (l) SEPARATE IDENTITY. Take all actions required to maintain the Buyer's status as a separate legal entity, -23- including, without limitation, (i) not holding the Buyer out to third parties as other than an entity with assets and liabilities distinct from the Seller and the Seller's other Subsidiaries; (ii) not holding itself out to be responsible for the debts of the Buyer or, other than by reason of owning capital stock of the Buyer, for any decisions or actions relating to the business and affairs of the Buyer; (iii) causing any financial statements consolidated with those of the Buyer to address (by footnote or otherwise and in language reasonably satisfactory to the Buyer and the Collateral Agent) the separate corporate existence of the Buyer and the Buyer's ownership of the Receivables; (iv) taking such other actions as are necessary on its part to ensure that all corporate procedures required by its and the Buyer's respective certificates of incorporation and by-laws are duly and validly taken; (v) keeping correct and complete records and books of account and corporate minutes; (vi) not acting in any other matter that could foreseeably mislead others with respect to the Buyer's separate identity; and (vii) taking such other actions as may be necessary on its part to ensure that the Buyer is in compliance at all times with SECTION 5.01(l) of the Credit Agreement. (m) TAXES. File or cause to be filed, and cause each of its Subsidiaries with whom it shares consolidated tax liability to file, all federal, state and local tax returns which are required to be filed by it, except where the failure to file such returns could not reasonably be expected to have a material adverse effect on the collectibility of the Transferred Assets or the ability of the Seller to perform its obligations hereunder or under any other Facility Document to which it is a party or which could otherwise be reasonably expected to expose the Buyer to a material liability. The Seller shall pay or cause to be paid all taxes shown to be due and payable on such returns or on any assessments received by it, other than any taxes or assessments, the validity of which are being contested in good faith by appropriate proceedings and with respect to which the Seller or the applicable subsidiary shall have set aside adequate reserves on its books in accordance with GAAP and which proceedings could not reasonably be expected to have a material adverse effect on the collectibility of the Transferred Assets or the ability of the Seller to perform its obligations hereunder or under any other Facility Document to which it is a party or which could -24 otherwise be reasonably expected to expose the Buyer to a material liability. (n) SEGREGATION OF COLLECTIONS. Prevent the deposit into any of the Lock-Box Accounts of any funds other than Collections in respect of the Transferred Assets and, to the extent that any such funds are nevertheless deposited into any of such Lock-Box Accounts, promptly identify any such funds to the Servicer for segregation and remittance to the owner thereof. SECTION 5.02. REPORTING REQUIREMENTS OF THE SELLER. From the Closing Date until the later of the Termination Date or the Collection Date, the Seller will, unless the Buyer shall otherwise consent in writing, furnish to the Buyer: (a) as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Seller, consolidated balance sheets of the Seller and its consolidated Subsidiaries as of the end of such quarter, and consolidated statements of income and retained earnings of the Seller and its consolidated Subsidiaries each for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, certified by the chief financial officer, chief accounting officer or treasurer of the Seller; (b) as soon as available and in any event within 105 days after the end of each fiscal year of the Seller, a copy of the consolidated balance sheets of the Seller and its consolidated Subsidiaries as of the end of such year and the related consolidated statements of income and retained earnings of the Seller and its consolidated Subsidiaries for such year each reported on by nationally recognized independent public accountants acceptable to the Buyer (the Buyer acknowledges that any of the "Big 5" accounting firms will be acceptable to the Buyer); (c) promptly after the sending or filing thereof, copies of all reports which the Seller sends to any of its security holders and copies of all reports and registration statements which the Seller files with the Securities and Exchange Commission or any national securities exchange other than registration statements relating to employee benefit plans and to registrations of securities for selling security holders; -25- (d) as soon as possible and in any event within five Business Days after the occurrence of each Event of Termination or each event which, with the giving of notice or lapse of time or both, would constitute an Event of Termination, the statement of the chief financial officer, chief accounting officer or treasurer of the Seller setting forth details of such Event of Termination or event and the action which the Seller proposes to take with respect thereto; (e) promptly after the filing or receiving thereof, copies of all reports and notices with respect to any Reportable Event defined in Article IV of ERISA which the Seller or any Subsidiary of the Seller files under ERISA with the IRS or the PBGC or the DOL or which the Seller or any Subsidiary of the Seller receives from the PBGC; (f) promptly, from time to time, such other information, documents, records or reports respecting the Receivables or the conditions or operations, financial or otherwise, of the Seller or any Subsidiary of the Seller as the Buyer may from time to time reasonably request in order to protect the interests of the Buyer under or as contemplated by this Agreement. SECTION 5.03. NEGATIVE COVENANTS OF THE SELLER. From the Closing Date until the later of the Termination Date or the Collection Date, the Seller will not, without the written consent of the Buyer: (a) SALES, LIENS, ETC. AGAINST RECEIVABLES AND TRANSFERRED ASSETS. Except as otherwise provided herein, sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist, any Adverse Claim upon or with respect to, any Receivable, Related Security or Collections, or any related Contract, or upon or with respect to any Lock-Box Account to which any Collections of any Receivable are sent, or assign any right to receive income in respect thereof, or upon any other Transferred Asset, except that the Seller shall have no responsibility for any Adverse Claim created by an Obligor upon or with respect to any Equipment owned by such Obligor so long as such Adverse Claim is subordinate to the security interest of the Seller in such Equipment. -26- (b) EXTENSION OR AMENDMENT OF RECEIVABLES. Extend, amend or otherwise modify, the terms of any Receivable, or amend, modify or waive, any term or condition of any Contract related thereto, except to the extent that the Seller, in its capacity as Servicer, may make such amendments in accordance with the Credit and Collection Policy or as otherwise permitted under ARTICLE VI hereof. (c) CHANGE IN BUSINESS OR CREDIT AND COLLECTION POLICY. Without the prior written consent of the Collateral Agent, make any material change in the character of its business or make any change in the Credit and Collection Policy, which change would, in either case, impair the collectibility of any Transferred Asset. (d) CHANGE IN PAYMENT INSTRUCTIONS TO OBLIGORS. (i) After giving the payment instructions described in the first sentence of SECTION 4.01(k), make any change in such instructions to Obligors regarding payments to be made to the Buyer or payments to be made to any Lock-Box Bank or (ii) add or terminate any bank as a Lock-Box Bank from those listed in EXHIBIT H unless the Buyer shall have received (A) ten Business Days' prior notice of such addition, termination or change and (B) prior to the effective date of such addition, termination or change, (x) executed copies of Lock-Box Agreements executed by each new Lock-Box Bank and (y) copies of all agreements and documents signed by the Seller or the respective Lock-Box Bank with respect to any new Lock-Box Account. (e) MERGER ETC. (i) Merge with or into or consolidate with or into or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) or acquire all or substantially all of the assets or capital stock or other ownership interest of, any Person, or permit any Subsidiary of Seller to do so, except that (A) any Subsidiary of Seller may merge or consolidate with or transfer assets to or acquire assets from any other Subsidiary of Seller, (B) any Subsidiary of Seller may merge into or transfer assets to the Seller or any other Person and (C) the Seller or any Subsidiary of the Seller may acquire the capital stock or assets of any other Person, provided in each case that immediately after giving effect to such proposed transaction, no -27- Event of Termination or event which, with the giving of notice or lapse of time, or both, would constitute an Event of Termination, would exist, and in the case of any such merger to which the Seller is a party, the Seller is the surviving corporation. (f) CHANGE IN CORPORATE NAME. Make any change to its corporate name or use any trade names, fictitious names, assumed names or "doing business as" names other than those described in EXHIBIT I, unless the Seller has given to the Buyer at least thirty (30) days' prior written notice thereof and, prior to the effective date of any such name change or use, Seller delivers to the Buyer such Financing Statements (Form UCC-1 and UCC-3) executed by Seller which the Buyer may reasonably request to reflect such name change or use, together with such other documents and instruments that the Buyer may request in connection therewith. (g) ERISA MATTERS. (i) Engage or permit any ERISA Affiliate to engage in any prohibited transaction for which an exemption is not available or has not previously been obtained from the DOL; (ii) permit to exist any accumulated funding deficiency, as defined in Section 302(a) of ERISA and Section 412(a) of the IRC, or funding deficiency with respect to any Benefit Plan other than a Multiemployer Plan; (iii) fail to make any payments to any Multiemployer Plan that the Seller or any ERISA Affiliate may be required to make under the agreement relating to such Multiemployer Plan or any law pertaining thereto; (iv) terminate any Benefit Plan so as to result in any liability; or (v) permit to exist any occurrence of any reportable event described in Title IV of ERISA which represents a material risk of a liability of the Seller or any ERISA Affiliate under ERISA or the IRC; PROVIDED, HOWEVER, the Seller and its ERISA Affiliates may take or allow such prohibited transactions, accumulated funding deficiencies, payments, terminations and reportable events described in clauses (i) through (iv) above so long as such events occurring within any fiscal year of the Seller, in the aggregate, involve a payment of money by or an incurrence of liability of the Seller or any ERISA Affiliate (collectively, "ERISA Liabilities") in an amount which does not exceed $500,000. (h) TERMINATE OR REJECT CONTRACTS. Without limiting SECTION 5.03(b) and except as otherwise expressly permitted -28- pursuant to SECTION 2.05, terminate or reject any Contract prior to the term of such Contract, whether such rejection or early termination is made pursuant to an equitable cause, statute, regulation, judicial proceeding or other applicable law (including, without limitation, Section 365 of the Bankruptcy Code), unless prior to such termination or rejection, the Seller shall have paid to the Buyer an amount equal to the Termination Amount thereof. (i) ACCOUNTING TREATMENT. Prepare any financial statements or other statements which shall account for the transactions contemplated by this Agreement in any manner other than as the sale of, or a capital contribution of, the Transferred Assets by the Seller to the Buyer (it being understood that non- recognition of such transaction due to the application of consolidated financial reporting principles under GAAP or the filing of tax returns on a consolidated basis shall not constitute a violation of this covenant). (j) CERTIFICATE OF INCORPORATION. Cause the Buyer to amend its Certificate of Incorporation or By-laws in any manner which would require the consent of the Buyer's independent director or directors, without the Collateral Agent's prior written consent. SECTION 5.04. FINANCIAL COVENANTS OF THE SELLER. (a) From the Closing Date until the later of the Termination Date or the Collection Date, the Seller will not suffer or permit: (i) "Consolidated Tangible Net Worth" (as defined below) as of the end of any fiscal quarter to be less than the sum of (i) $30,000,000 PLUS (ii) on a cumulative basis, 75% of positive "Consolidated Net Income" (as defined below) for each fiscal quarter beginning with the fiscal quarter commencing on or after June 26, 1994, PLUS (iii) 100% of the proceeds of any sale (other than up to $4,000,000 of proceeds from the Borrower's resale of 949,182 shares of common stock purchased under that certain Stock Purchase Agreement with Chemical Bank and the Trustee for Healthco International, Inc. (the "Stock Purchase Agreement")) by the Seller or any of its Consolidated Subsidiaries of (A) equity -29- securities issued by the Seller or any of its Consolidated Subsidiaries, or (B) warrants or subscription rights for equity securities issued by the Borrower or any of its Consolidated Subsidiaries MINUS (iv) up to $5,000,000 of the total stock purchase price under the Stock Purchase Agreement used to purchase shares which are held by the Seller as treasury shares or retired. (ii) Indebtedness of the Seller and its Consolidated Subsidiaries at the end of any fiscal quarter to exceed four hundred percent (400%) of the sum of (a) Consolidated Tangible Net Worth plus (B) the outstanding amount of any unsecured Indebtedness expressly subordinated and made junior to the payment of the Seller's revolving bank credit facilities, in each case at the end of such fiscal quarter. (iii) The ratio of (A) "Consolidated EBIT" (as defined below) to (B) "Total Interest Expense" (as defined below), as of the end of any fiscal quarter, to be less than (1) 1.2 to 1.0 for the four fiscal quarter period then ending. (b) As used in this SECTION 5.04, the following terms shall have the following meanings: "CONSOLIDATED EBIT" for any period means the consolidated earnings (or loss) from the operations of the Seller and its Consolidated Subsidiaries after all expenses and other proper charges but before payment or provision for income taxes or interest expense for such period, as determined in accordance with GAAP. "CONSOLIDATED NET INCOME" for any period means the consolidated net income (or deficit) of the Seller and its Consolidated Subsidiaries, after deduction of all expenses, taxes and other proper charges, for such period as determined in accordance with GAAP, after eliminating therefrom all extraordinary nonrecurring items of income. "CONSOLIDATED SUBSIDIARIES" means all of the Subsidiaries of the Seller consolidated for financial reporting purposes in accordance with GAAP, but excluding Credident, Inc., a Canadian corporation, whether or not such -30 Subsidiary should be so consolidated for financial reporting purposes. "CONSOLIDATED TANGIBLE NET WORTH" means the excess of (i) total assets of the Seller and its Consolidated Subsidiaries as determined in accordance with GAAP MINUS (ii) total liabilities of the Seller and its Consolidated Subsidiaries as determined in accordance with GAAP and any Indebtedness of the Seller and its Consolidated Subsidiaries (whether or not classified as liabilities) MINUS (iii) the total book value of all assets of the Seller and its Consolidated Subsidiaries properly classified as intangible assets under generally accepted accounting principles, including such items as good will, the purchase price of acquired assets in excess of the fair market value thereof, trademarks, trade names, service marks, brand names, copyrights, patents and licenses, and rights with respect to the foregoing MINUS (iv) all amounts representing any write-up in the book value of any assets of the Seller or its Consolidated Subsidiaries resulting from a revaluation thereof subsequent to December 25, 1993, excluding adjustments to translate foreign assets and liabilities for changes in foreign exchange rates made in accordance with Financial Accounting Standards Board Statement No. 52, PLUS (v) to the extent otherwise includable in the computation of Consolidated Tangible Net Worth, any subscriptions receivable; PLUS (vi) deferred underwriting expenses and deferred origination costs. "TOTAL INTEREST EXPENSE" means for any period the aggregate amount of interest required to be paid or accrued by the Seller and its Consolidated Subsidiaries during such period in respect of Indebtedness, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments consisting of interest in respect of capitalized leases and including commitment fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with such Indebtedness. -31- ARTICLE VI ADMINISTRATION AND COLLECTION -32- SECTION 6.01. DESIGNATION OF SERVICER. Consistent with the Buyer's ownership of the Transferred Assets, the Buyer shall have as against the Seller the sole right to service, administer and collect the Receivables, to assign such right and to delegate such right. The servicing, administering and collection of the Receivables and the other Transferred Assets shall be conducted by the Person (the "SERVICER") so designated by the Buyer from time to time in accordance with this SECTION 6.01. Until the Collateral Agent gives notice to the Seller of the designation of a new Servicer, the Seller is hereby designated as, and hereby agrees to perform the duties and obligations of, the Servicer pursuant to the terms hereof. The Buyer may, at any time upon ten Business Days prior written notice, designate as Servicer any Person to succeed the Seller on the condition any such Person so designated shall agree to perform the duties and obligations of the Servicer pursuant to the terms hereof and shall be acceptable to the Collateral Agent; PROVIDED that the Buyer's right to so designate a successor Servicer at any time is personal to the Buyer and may not be assigned to any other Person (including the Collateral Agent). The Collateral Agent may at any time from and after a Servicing Termination Event designate as Servicer any other Person to succeed the Seller or any Successor Servicer, on the condition in each case that any such Person so designated shall agree to perform the duties and obligations of the Servicer pursuant to the terms hereof. The Servicer may, with the prior written consent of the Buyer and the Collateral Agent, subcontract with any other Person for servicing, administering or collecting the Transferred Assets, provided that the Servicer shall remain liable for the performance of the duties and obligations of the Servicer pursuant to the terms hereof. The Servicer shall use reasonable care in performing its duties as Servicer hereunder and, without limiting the foregoing, shall service the Transferred Assets in accordance with the Credit and Collection Policy. The Servicer acknowledges that the Buyer has, pursuant to the Credit Agreement, granted to the Collateral Agent, for the benefit of Triple-A and the Surety, a security interest in all of the Transferred Assets and has assigned to the Collateral Agent all of its rights under this Agreement, including its rights with respect to the Servicer under this ARTICLE VI, as more fully described in SECTION 9.04 hereunder. -33- SECTION 6.02. DUTIES OF THE SERVICER. (a) The Servicer shall take or cause to be taken all such actions as may be necessary or advisable to collect each Transferred Asset from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy. The Buyer hereby appoints as its agent the Servicer, from time to time designated pursuant to SECTION 6.01, to enforce its respective rights and interests in and under the Receivables, the Related Security, the related Contracts and the other Transferred Assets. The Servicer will at all times apply the same standards and follow the same procedures with respect to the decision to commence, and in prosecuting and litigating with respect to Receivables as it applies and follows with respect to accounts, chattel paper and instruments which are not Transferred Assets. In no event shall the Servicer be entitled to make the Collateral Agent or the Buyer a party to any litigation without the Buyer's and the Collateral Agent's express prior written consent. The Servicer shall segregate and set aside for the account of the Buyer all Collections of Transferred Assets in accordance with SECTION 2.05 hereof and SECTION 6.06 of the Credit Agreement and shall cause all such Collections to be remitted to a Lock-Box Account and/or deposited directly into the Collection Account within one Business Day after identification thereof by the Servicer and in any event within four Business Days after the Servicer's receipt thereof. The Servicer shall promptly review all checks and other instruments returned to it by the Lock-Box Bank on account of restrictive endorsements, improper payees, incorrect amounts or for any other reason and shall not deposit any such checks or instruments in its own accounts unless it is determined to the Buyer's satisfaction that such amounts do not constitute Collections; any such checks or instruments which are determined to be Collections shall be promptly remitted to the Lock-Box Account or the Collection Account as provided above. Provided that the Termination Date shall not have occurred, the Seller, while it is Servicer, may, in accordance with the Credit and Collection Policy, (i) amend, modify or waive any term or condition of any Contract to reflect any Permitted Extension, (ii) adjust the Outstanding Balance of any Transferred Asset to reflect the reductions, adjustments or cancellations described in the first sentence of SECTION 2.05 of the Purchase Agreement, (iii) so long as such prepayment would not cause an Event of Termination under SECTION 7.01(m) hereof and subject to the -34- payment of the Termination Amount, consent to the prepayment or early termination of a Contract, and (iv) amend, modify or waive any provision of a Delinquent Receivable or Defaulted Receivable so as to maximize the collectibility thereof. The Seller shall deliver to the Servicer, and the Servicer shall hold in trust for the Seller and the Buyer in accordance with their respective interests, all Records. Notwithstanding anything to the contrary contained herein, following the occurrence of an Event of Termination, the Collateral Agent shall have the absolute and unlimited right to direct the Servicer (whether the Servicer is the Seller or otherwise) to commence or settle any legal action to enforce collection of any Receivable or other Transferred Asset or to foreclose upon or repossess any Related Security. (b) The Servicer shall as soon as practicable following receipt turn over to the Seller the collections of any receivable which is not a Transferred Asset less, in the event the Seller is not the Servicer, all reasonable and appropriate out-of-pocket costs and expenses of such Servicer of servicing, collecting and administering such receivable. (c) Notwithstanding anything to the contrary contained in this Agreement, the Servicer, if the Collateral Agent or its designee, shall have no obligation to collect, enforce or take any other action described in this ARTICLE VI with respect to any receivable that is not a Transferred Asset other than to deliver to the Seller the Collections and documents with respect to any such receivable as described in the first two sentences of SECTION 6.02(b) and to exercise the same degree of care with respect to Collections and documents in its possession as it would exercise with respect to its own property. (d) The Servicer will, at the Servicer's cost and expense and as agent in the name of and on behalf of the Buyer, but subject at any time to the right of the Buyer to direct and control, endeavor to collect, as and when the same becomes due, all amounts owing on each Receivable. In the event of default by an Obligor under any Receivable, the Servicer shall have the power and authority, on behalf of the Buyer, to take such action in respect of the enforcement and collection of such Receivable as the Servicer, in the absence of contrary instructions from the Buyer, may deem advisable. In any such suit for enforcement or collection, the Servicer shall be entitled to sue thereon in its -35- own name or as agent for the Buyer, in either case, for the account of the Buyer. (e) In the event the Servicer accepts in payment of any Receivable the taking of repossession of the Equipment the sale or lease of which gave rise to such Receivable, the Servicer agrees to use its reasonable efforts to resell or re-lease such Equipment for the account of the Buyer and shall remit to the Buyer the gross sale proceeds thereof or, to the extent such Equipment is re- leased, shall deliver to the Buyer the chattel paper or other documents evidencing the rights to payment arising from such re-lease, all of which documents shall constitute Contracts and which rights to payment shall constitute Receivables, and all of which Contracts and Receivables shall constitute part of the Transferred Assets. Neither the Buyer nor the Collateral Agent shall have any obligation to take any action or commence any proceedings to realize upon any Receivable or to enforce any of its rights or remedies with respect thereto. Any moneys collected by the Servicer pursuant to this SUBSECTION 6.02(e) shall be segregated by the Servicer, held in trust by the Servicer for the Buyer and shall be remitted to a Lock-Box Account or to the Collection Account within one Business Day after identification thereof by the Servicer and in any event within four Business Days after the Servicer's receipt thereof. (f) The Servicer shall maintain all books of account and other records pertaining to the Receivables and the other Transferred Assets in such form as will enable the Buyer or its designees to determine at any time the status thereof. The Servicer will permit the Buyer, the Collateral Agent and any Person designated by the Buyer or the Collateral Agent, during regular business hours, to inspect, audit, check and make abstracts from all books, accounts, records, or other papers pertaining to such Transferred Assets. From time to time, at the request of the Buyer or the Collateral Agent, the Servicer, at its own expense, will (i) deliver to the Buyer and the Collateral Agent and any Person designated by the Buyer or the Collateral Agent any records and invoices pertaining to the Transferred Assets and evidence thereof as the Buyer, the Collateral Agent or such designee may deem necessary to enable it to enforce its rights thereunder and (ii) mark each computer record relating to, and each invoice or other evidence of, the Transferred Assets (whether or not such computer record or other item is the -36- property of the Buyer) as the Buyer or Collateral Agent may direct to reflect the interests of the Buyer and the Collateral Agent in such Transferred Assets. The Servicer will either (i) segregate, from all the documents relating to other receivables then owned or being serviced by the Servicer, all documents relating to the Transferred Assets or (ii) mark all such documents relating to the Transferred Assets so as to make such documents readily identifiable as property of the Buyer and with such legend as shall be specified by the Collateral Agent, and will, in either such event, hold all such documents in trust for the Buyer and safely keep such documents in filing cabinets or other suitable containers marked to show the Buyer's interest. SECTION 6.03. RIGHTS OF THE BUYER. At any time: (a) The Buyer may notify the Obligors of the Receivables, or any of them, of the Buyer's ownership interest in Transferred Assets and direct such Obligors, or any of them, that payment of all amounts payable under any Receivable be made directly to the Buyer or its designee (including, without limitation, the Collateral Agent). (b) The Seller shall, at the Collateral Agent's or Buyer's request and at the Seller's expense, give notice of the Buyer's interest in the Transferred Assets to each Obligor (in substantially the form of the Notice of Assignment) and direct that payments be made directly to the Buyer or its designee (including, without limitation, the Collateral Agent). (c) The Seller shall, at the Buyer's request, assemble all Records which the Buyer reasonably believes are necessary or appropriate for the administration and enforcement of the Transferred Assets, and shall make the same available to the Buyer at a place selected by the Buyer or its designee. (d) The Seller hereby authorizes the Buyer and the Collateral Agent to take any and all steps in the Seller's name and on behalf of the Seller necessary or desirable, in the determination of the Buyer and/or the Collateral Agent, to collect all amounts due under any -37- and all Transferred Assets or related Receivables, including, without limitation, endorsing the Seller's name on checks and other instruments representing Collections and enforcing such Receivables and the related Contracts. SECTION 6.04. FURTHER ACTION EVIDENCING TRANSFERS. The Seller agrees that from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action that the Buyer may reasonably request in order to perfect, protect or more fully evidence the Buyer's interest in the Transferred Assets, or to enable the Buyer to exercise or enforce any of its rights hereunder or under any related document. Without limiting the generality of the foregoing, the Seller will mark its master data processing records evidencing such Transferred Assets with a legend, acceptable to the Buyer, evidencing that the Buyer has acquired an ownership interest therein as provided in this Agreement and, upon the request of the Buyer, will execute and file such financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as may be necessary or appropriate or as the Buyer may reasonably request. The Seller hereby authorizes the Buyer to file one or more financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any of the Transferred Assets now existing or hereafter arising without the signature of the Seller where permitted by law. A carbon, photographic or other reproduction of this Agreement or any financing statement covering the Transferred Assets, or any part thereof, shall be sufficient as a financing statement. If the Seller fails to perform any of its agreements or obligations under this Agreement, the Buyer may (but shall not be required to) itself perform, or cause performance of, such agreement or obligation, and the expenses of the Buyer incurred in connection therewith shall be payable by the Seller upon the Buyer's demand therefor; PROVIDED, HOWEVER, prior to taking any such action, the Buyer shall give notice of such intention to the Seller and provide the Seller with a reasonable opportunity to take such action itself. SECTION 6.05. RESPONSIBILITIES OF THE SELLER. Anything herein to the contrary notwithstanding, the Seller shall (i) perform all of its obligations under the Contracts to the -38- same extent as if such Contracts had not been transferred to the Buyer under the Purchase Agreement and the exercise by the Buyer or its assigns of their respective rights hereunder shall not relieve Seller from such obligations and (ii) pay when due any taxes, including without limitation, sales, excise and personal property taxes payable in connection with the Transferred Assets, unless the Seller is contesting the payment of such taxes in good faith and by appropriate proceedings and with respect to which no Adverse Claim has been asserted or filed. SECTION 6.06. ADMINISTRATION OF COLLECTIONS BY SERVICER. (a) The Servicer shall identify on a timely basis all collections which are on account of the Transferred Assets. including all deposits to Lock Box Accounts. On each Business Day, all Collections received in the Lock Box Accounts for the prior Business Day (and such Business Day, if practicable) shall be transferred to the Collection Account. If the Servicer receives any cash or checks, drafts, wire transfers or other instruments for the payment of money on account or otherwise in respect of the Transferred Assets, the Servicer shall segregate such cash and other items, hold such cash and other items in trust for the benefit of the Buyer and the Collateral Agent and shall cause such cash and other items (properly endorsed, where required, so that such items may be collected by the Buyer) to be deposited in a Lock Box Account or directly in the Collection Account immediately after the date any such cash or other item shall have been identified as being on account of a Transferred Asset. SECTION 6.07. APPLICATION OF COLLECTIONS. All Collections on account of the Receivables of each Obligor shall be applied in the order of maturity thereof unless specifically identified otherwise in writing by such Obligor or directed by a court of competent jurisdiction. Any payment by an Obligor in respect of any indebtedness or other obligations owed by such Obligor to the Seller or the Servicer shall, except as otherwise specified by such Obligor or otherwise required by law, be applied as a Collection of a Receivable of such Obligor (in the order of the age by invoice date of such Receivables, starting with the oldest such Receivable) to the extent of any amounts then due and payable thereunder before being applied to any other indebtedness of such Obligor to the Seller or the Servicer. The Servicer shall not influence or instruct any Obligor who is -39- indebted to the Seller in respect of any indebtedness not included in the Transferred Assets to direct that its remittances be applied to any such indebtedness prior to being applied to the Transferred Assets. SECTION 6.08. SERVICING FEE. On each Settlement Date, as full compensation for its servicing activities hereunder, the Servicer shall be entitled to receive a fee (the "SERVICING FEE") in an amount equal to 1.15% TIMES the Outstanding Balance of the Receivables as of the last day of the prior calendar month TIMES a fraction, the numerator of which is the number of actual days elapsed in such calendar month and the denominator of which equals 360. In the event that the Buyer (or the Collateral Agent) appoints a successor Servicer, the Servicing Fee may be adjusted as required by such successor Servicer and as agreed to by the Buyer and the Collateral Agent. SECTION 6.09. RESIGNATION; SUCCESSOR SERVICER. (a) The obligation of the Servicer to service the Receivables is personal to the Servicer and the parties recognize that another Person may not be qualified to perform such obligations. Accordingly, the Servicer's obligation to service the Transferred Assets hereunder shall be specifically enforceable and shall be absolute and unconditional in all circumstances, including, without limitation, after the occurrence and during the continuation of any Event of Termination or Servicing Termination Event hereunder; PROVIDED, HOWEVER, that a Successor Servicer may be appointed pursuant to this SECTION 6.09. (b) Notwithstanding the foregoing, the Servicer may resign from the obligations and duties hereby imposed on it as Servicer upon determination that (i) the performance of its duties hereunder is no longer permissible under any applicable law and (ii) there is no reasonable action which the Servicer could take to make the performance of its duties hereunder permissible under any such applicable law. Any determination permitting the resignation of the Servicer shall be evidenced as to clause (i) above by an opinion of counsel to such effect delivered to the Buyer and the Collateral Agent. Except to the extent inconsistent with any such applicable law, no such resignation shall become effective until a Successor Servicer shall have assumed the responsibilities and obligations of the -40- Servicer in accordance with the remaining provisions of this SECTION 6.09. (c) The Collateral Agent shall, as promptly as possible after the Servicer has given notice pursuant to SECTION 6.09(b) above or at any time after the Buyer's or the Collateral Agent's designation of a successor Servicer pursuant to SECTION 6.01, appoint a successor servicer (the "SUCCESSOR SERVICER") and such Successor Servicer shall accept its appointment by a written assumption in a form acceptable to the Collateral Agent. Upon its appointment, the Successor Servicer shall be the successor in all respects to the Servicer with respect to servicing functions under this Agreement and the Credit Agreement shall be subject to all the responsibilities, duties and liabilities relating thereto placed on the Servicer by the terms and provisions hereof and thereof, and all references in this Agreement or any other Facility Documents to the Servicer shall be deemed to refer to the Successor Servicer. The Servicer agrees to cooperate with the Successor Servicer in effecting the transfer of its responsibilities, duties, liabilities and rights hereunder, including, without limitation, the execution and delivery of assignments of financing statements, the transfer to the Successor Servicer of all cash amounts held by the Servicer or thereafter received with respect to the Transferred Assets, the transfer of electronic records relating to the Transferred Assets in such form as the Successor Servicer may reasonably request and the transfer of all related Records, correspondence and other documents relating to the Transferred Assets. -41- ARTICLE VII EVENTS OF TERMINATION SECTION 7.01. EVENTS OF TERMINATION. If any of the following events ("Events of Termination") shall occur: (a) (i) The Servicer (if the Seller or any Affiliate of the Seller) shall fail to perform or observe any term, covenant or agreement hereunder (other than as referred to in clause (ii) of this SECTION 7.01(a)) and such failure shall remain unremedied for three Business Days after written notice from the Buyer or (ii) either the Servicer (if the Seller or any Affiliate of the Seller) or the Seller shall fail to make any payment or deposit to be made by it hereunder when due and with respect to such payments which do not relate to the remittance of Collections, such failure shall remain unremedied for three Business Days after written notice from the Buyer; or (b) The Seller shall fail to perform or observe any term, covenant or agreement contained in ARTICLE VI and any such failure shall remain unremedied for five Business Days after written notice from the Buyer; or (c) Any representation or warranty made or deemed to be made by the Seller (or any of its officers) under or in connection with this Agreement, any Settlement Report or other information or report delivered pursuant hereto shall prove to have been false or incorrect in any material respect when made; PROVIDED, HOWEVER, that (i) to the extent any breach of any such representation or warranty may be cured within ten Business Days, the Seller shall have ten Business Days after learning of such breach to make such representation and warranty true and correct and (ii) if any such false or incorrect representation or warranty has given rise to a deemed collection as provided under SECTION 2.05, then, upon the Seller's payment of such deemed Collection at the time and in the manner required under this Agreement, the breach of such representation or warranty shall not give rise to an Event of Termination under this subsection (c); or -42- (d) The Seller shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed and any such failure shall remain unremedied for ten Business Days after written notice from the Buyer (it being understood that, if any such failure gives rise to a deemed Collection as provided under SECTION 2.05, then the payment of such deemed Collection at the time and in the manner required under this Agreement shall be deemed a remedy of such failure); or (e) The Seller shall fail to pay any principal of or premium or interest on any Indebtedness when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or any other default under any agreement or instrument relating to any such Indebtedness of the Seller or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness; or any such Indebtedness shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof; or (f) Any Purchase or acquisition by the Buyer of Transferred Assets shall for any reason, except to the extent permitted by the terms hereof, cease to create a valid and perfected first priority interest in each Receivable, the Related Security and the Equipment and Collections with respect thereto; PROVIDED, HOWEVER, if any such failure results in a deemed Collection under SECTION 2.05 hereof and the Seller satisfies in full its payment obligations under such section, then such failure shall not give rise to an Event of Termination under this subsection (f); or (g) (i) An Insolvency Event shall occur with respect to the Seller or the Buyer or (ii) the Seller or the Buyer shall take any corporate action to authorize the filing of any Insolvency Proceeding; or -43- (h) There shall have been any material adverse change in the financial condition or operations of the Seller since December 31, 1993 (except as disclosed in the Interim Financials described in SECTION 4.01(e)), or there shall have occurred any event which materially adversely affects the collectibility of the Receivables generally or there shall have occurred any other event which materially adversely affects the ability of the Seller to collect Receivables generally or the ability of the Seller to perform hereunder; or (i) The Seller shall fail to observe any covenant contained in SECTION 5.04; or (j) As of the last day of any month, the Default Ratio shall be greater than 3.5%; or (k) As of the last day of any month, the Delinquency Ratio shall be greater than 5.5%; or (l) As of the last day of any month, the average annualized monthly prepayment rate (i.e., prepayments as a percentage of gross Receivables balances) of all Receivables which have been prepaid for the twelve-month period then ended shall exceed 7%; or (m) Any "Wind-Down Event" shall occur under the Credit Agreement; then, and in any such event, the Buyer may by notice to the Seller declare the Termination Date to have occurred, EXCEPT that, in the case of any event described in clause (i) of subsection (g) above, the Termination Date shall be deemed to have occurred automatically upon the occurrence of such event. Upon any such declaration or automatic occurrence, the Buyer shall have, in addition to all other rights and remedies under this Agreement or otherwise, all other rights and remedies provided under the UCC of the applicable jurisdiction and other applicable laws, which rights shall be cumulative. -44- ARTICLE VIII INDEMNIFICATION SECTION 8.01. INDEMNITIES BY THE SELLER. (a) Without limiting any other rights which the Buyer may have hereunder or under applicable law, the Seller hereby agrees to indemnify the Buyer and its permitted successors and assigns (including, without limitation, Triple-A, the Collateral Agent and the Surety) and their respective officers, directors, agents and employees (each, an "INDEMNIFIED PARTY"), from and against any and all damages, losses, claims, liabilities and related costs and expenses, including reasonable attorneys' fees and disbursements (all of the foregoing being collectively referred to as "INDEMNIFIED AMOUNTS") awarded against or incurred by any Indemnified Party relating to or resulting from any of the following (excluding, however, (i) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of an Indemnified Party or (ii) recourse (except with respect to payment and performance obligations provided for in this Agreement) for uncollectible Receivables): (i) the transfer of any Receivable which was not, as of the date of Purchase, an Eligible Receivable; (ii) any representation or warranty made or deemed made by the Seller (or any of its officers) under or in connection with this Agreement, any Settlement Report or any other information or report delivered by the Seller pursuant hereto, which shall have been false or incorrect in any material respect when made or deemed made or delivered; (iii) the failure by the Seller (individually or as Servicer) to comply with any term, provision or covenant contained in this Agreement (other than any covenant contained in SECTION 5.04, a breach of which shall constitute an Event of Termination but shall not give rise to indemnification under this SECTION 8.01), or any agreement executed in connection with this Agreement or with any applicable law, rule or regulation with respect to any Receivable, the related Contract, the Related Security or the other Transferred -45- Assets, or the nonconformity of any Receivable, the related Contract, the Related Security or the other Transferred Assets with any such applicable law, rule or regulation; (iv) the failure to vest and maintain vested in the Buyer or to transfer to the Buyer an interest in the Transferred Assets, free and clear of any Adverse Claim (including, without limitation, free and clear of any Permitted Lien except in favor of the Buyer or its assignees) whether existing at the time of the Purchase of such Receivable or at any time thereafter; (v) the failure to file, or any delay in filing (other than solely as a result of the action or inaction of the Buyer), financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws against the Seller with respect to any Contract or Receivables which are, or are purported to be, Transferred Assets, whether at the time of any Purchase or at any subsequent time; (vi) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale or lease of the Equipment and/or services related thereto or the furnishing or failure to furnish such Equipment and/or services; (vii) any failure of the Seller, as Servicer or otherwise, to perform its duties or obligations in accordance with the provisions of Article VI; (viii) any products liability claim or personal injury or property damage suit or other similar or related claim or action of whatever sort arising out of or in connection with the Equipment or any other goods, -46- merchandise and/or services which are the subject of any Receivable or Contract; (ix) the failure to pay when due any taxes, including, without limitation, sales, excise or personal property taxes payable in connection with the Transferred Assets; (x) the termination, rejection or non-assumption by the Seller of any Contract prior to the original term of such Contract, whether such rejection, early termination or non-assumption is made pursuant to an equitable cause, statute, regulation, judicial proceeding or other applicable laws (including, without limitation, Section 365 of the Bankruptcy Code); (xi) the failure of the Seller and the Obligors under the Contracts to maintain casualty and liability insurance for the Equipment related to the Receivables in an amount at least equal to the Discounted Receivables Balance; (xii) the failure of any Lock-Box Bank to remit any funds in the Lock- Box Accounts as required hereunder; and (xiii) the commingling of Collections of any Transferred Assets with any other funds of the Seller. Any amounts subject to the indemnification provisions of this SECTION 8.01 shall be paid by the Seller to the applicable Indemnified Party within two Business Days following the Indemnified Party's demand therefor. -47- ARTICLE IX MISCELLANEOUS SECTION 9.01. AMENDMENTS, ETC. No amendment to or waiver of any provision of this Agreement nor consent to any departure by the Seller, shall in any event be effective unless the same shall be in writing and signed by (i) the Seller and the Buyer (with respect to an amendment) or (ii) the Buyer (with respect to a waiver or consent by it) or the Seller (with respect to a waiver or consent by it), as the case may be, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. This Agreement contains a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement (together with the exhibits hereto) among the parties hereto with respect to the subject matter hereof, superseding all prior oral or written understandings. SECTION 9.02. NOTICES, ETC. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including telex communication and communication by facsimile copy) and mailed, telexed, transmitted or delivered, as to each party hereto, at its address set forth under its name on the signature pages hereof or at such other address as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective, upon receipt, or in the case of delivery by mail, five days after being deposited in the mails, or, in the case of notice by telex, when telexed against receipt of answer back, or in the case of notice by facsimile copy, when verbal communication of receipt is obtained, in each case addressed as aforesaid, except that notices and communications pursuant to Article II shall not be effective until received. SECTION 9.03. NO WAIVER; REMEDIES. No failure on the part of the Buyer to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. -48- SECTION 9.04. BINDING EFFECT; ASSIGNABILITY. This Agreement shall be binding upon and inure to the benefit of the Seller, the Buyer and their respective successors and permitted assigns (which successors of the Seller shall include a trustee in bankruptcy). The Seller may not assign any of its rights and obligations hereunder or any interest herein without the prior written consent of the Buyer and the Collateral Agent. The Buyer may assign at any time its rights and obligations hereunder and interests herein to any other Person without the consent of the Seller. Without limiting the foregoing, the Seller acknowledges that the Buyer shall assign to the Collateral Agent, for the benefit of Triple-A and the Surety, as collateral security for its obligations under the Credit Agreement, all of its rights, remedies, powers and privileges hereunder and that Triple-A and/or the Collateral Agent may further assign such rights, remedies, powers and privileges to the extent permitted in the Credit Agreement. The Seller agrees that the Collateral Agent, as the assignee of the Buyer, shall, subject to the terms of the Credit Agreement, have the right to enforce this Agreement and to exercise directly all of the Buyer's rights and remedies under this Agreement (including, without limitation, the rights and remedies under SECTIONS 6.01, 6.02, 6.03, 6.04, and 8.01 and the Seller agrees to cooperate fully with the Collateral Agent in the exercise of such rights and remedies. Without limiting the foregoing, the Seller hereby acknowledges that the Buyer and Triple-A have agreed pursuant to the Credit Agreement and certain related agreements that, subject to the restrictions set forth therein, the Collateral Agent, certain parties providing credit enhancements and/or liquidity for Triple-A in connection with the Credit Agreement shall be entitled to exercise the Buyer's rights under this Agreement. The Seller hereby consents to the foregoing and agrees to cooperate with any such Person electing to exercise the Buyer's rights under this Agreement. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until such time, after the Termination Date, as the Collection Date shall occur; PROVIDED, HOWEVER, that the rights and remedies with respect to any breach of any representation and warranty made by the Seller pursuant to ARTICLE IV and the indemnification and payment provisions of ARTICLE VIII and ARTICLE X shall be continuing and shall survive any termination of this Agreement. -49- SECTION 9.05. GOVERNING LAW; WAIVER OF JURY TRIAL. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE INTERESTS OF THE BUYER IN THE TRANSFERRED ASSETS OR REMEDIES HEREUNDER OR THEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. THE SELLER HEREBY AGREES TO THE JURISDICTION OF ANY FEDERAL COURT LOCATED WITHIN THE STATE OF NEW YORK, AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE SELLER AT THE ADDRESS SET FORTH ON THE SIGNATURE PAGE HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE PREPAID, OR, AT THE BUYER'S OPTION, BY SERVICE UPON CT CORPORATION SYSTEM, 1633 BROADWAY, NEW YORK, NEW YORK 10019, WHICH THE SELLER HEREBY IRREVOCABLY APPOINTS AS ITS AGENT FOR THE PURPOSE OF ACCEPTING SERVICE OF PROCESS. THE SELLER HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE SELLER AND THE BUYER ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY. WITH RESPECT TO THE FOREGOING CONSENT TO JURISDICTION, THE SELLER HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION 9.05 SHALL AFFECT THE RIGHT OF THE BUYER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF THE BUYER TO BRING ANY ACTION OR PROCEEDING AGAINST THE SELLER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. SECTION 9.06. COSTS, EXPENSES AND TAXES. (a) In addition to the rights of indemnification under ARTICLE VIII hereof, the Seller agrees to pay on demand all reasonable costs and expenses in connection with the preparation, execution, delivery and administration (including periodic auditing and any requested amendments, waivers or consents) of this Agreement and the other documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of -50- counsel for the Buyer (and the Collateral Agent) with respect thereto and with respect to advising the Buyer (and the Collateral Agent) as to its rights and remedies under this Agreement, and the other agreements executed pursuant hereto and all costs and expenses, if any (including reasonable counsel fees and expenses), in connection with the enforcement of this Agreement and the other agreements and documents to be delivered hereunder. (b) In addition, the Seller shall pay any and all stamp, sales, excise and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement or the other agreements and documents to be delivered hereunder, and agrees to indemnify the Buyer and its assignees against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. SECTION 9.07. EXECUTION IN COUNTERPARTS; SEVERABILITY. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. In case any provision in or obligation under this Agreement or the Certificate shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. -51- IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. SELLER/SERVICER: HPSC, INC. By: Rene LeFebvre ------------------------------- Name: Rene LeFebvre Title: Vice President and Chief Financial Officer By: John Everets, Jr. ------------------------------- Name: John Everets, Jr. Title: Chairman and Chief Executive Officer Address: Sixty State Street 35th Floor Boston, MA 02109-1803 Attn: Vice President, Finance BUYER: HPSC BRAVO FUNDING CORP. By: John Everets, Jr. ------------------------------- Name: John Everets, Jr. Title: President Address: Sixty State Street 35th Floor Boston, MA 02109-1803 Attn: President, -52- EX-10.32 12 EXHIBIT 10.32 EXHIBIT 10.32 CREDIT AGREEMENT Dated as of January 31, 1995 among HPSC BRAVO FUNDING CORP. TRIPLE-A ONE FUNDING CORPORATION and CAPITAL MARKETS ASSURANCE CORPORATION as Administrative Agent and Collateral Agent TABLE OF CONTENTS ARTICLE I DEFINITIONS SECTION 1.01 Certain Definitions. . . . . . . . . . . . . . . 2 SECTION 1.02. Accounting Terms . . . . . . . . . . . . . . . . 2 SECTION 1.03. Other Terms. . . . . . . . . . . . . . . . . . . 2 SECTION 1.04. Computation of Time Periods. . . . . . . . . . . 2 ARTICLE II THE TRIPLE-A LOANS SECTION 2.01. The Triple-A Loans . . . . . . . . . . . . . . . 2 SECTION 2.02. Note.. . . . . . . . . . . . . . . . . . . . . . 3 SECTION 2.03. Making the Triple-A Loans. . . . . . . . . . . . 3 SECTION 2.04. Reduction of Facility Limit. . . . . . . . . . . 5 SECTION 2.05. Repayments; Manner of Payment and Prepayment . . . . . . . . . . . . . . . . . . . 5 SECTION 2.06. Interest on Triple-A Loans; Default Interest . . . . . . . . . . . . . . . . . . . . 5 SECTION 2.07. Voluntary and Mandatory Prepayment of Triple-A Loans . . . . . . . . . . . . . . . . . 6 SECTION 2.08. Compensation . . . . . . . . . . . . . . . . . . 7 SECTION 2.09. Increased Costs, Capital Adequacy. . . . . . . . 7 SECTION 2.10. Taxes. . . . . . . . . . . . . . . . . . . . . . 8 SECTION 2.11. Fees . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE III CONDITIONS OF LENDING SECTION 3.01. Conditions Precedent to Initial Borrowing. . . . 10 SECTION 3.02. Conditions Precedent to Each Borrowing . . . . . 11 ARTICLE IV i REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower . . . . . . . . . . . . . . . . . . . . 12 ii ARTICLE V GENERAL COVENANTS SECTION 5.01. Affirmative Covenants of the Borrower. . . . . . 18 SECTION 5.02. Reporting Requirements of the Borrower . . . . . 23 SECTION 5.03. Negative Covenants of the Borrower . . . . . . . 24 ARTICLE VI SECURITY INTEREST SECTION 6.01. Grant of Security Interests. . . . . . . . . . . 28 SECTION 6.02. Continuing Liability of the Borrower . . . . . . 29 SECTION 6.03. Filings; Further Assurances. . . . . . . . . . . 30 SECTION 6.04. Place of Business; Change of Name. . . . . . . . 30 SECTION 6.05. Lock-Box Accounts; Collection Account. . . . . . 31 SECTION 6.06. Collection Account.. . . . . . . . . . . . . . . 31 ARTICLE VII WIND-DOWN EVENTS; REMEDIES SECTION 7.01. Wind-Down Events . . . . . . . . . . . . . . . . 34 SECTION 7.02. Remedies . . . . . . . . . . . . . . . . . . . . 36 ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc. . . . . . . . . . . . . . . . . 37 SECTION 8.02. Notices, Etc.. . . . . . . . . . . . . . . . . . 37 SECTION 8.03. No Waiver; Remedies. . . . . . . . . . . . . . . 37 SECTION 8.04. Binding Effect; Assignability. . . . . . . . . . 37 SECTION 8.05. GOVERNING LAW; WAIVER OF JURY TRIAL. . . . . . . 38 SECTION 8.06. Costs, Expenses and Taxes. . . . . . . . . . . . 39 SECTION 8.07. Execution in Counterparts; Severability. . . . . 39 SECTION 8.08. No Bankruptcy Petition Against Triple-A. . . . . 39 iii LIST OF EXHIBITS EXHIBIT A Form of Triple-A Note EXHIBIT B Form of Notice of Borrowing EXHIBIT C Form of Opinion of Counsel EXHIBIT D Form of Officer's Certificate EXHIBIT E List of Offices of Seller where Records Are Kept EXHIBIT F Form of Interest Rate Hedge Assignment iv CREDIT AGREEMENT CREDIT AGREEMENT, dated as of January 31, 1995 (the "CREDIT AGREEMENT"), among HPSC BRAVO FUNDING CORP., a Delaware corporation ("BORROWER"), TRIPLE-A ONE FUNDING CORPORATION, a Delaware corporation ("TRIPLE- A") and CAPITAL MARKETS ASSURANCE CORPORATION, a New York stock insurance company ("CAPMAC"), as Collateral Agent and as Administrative Agent (in such capacities, the "COLLATERAL AGENT" or the "ADMINISTRATIVE AGENT"). W I T N E S S E T H: WHEREAS, pursuant to the Purchase Agreement, the Borrower has agreed to purchase and otherwise acquire certain Transferred Assets from time to time from HPSC, Inc., a Delaware corporation (the "SELLER") and the Seller has agreed to act as Servicer of the Transferred Assets; and WHEREAS, the Borrower has requested that Triple-A make the Triple-A Loans to the Borrower, the proceeds of which shall be used to purchase Transferred Assets from the Seller in accordance with the terms of the Purchase Agreement; and WHEREAS, Triple-A will fund such loans by (i) the issuance of Commercial Paper or (ii) if Triple-A is unable for any reason to issue Commercial Paper, by borrowing under the Liquidity Agreement, dated as of the date hereof, among Triple-A, the Banks and the Bank Agent; and WHEREAS, as a condition precedent to the foregoing Triple-A Loans, the Borrower has agreed to grant a security interest in favor of the Collateral Agent, for the benefit of Triple-A, in all of its right, title and interest in, to and under the Transferred Assets, the Purchase Agreement and the other Collateral as described herein; and WHEREAS, Capital Markets Assurance Corporation (the "SURETY"), the Borrower and Triple-A will enter into the Insurance and Indemnity Agreement pursuant to which the Surety will issue the Surety Bonds to guarantee repayment of the Triple-A Loans; and WHEREAS, subject to the terms and conditions set forth herein, Triple- A is willing to make the Triple-A Loans to the Borrower. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01 CERTAIN DEFINITIONS. As used in this Credit Agreement, the Triple-A Note or any certificate or other document made or delivered pursuant hereto or thereto, the capitalized terms used herein and therein shall, unless otherwise defined herein or therein, have the meanings assigned to them in the Definitions List attached hereto as Appendix A, the terms of which are incorporated herein by reference (the "DEFINITIONS LIST"). SECTION 1.02. ACCOUNTING TERMS. As used herein, in the Triple-A Note and in any certificate or other document made or delivered pursuant hereto and thereto, accounting terms not defined in the Definitions List and accounting terms partly defined in the Definitions List to the extent not defined, shall have the respective meanings given to them under GAAP. SECTION 1.03. OTHER TERMS. (a) All other undefined terms contained in this Credit Agreement shall, unless the context indicates otherwise, have the meanings provided for by the UCC to the extent the same are used or defined therein. (b) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Credit Agreement shall refer to this Credit Agreement as a whole and not to any particular provision of this Credit Agreement, and Section, subsection, Schedule and Exhibit references are to this Credit Agreement unless otherwise specified. (c) Capitalized terms used herein and in the Triple-A Note shall be equally applicable to both the singular and plural forms of such terms. -2- SECTION 1.04. COMPUTATION OF TIME PERIODS. In this Credit Agreement, in the computation of periods of time from a specified date to a later specified date, the word "from" shall mean "from and including" and the words "to" and "until" shall each mean "to but excluding." ARTICLE II THE TRIPLE-A LOANS SECTION 2.01. THE TRIPLE-A LOANS. (a) Triple-A agrees that it may, in its sole discretion and otherwise subject to the terms and conditions hereinafter set forth, make loans ("TRIPLE-A LOANS"), as described below, on a revolving basis to the Borrower from time to time on the Closing Date and on any Settlement Date subsequent thereto during the period from the Closing Date to the Termination Date in an aggregate principal amount not to exceed at any time outstanding the least of (i) the Facility Limit, and (ii) the sum of (a) the net proceeds from the sale of Commercial Paper on any Borrowing Date PLUS (b) the proceeds of Advances on such Borrowing Date. Without limiting Triple-A's discretion not to make or advance any Triple-A Loan, under no circumstances shall Triple-A make any Triple-A Loan if, after giving effect thereto, the aggregate outstanding principal amount of the Triple-A Loans would exceed (a) the Facility Limit or (b) the Borrowing Base, whichever is less. The Borrowing Base in effect on any date shall be determined by reference to the most recent Settlement Report delivered by the Borrower to Triple-A in accordance with SECTION 5.02(f) hereof (i) as adjusted on the most recent Settlement Date to reflect additional Eligible Receivables sold on such Settlement Date since the delivery of such Settlement Report and (ii) as adjusted on any other date of determination to eliminate from the Discounted Eligible Receivables Balance any Receivables which were Eligible Receivables as of the dates reflected in the Settlement Report but which no longer satisfy the criteria for Eligible Receivables. The Triple-A Loans shall mature on the date on which the principal thereof has become due and payable pursuant to SECTION 7.02 hereof. SECTION 2.02. NOTE. All of the Triple-A Loans shall be evidenced by a promissory note in the form attached hereto as EXHIBIT A (the "TRIPLE-A NOTE") appropriately completed, duly -3- executed and delivered on behalf of the Borrower and payable to the order of Triple-A. The Borrowing Date and principal amount of each Triple-A Loan, the interest rate and Interest Period applicable thereto and each repayment or prepayment of principal thereof shall be recorded in Triple-A's internal records and, prior to any transfer of the Triple-A Note, on the grid schedule annexed thereto, and the Borrower hereby authorizes Triple-A to make such recordation; PROVIDED, HOWEVER, that the failure of Triple-A to set forth any or all of such information on such schedule or any error in such schedule shall not in any manner affect the obligation of the Borrower to repay the Triple-A Loans in accordance with the terms hereof and of the Triple-A Note. Such updated grid schedules, or other proper records maintained by Triple-A in lieu thereof, shall be presumptively correct evidence of the Triple-A Loans made by Triple-A to the Borrower. The aggregate outstanding principal amount of the Triple-A Loans at any time shall be the aggregate principal amount owing on the Triple-A Note at such time. SECTION 2.03. MAKING THE TRIPLE-A LOANS. (a) NOTICE OF BORROWING. Whenever the Borrower wishes to make a Borrowing hereunder of Triple-A Loans, it shall deliver to Triple-A a notice ("NOTICE OF BORROWING") in substantially the form of EXHIBIT B hereto no later than 10:00 A.M. (New York City time) on the Business Day immediately prior to the proposed Borrowing Date; PROVIDED that, if the Borrower requests that the Borrowing be funded with the proceeds of Eurodollar Rate Advances, such notice shall be given not later than 10:00 A.M. (New York City time) at least three (3) Business Days prior to the proposed Borrowing Date. Each Notice of Borrowing shall be by telephone, telex, telecopy, cable or other facsimile transmission (in the case of any such notice by telephone, confirmed immediately in writing) and shall specify therein the proposed (1) Borrowing Date of such Borrowing, which shall be a Settlement Date, (2) the aggregate amount of such Borrowing requested (which amount shall be equal to $100,000 or an integral multiple thereof and (3) the proposed Interest Period relating thereto and the proposed principal amount of each Triple-A Loan to be allocated to each Interest Period. Each Notice of Borrowing shall be irrevocable and binding on the Borrower. (b) SELECTION OF INTEREST PERIODS. Promptly upon receiving each Notice of Borrowing, the Administrative Agent -4- shall, following its review of the Borrower's proposal, select the Interest Periods for the Triple-A Loan thereby requested (it being understood that if the Borrower does not propose a specific Interest Period, the Administrative Agent shall select such Interest Period in its discretion). At least one Business Day prior to the last day of each Interest Period for any Triple-A Loan, the Borrower shall request new Interest Periods for all Triple-A Loans whose Interest Periods are then ending and which are not to be prepaid as provided in SECTION 2.07 below; PROVIDED that, in the case of any Interest Period for a Triple-A Loan for which interest is requested to be determined by reference to the Eurodollar Rate, such request shall be given not later than 10:00 A.M. (New York City time) at least three (3) Business Days prior to the last day of the relevant Interest Period. The Administrative Agent shall, on the date of any Borrowing hereunder and, so long as such Triple-A Loan is outstanding, on the first day of each successive Interest Period for such Triple-A Loan, notify the Collateral Agent and the Borrower of the duration of the relevant Interest Period and the interest rate which will be applicable to the Triple-A Loans during such Interest Period as described in SECTION 2.06 below. Any Interest Period that commences before the Termination Date and would otherwise end on a date occurring after the Termination Date shall end on the Termination Date and the duration of any Interest Period that commences on or after the Termination Date shall be of such duration as shall be selected by the Administrative Agent. In addition, if a CP Disruption shall have occurred and be continuing, Triple-A, or the Administrative Agent on its behalf, may, upon notice to the Seller, terminate any Interest Period then in effect if Triple-A has funded the Triple-A Loan allocated to such Interest Period by issuing Commercial Paper. All outstanding Triple-A Loans shall be assigned an Interest Period at all times which Interest Periods will be limited as set forth in the definition thereof. (c) FUNDING. Triple-A shall, before 3:00 P.M. (New York City time) on the proposed Borrowing Date of each Borrowing, subject to the applicable conditions set forth in ARTICLE IV, make available to the Borrower a wire transfer of such funds to the Borrower in accordance with the Borrower's written wire transfer instructions. -5- SECTION 2.04. REDUCTION OF FACILITY LIMIT. The Borrower shall have the right, at any time upon at least three (3) Business Days' notice to Triple- A, to terminate in whole or reduce in part the unused portion of the Facility Limit in a minimum amount of $10,000,000 and increments of $5,000,000 in excess thereof; PROVIDED, that in no event shall the Facility limit be reduced to less than the Triple-A Loans then outstanding. Any such termination shall be without premium or penalty of any kind, except for any indemnification which may be owed in connection with such termination pursuant to SECTION 2.08. SECTION 2.05. REPAYMENTS; MANNER OF PAYMENT AND PREPAYMENT. The Triple-A Loans shall be payable in full on the Scheduled Termination Date. Each payment or prepayment of principal of and interest on the Triple-A Note and each payment of fees, indemnities and all other amounts payable by the Borrower hereunder shall be made by the Borrower in immediately available funds to Triple-A not later than 1:00 P.M. (New York City time) on the date on which payable. Payments received by Triple-A after such time shall be deemed to have been received on the next Business Day. All payments by the Borrower under this Credit Agreement and the Triple-A Note shall be made without setoff, deduction or counterclaim and the Borrower agrees to pay on demand any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under the Triple-A Note or from the execution, delivery or registration of, or otherwise with respect to, this Credit Agreement or the Triple-A Note. Whenever any payment to be made hereunder or under the Triple-A Note shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next applicable Business Day and interest shall be payable at the applicable rate during such extension; PROVIDED, that if such extension would cause payment of interest on or principal of any Eurodollar Loan to be made in the next following month, such payment shall be made on the next preceding Business Day. SECTION 2.06. INTEREST ON TRIPLE-A LOANS; DEFAULT INTEREST. -6- (a) The Borrower shall pay to Triple-A, as interest on the Triple-A Loans outstanding, the following amounts on the following dates: (i) on any Interest Payment Date for Triple-A Loans being funded or maintained through the issuance of Commercial Paper, interest on such Triple-A Loans in an amount equal to the imputed interest on such maturing Commercial Paper plus the CP Dealer Fee on any such maturing Commercial Paper; (ii) on any Interest Payment Date for Triple-A Loans funded or maintained through the making of Base Rate Advances under the Liquidity Agreement, accrued and unpaid interest on such Triple-A Loans at a per annum rate equal to the Base Rate, computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as applicable; and (iii) on any Interest Payment Date for Triple-A Loans funded or maintained through the making of Eurodollar Rate Advances under the Liquidity Agreement, accrued and unpaid interest on such Triple-A Loans at a per annum rate equal to the Eurodollar Rate plus one-half of one percent (.50%), computed on the basis of the actual number of days elapsed over a year of 360 days. (b) Following the occurrence and during the continuance of a Wind- Down Event, and from and after the due date of any Triple-A Loan until such Triple-A Loan is paid in full, the Borrower shall pay interest to Triple-A, payable on demand, on the outstanding principal amount of each Triple-A Loan for each day until paid in full at a per annum rate equal to two percent (2%) PLUS the otherwise applicable rate for such Triple-A Loan for such day. SECTION 2.07. VOLUNTARY AND MANDATORY PREPAYMENT OF TRIPLE-A LOANS. (a) The Borrower shall have the right at any time and from time to time to prepay any Triple-A Loans, in whole or in part, without premium or penalty, upon at least three Business Days' written notice to the Administrative Agent, which notice shall specify the proposed prepayment date and the amount of such prepayment, PROVIDED that (i) any partial prepayment shall be equal to an integral multiple of $1,000,000; and (ii) -7- the Borrower shall, in connection with any such prepayment, indemnify Triple-A and hold Triple-A harmless from any funding loss pursuant to the terms of SECTION 2.08. If any such notice is given, the amount specified in such notice shall be presumed correct absent manifest error and shall be due and payable on the date specified therein. Each notice of prepayment shall be irrevocable and binding on the Borrower. (b) On each Settlement Date prior to the Termination Date, after giving effect to any Purchases to be made on such date, the Borrower shall be obligated to prepay the Triple-A Loans by an amount equal to the sum of (i) the amount, if any, by which the outstanding principal amount of the Triple-A Loans exceeds the Borrowing Base then in effect PLUS (ii) if any Purchase on or before such Settlement Date consists of a capital contribution to which Triple-A shall not have consented, an amount equal to the lesser of (A) the funds remaining on deposit in the Collection Account after giving effect to the prepayment under clause (i) above and (B) the amount, if any, by which the outstanding principal amount of the Triple-A Loans would have exceeded the Borrowing Base had such non-consensual Purchases not occurred. (c) On each Business Day from and after the Termination Date, the Borrower shall be obligated to repay the Triple-A Loans by an amount equal to the amount, if any, by which (i) the funds on deposit in the Collection Account on such day, exceeds (ii) the Carrying Costs then accrued and unpaid. (d) In the event of any prepayment of a Triple-A Loan on any date other than the last day of the Interest Period applicable thereto, the Borrower shall indemnify Triple-A and hold Triple-A harmless from any funding loss (in an amount equal to the amount of interest Triple-A would have received but for such prepayment through the last day of the relevant Interest Period less the interest earned on investing such funds) and expense which Triple-A may sustain or incur as consequence of such prepayment in accordance with SECTION 2.08. SECTION 2.08. COMPENSATION. The Borrower shall compensate Triple-A, upon its written request, for all losses, expenses and liabilities, including, without limitation, any indemnification payments owed by Triple-A pursuant to the Liquidity Agreement, on account of any liquidation or -8- reemployment of deposits or other funds acquired by such party to make, fund or maintain a Triple-A Loan hereunder, (i) if for any reason the funding of any Triple-A Loan does not occur on a date specified therefor in the Notice of Borrowing; (ii) if for any reason any payment, prepayment or conversion of principal of any Triple-A Loan occurs on a date which is not the last day of the Interest Period for such Triple-A Loan or (iii) as a consequence of any required prepayment of any Triple-A Loan or required conversion of any Eurodollar Rate Advance prior to the last day of the Interest Period for the relevant Triple-A Loan. Any request for compensation under this SECTION 2.08 shall be accompanied by a copy of a statement from Triple-A setting forth in reasonable detail the basis for requesting compensation and the determination of the amount thereof in such statement shall be conclusive and binding for all purposes, absent manifest error. -9- SECTION 2.09. INCREASED COSTS, CAPITAL ADEQUACY. (a) If, after the date hereof due to either (i) the introduction of or any change in or to the interpretation of any law or regulation by the governmental authority that promulgated or administers compliance with such law or regulation (other than laws or regulations with respect to income taxes or any change by way of imposition or increase of reserve requirements included in the Eurodollar Reserve Percentage) or (ii) the compliance with any guideline or request from any central bank or other governmental authority or similar agency (whether or not having the force of law), and taking into account the obligations of the Liquidity Banks under the Liquidity Agreement and otherwise in connection with Triple-A's asset-supported financing business, any reserve or deposit or similar requirement shall be imposed, modified or deemed applicable or, any basis of taxation shall be changed or any other condition shall be imposed, and there shall be any increase in the cost to Triple-A (either directly or indirectly through any increase in the costs to the Liquidity Banks) of making, funding, or maintaining Triple-A Loans or in the cost to Triple-A of agreeing to make, fund, or maintain Triple-A Loans (including the reduction of any sum received or Receivable hereunder), then the Borrower shall from time to time, upon demand by Triple-A by the submission of the certificate described below, pay to Triple-A additional amounts sufficient to compensate Triple-A for such increased cost. A certificate setting forth in reasonable detail the amount of such increased cost submitted to the Borrower by Triple-A shall be conclusive and binding for all purposes, absent manifest error. (b) If Triple-A or any Liquidity Bank determines that compliance with any law or regulation or any guideline or request or any written interpretation from any central bank or other governmental authority or similar agency (whether or not having the force of law) which is introduced, implemented or received by Triple-A or such Liquidity Bank after the date hereof, affects or would affect capital adequacy or the amount of capital required or expected to be maintained by Triple-A or such Liquidity Bank or any corporation controlling Triple-A or such Liquidity Bank and that the amount of such capital is increased by or based upon the Triple-A Loans or the existence of this Credit Agreement or upon the Advances or such Liquidity Bank's commitment to lend under the Liquidity Agreement and other commitments of that type, or has or would have the effect of reducing the rate of return on -10- capital, then, upon demand by Triple-A by the submission of the certificate described below, the Borrower shall pay to Triple-A, from time to time as specified by Triple-A, additional amounts sufficient to compensate Triple-A or such corporation in the light of such circumstances, to the extent that Triple-A reasonably determines such increase in capital to be allocable to the Triple-A Loans or the existence of this Credit Agreement or to the extent that Triple-A owes compensation to a Liquidity Bank in respect of or on account of such events. A certificate setting forth in reasonable detail such amounts submitted to the Borrower by Triple-A shall be conclusive and binding for all purposes, absent manifest error. SECTION 2.10. TAXES. (a) All payments made by the Borrower under this Credit Agreement and the Triple-A Note shall be made free and clear of, and without deduction or withholding for or on account of, any present or future taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any governmental authority having taxing authority, excluding net income taxes and franchise taxes (imposed in lieu of income taxes) imposed on Triple-A, as a result of any present or former connection between the jurisdiction of the government or taxing authority imposing such tax or any political subdivision or taxing authority thereof or therein and Triple-A (excluding a connection arising solely from Triple-A having executed, delivered or performed its obligations or received a payment under, or enforced, this Credit Agreement or the Triple-A Note) (all such non-excluded taxes, levies, imposts, duties, charges, fees, deductions and withholdings being hereinafter called "TAXES"). If any Taxes are required to be withheld from any amounts payable to or under the Triple-A Note, (i) the sum payable shall be increased as may be necessary so that, after making all required deductions (including deductions applicable to additional sums payable under this SECTION 2.10), Triple-A receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges, or similar levies that arise from any -11- payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Credit Agreement (hereinafter "OTHER TAXES"). (c) The Borrower will indemnify Triple-A for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this SECTION 2.10) paid by Triple-A and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. Whenever any Taxes are payable by the Borrower, as promptly as possible thereafter the Borrower shall send to Triple-A, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to Triple-A the required receipts or other required documentary evidence, the Borrower shall indemnify Triple-A for any incremental Taxes, interest or penalties that Triple-A is legally required to pay as a result of any such failure. The agreements in this subsection shall survive the termination of this Credit Agreement and the payment of the Triple-A Note. SECTION 2.11. FEES. In further consideration of the Triple-A Loans to be made hereunder, the Borrower agrees to pay to the Administrative Agent and Triple-A all fees specified in the Fee Letter of even date herewith, which fees will be due and payable at the times and in the manner set forth in such Fee Letter. ARTICLE III CONDITIONS OF LENDING SECTION 3.01. CONDITIONS PRECEDENT TO INITIAL BORROWING. The agreement of Triple-A to make a Triple-A Loan on the occasion of the initial Borrowing hereunder is subject to satisfaction of the following conditions precedent: (a) Triple-A shall have received, on or before the Closing Date, all of the following, each fully executed and in form and substance satisfactory to Triple- A: (i) This Credit Agreement and the Triple-A Note; -12- (ii) The Custodial Agreement and the Lock-Box Agreements; (iii) A copy of the resolutions of the Board of Directors of the Borrower approving the Purchase Agreement, this Credit Agreement, the Triple-A Note, and all other documents and instruments to be delivered hereunder or thereunder by the Borrower, certified by its Secretary or Assistant Secretary; (iv) A certificate of the Secretary or an Assistant Secretary of the Borrower certifying (A) the names and true signatures of the officers of the Borrower authorized to sign the Purchase Agreement, this Credit Agreement, the Triple-A Note and the other documents and instruments to be delivered by the Borrower pursuant hereto or thereto (on which certificate Triple-A may conclusively rely until such time as Triple-A shall receive from the Borrower a revised certificate meeting the requirements of this subsection (iv)) and (B) a true and complete copy of the By-laws of the Borrower; (v) A certificate executed by an officer of the Borrower certifying that as of the Closing Date, all of the representations and warranties contained in ARTICLE IV hereof are true and accurate in all material respects with the same force and effect as though such representations and warranties had been made as of such time; (vi) The Certificate of Incorporation of the Borrower, certified by the Secretary of State of Delaware; (vii) Good Standing Certificates for the Borrower issued by the Secretaries of the States of Delaware and Massachusetts; (viii) Certificates executed by an officer of the Borrower and the Seller relating to solvency; -13- (ix) An opinion of Hill & Barlow, counsel to the Borrower, in substantially the form of EXHIBIT C and as to such other matters as Triple- A may reasonably request; (x) An opinion of Hill & Barlow, counsel to the Borrower, in form and substance reasonably satisfactory to the Collateral Agent, that, in the event of any Insolvency Proceeding filed by or against the Seller, the Transferred Assets would not be treated as property of the Seller's estate and that the Borrower's assets and liabilities would not be substantively consolidated with those of the Seller; (xi) Original copies of all documents described in SECTION 3.01 of the Purchase Agreement and not otherwise described above; (xii) An Officer's Certificate in the form of EXHIBIT D, executed by the President or the Treasurer of the Borrower; (xiii) The Fee Letter; (xiv) The Insurance Agreement; (xv) The Surety Bonds; and (xvi) The Liquidity Agreement. (b) All fees and expenses due and owing as of the Closing Date under the Fee Letter shall have been paid; (c) Either (i) the Administrative Agent shall have received confirmation from Standard & Poor's Corporation and Moody's Investors Services, Inc. that the terms and conditions of the Triple-A Loans satisfy the criteria of such rating agencies for "investment-grade" transactions without giving effect to the Surety Bonds or (ii) the Seller and the Borrower shall have agreed by separate written commitments to make any changes to the Facility Documents which such agencies may require in order to make the transactions evidenced hereby satisfy such criteria PROVIDED, that the Seller and the Borrower shall have no obligation to make any changes to the Facility Documents which would require the Seller to provide recourse for uncollectible Receivables; and -14- (d) Triple-A shall have received such other approvals or documents as it may reasonably request. SECTION 3.02. CONDITIONS PRECEDENT TO EACH BORROWING. The agreement of Triple-A to make a Triple-A Loan on the occasion of each Borrowing (including the initial Borrowing) shall be subject (i) to Triple-A's receipt of (A) a Settlement Statement for the monthly period ending on the Cut-Off Date in the case of the initial Borrowing or otherwise for most recent calendar month then ended, (B) a notice from the Custodian in substantially the form of Exhibit A to the Custodial Agreement confirming that the Custodian has received the Contract Files required to be delivered to it pursuant to SECTION 6.03(b) hereof and (C) such other approvals or documents as Triple-A may reasonably request and (ii) to the condition precedent that on the Borrowing Date of such Borrowing, before and after giving effect to such Borrowing and to the application of the proceeds therefrom, the following statements shall be true (and each of the giving of the applicable Notice of Borrowing and the acceptance by the Borrower of the proceeds of such Borrowing shall constitute a representation and warranty by the Borrower that on the Borrowing Date of such Borrowing, before and after giving effect thereto and to the application of the proceeds therefrom, such statements are true): (i) the representations and warranties contained in Article IV hereof and all representations and warranties of the Seller in the Purchase Agreement are true and accurate as of the Borrowing Date in all material respects with the same force and effect as though such representations and warranties had been made as of such time; (ii) no event has occurred and is continuing, or would result from such Borrowing, which constitutes an Event of Termination or an Unmatured Event of Termination or a Wind-Down Event or Unmatured Wind-Down Event; (iii) the outstanding principal amount of the Triple-A Loans after giving effect to such Borrowing shall be equal to or less than the Borrowing Base; and -15- (iv) the proceeds of such Triple-A Loan shall be used to fund a Purchase of Transferred Assets under the Purchase Agreement to occur simultaneously with such Borrowing and all conditions to such Purchase under the Purchase Agreement on such date have been satisfied or waived. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The Borrower represents and warrants to Triple-A that: (a) DUE INCORPORATION AND GOOD STANDING. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. The Borrower is duly qualified to do business as a foreign corporation and is in good standing in every jurisdiction in which the nature of its business requires it to be so qualified or where the ownership of its properties or the nature of its activities makes such qualification necessary, except where the failure to be so qualified would not materially adversely affect (i) the collectibility of the Triple-A Loans, (ii) the collectibility of any Receivable, (iii) the business, properties, operations, prospects, profits or condition (financial or otherwise) condition of the Borrower or (iv) the ability of the Borrower to perform its obligations hereunder and under the other Facility Documents to which it is a party. (b) DUE AUTHORIZATION AND NO CONFLICT. The execution, delivery and performance by the Borrower of this Credit Agreement, the Purchase Agreement, the Triple-A Note, and all other Facility Documents and the transactions contemplated hereby and thereby, including the acquisition of the Transferred Assets under the Purchase Agreement and the loans and security interests contemplated hereunder, are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, do not contravene (i) the Borrower's charter or by-laws, (ii) any law, rule or regulation applicable to the Borrower, (iii) any contractual restriction contained in any indenture, loan or credit agreement, lease, mortgage, security agreement, bond, note, or other agreement or instrument binding on or affecting the Borrower or its property or (iv) any order, writ, judgment, award, injunction or decree binding on or affecting the -16- Borrower or its property, and do not result in or require the creation of any Adverse Claim upon or with respect to any of its properties; and no transaction contemplated hereby requires compliance with any bulk sales act or similar law. This Credit Agreement, the Purchase Agreement, the Triple-A Note and the other Facility Documents to which the Borrower is a party have been duly executed and delivered on behalf of the Borrower. (c) GOVERNMENTAL AND OTHER CONSENTS. Except for the filing of financing statements pursuant to the UCC required to perfect the security interests granted hereunder or under the other Facility Documents and except for consents under certain contractual agreements which have been obtained, no authorization, consent, approval or other action by, and no registration, qualification, designation, declaration, notice to or filing with, any governmental authority or other Person is or will be necessary in connection with the execution and delivery of this Credit Agreement, the Triple-A Note or any other Facility Document to which the Borrower is a party or any of the other documents contemplated hereby or thereby, consummation of the transactions herein or therein contemplated, or performance of or compliance with the terms and conditions hereof or thereof, to ensure the legality, validity or enforceability hereof or thereof. (d) ENFORCEABILITY OF FACILITY DOCUMENTS. This Credit Agreement and the Triple-A Note and each of the other Facility Documents to which the Borrower is a party have been duly and validly executed and delivered by the Borrower and constitute the legal, valid and binding obligation of the Borrower enforceable in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws relating to or affecting creditors' rights generally and by equitable principles. (e) NO LITIGATION. There are no actions, suits or proceedings at law or in equity or by or before any governmental authority now pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any property or rights of the Borrower which purport to challenge the legality, validity or enforceability of this Credit Agreement or any other Facility Document or which may materially impair the ability of the Borrower to carry on business substantially as now being conducted or which may materially adversely affect the condition -17- (financial or otherwise), operations or properties of the Borrower. (f) USE OF PROCEEDS. No proceeds of any Triple-A Loan will be used by the Borrower other than to fund a Purchase of Transferred Assets from the Seller except that the Borrower may net from the Purchase Price paid to the Seller reasonable and necessary amounts for the funding of its operating expenses. (g) PERFECTION OF SECURITY INTEREST IN COLLATERAL. Payment of the Obligations hereunder and the prompt observance and performance by the Borrower of all of the terms and provisions of this Credit Agreement are secured by the Collateral as more fully set forth in ARTICLE VII hereof. Upon the making of the initial Triple-A Loans, the Collateral Agent will have a legal, valid, perfected and enforceable Lien upon and first priority security interest in the Collateral, as security for the repayment of the Obligations, which Lien upon and security interest in the Collateral is free and clear of all Adverse Claims except that the Collateral Agent will not have a perfected security interest in any Collateral constituting Equipment which is owned by the Borrower and located in a state other than The Commonwealth of Massachusetts. (h) ACCURACY OF INFORMATION. All certificates, reports, financial statements and similar writings furnished by or on behalf of the Borrower to Triple-A, the Collateral Agent, or the Administrative Agent at any time pursuant to any requirement of, or in response to any written request of any such party under, this Credit Agreement or any other Facility Document or any transaction contemplated hereby or thereby, have been, and all such certificates, reports, financial statements and similar writings hereafter furnished by the Borrower to such parties will be, true and accurate in every respect material to the transactions contemplated hereby on the date as of which any such certificate, report, financial statement or similar writing was or will be delivered, and shall not omit to state any material facts or any facts necessary to make the statements contained therein not materially misleading. (i) GOVERNMENTAL REGULATIONS. The Borrower is not an "investment company" or a company controlled by an "investment company" registered or required to be registered under or the Investment Company Act of 1940, as amended, or otherwise subject -18- to any other federal or state statute or regulation limiting its ability to incur indebtedness. (j) MARGIN REGULATIONS. The Borrower is not engaged, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" (as each of the quoted terms is defined or used in Regulation G, T, U or X). No part of the proceeds of any of the Triple-A Loans has been used for so purchasing or carrying margin stock or for any purpose which violates, or which would be inconsistent with, the provisions of Regulation G, T, U or X. (k) LOCATION OF CHIEF EXECUTIVE OFFICE AND RECORDS. The chief place of business and chief executive office of the Borrower are located at the address referred to in EXHIBIT E hereof and the locations of the offices where the Borrower keeps all the Records are listed on EXHIBIT E (or at such other locations, notified to the Collateral Agent in accordance with SECTION 5.01(f), in jurisdictions where all action required by SECTION 6.04 has been taken and completed). (l) LOCK-BOX ACCOUNTS. Each Obligor under a Contract has, within one month of the date of Purchase of such Contract, been instructed to remit payment on the Receivables to a Post Office Box for remittance to a Lock-Box Account or directly to a Lock-Box Account substantially in the form of EXHIBIT G to the Purchase Agreement. From and after the Closing Date, the Seller will have no right, title and/or interest to any of the Lock-Box Accounts and will maintain no lock-box accounts in its own name for the collection of such Receivables. The Borrower has caused the Seller to deliver to the Collateral Agent a duplicate key to each Post Office Box and has filed a standing delivery order with the United States Postal Service authorizing the Collateral Agent to receive mail delivered to each such Post Office Box. The account numbers of all Lock-Box Accounts, together with the names and addresses of all the Lock-Box Banks maintaining such Lock-Box Accounts and the related Post Office Boxes, are specified in EXHIBIT H to the Purchase Agreement. The Borrower has no other Lock-Box Accounts for the collection of the Transferred Assets except for the Lock-Box Accounts. (m) NO TRADE NAMES. The Borrower has no trade names, fictitious names, assumed names or "doing business as" names. -19- (n) SEPARATE IDENTITY. The Borrower is operated as an entity separate from the Seller and each other Subsidiary of the Seller and (i) has its own board of directors, (ii) has at least one director who is reasonably acceptable to Triple-A and who is not a direct, indirect or beneficial stockholder, officer, director, employee, affiliate, associate, customer or supplier of the Seller nor a relative of any thereof, nor a trustee in bankruptcy for any Affiliate of the Seller, (iii) maintains its assets in a manner which facilitates their identification and segregation from those of its Affiliates, and has a separate telephone number from that of the Seller or any Subsidiary of the Seller, (iv) has all office furniture, fixtures and equipment necessary to operate its business and such furniture, fixtures and equipment are either owned by the Borrower or leased pursuant to written leases, (v) conducts all intercompany transactions with the Seller and each other Subsidiary of the Seller on terms which the Borrower reasonably believes to be on an arm's-length basis, (vi) has not guaranteed any obligation of the Seller or any other Subsidiary of the Seller, nor has it had any of its obligations guaranteed by any such entities and has not held itself out as responsible for debts of any such entity or for the decisions or actions with respect to the business and affairs of any such entity, (vii) has not, except as otherwise expressly acknowledged under the Facility Documents, permitted the commingling or pooling of its funds or other assets with the assets of the Seller or any other Affiliate, (viii) has separate deposit and other bank accounts to which neither the Seller nor any other Affiliate has any access and does not at any time pool any of its funds with those of the Seller or any such Affiliate, (ix) maintains financial records which are separate from those of the Seller and each other Subsidiary of the Seller, (x) compensates all employees, consultants and agents, or reimburses the Seller, from the Borrower's own funds, for services provided to the Borrower by such employees, consultants and agents, (xi) has agreed with the Seller to allocate among themselves shared corporate operating services and expenses which are not reflected in the Servicing Fee (including, without limitation, the services of shared employees, consultants and agents and reasonable legal and auditing expenses) on the basis of actual use or the value of services rendered, and otherwise on a basis reasonably related to actual use or the value of services rendered, (xii) pays directly for its own account for accounting and payroll services, rent, lease and other expenses and does not -20- have such operating expenses paid by the Seller or any other Subsidiary of the Seller, (xiii) conducts all of its business (whether in writing or orally) solely in its own name, (xiv) is not, directly or indirectly, named as a direct or contingent beneficiary or loss payee on any insurance policy covering the property of the Seller or any other Subsidiary of the Seller and has entered into no agreement to be named as such a beneficiary or payee, (xv) acknowledges that Triple-A, the Administrative Agent, the Surety and the Liquidity Banks are entering into the transactions contemplated by this Credit Agreement and the other Facility Documents in reliance on the Borrower's identity as a separate legal entity from the Seller and each other Subsidiary of the Seller, and (xvi) practices and adheres to corporate formalities such as complying with its By- laws and corporate resolutions and the holding of regularly scheduled board of directors meetings. (o) SUBSIDIARIES. The Borrower has no Subsidiaries and does not own or hold, directly or indirectly, any capital stock or equity security of, or any equity interest in, any Person. (p) FACILITY DOCUMENTS. The Purchase Agreement is the only agreement pursuant to which the Borrower purchases Receivables or other Transferred Assets. The Borrower has furnished to Triple-A true, correct and complete copies of each Facility Document to which the Borrower is a party, each of which is in full force and effect. Neither the Borrower nor any Affiliate thereof is in default of any of its obligations thereunder in any material respect. Upon the Purchase of each Receivable pursuant to the Purchase Agreement, the Borrower shall be the lawful owner of, and have good title to, such Receivable and all Transferred Assets relating thereto, free and clear of any Adverse Claims. All such Transferred Assets are purchased without recourse to the Seller except as described in the Purchase Agreement. The Purchases of the Transferred Assets by the Borrower constitute valid and true sales and transfers for consideration (and not merely a pledge of such Transferred Assets for security purposes), enforceable against creditors of the Seller and no Transferred Assets shall constitute property of the Seller. (q) BUSINESS. Since its incorporation, the Borrower has conducted no business other than the execution, delivery and -21- performance of the Facility Documents contemplated hereby, the purchase and servicing of Transferred Assets thereunder, and such other activities as are incidental to the foregoing. The Borrower has incurred no Indebtedness except that expressly incurred hereunder and under the other Facility Documents. (r) OWNERSHIP OF THE BORROWER. One hundred percent (100%) of the outstanding capital stock of the Borrower is directly owned (both beneficially and of record) by HPSC, Inc. Such stock is validly issued, fully paid and nonassessable and there are no options, warrants or other rights to acquire capital stock from the Borrower. (s) TAXES. The Borrower has filed or caused to be filed all Federal, state and local tax returns which are required to be filed by it, and has paid or caused to be paid all taxes shown to be due and payable on such returns or on any assessments received by it, other than any taxes or assessments, the validity of which are being contested in good faith by appropriate proceedings and with respect to which the Borrower has set aside adequate reserves on its books in accordance with GAAP and which proceedings have not given rise to any Adverse Claim. (t) SOLVENCY. The Borrower, both prior to and after giving effect to the Initial Purchase on the Closing Date, and after giving effect to each subsequent Purchase, (i) is not "insolvent" (as such term is defined in Section 101(31)(A) of the Bankruptcy Code); (ii) is able to pay its debts as they become due; and (iii) does not have unreasonably small capital for the business in which it is engaged or for any business or transaction in which it is about to engage. ARTICLE V GENERAL COVENANTS SECTION 5.01. AFFIRMATIVE COVENANTS OF THE BORROWER. From the Closing Date until the later of the Termination Date or the Collection Date, the Borrower will, unless Triple-A shall otherwise consent in writing: (a) COMPLIANCE WITH LAWS, ETC. Comply in all material respects with all applicable laws, rules, regulations and orders -22- with respect to it, its business and properties and all Receivables and related Contracts. (b) PRESERVATION OF CORPORATE EXISTENCE. Preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction except where the failure to preserve and maintain such existence, rights, franchises, privileges and qualifications would not materially adversely affect (i) the collectibility of the Triple-A Loans, (ii) the collectibility of any Receivable, (iii) the business, properties, operations, prospects, profits or condition (financial or otherwise) condition of the Borrower or (iv) the ability of the Borrower to perform its obligations hereunder and under the other Facility Documents to which it is a party. (c) AUDITS. At any time and from time to time upon prior written notice to the Borrower during regular business hours, permit the Collateral Agent, or its agents or representatives, (i) to examine and make copies of and abstracts from all Records, and (ii) to visit the offices and properties of the Borrower for the purpose of examining such Records, and to discuss matters relating to the Receivables or the Borrower's performance hereunder with any of the officers or employees of the Borrower having knowledge of such matters. Each such audit shall be at the sole expense of the Borrower (subject to the Borrower's right under the Purchase Agreement to recover such expenses from the Seller); PROVIDED, that, so long as no Wind-Down Event has occurred during any calendar year, the annual audit expenses during such year for which the Borrower is responsible shall not exceed $22,000. (d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing the Receivables in the event of the destruction of the originals thereof) and keep and maintain, all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the daily identification of all collections of and adjustments to each Receivable). -23- (e) PERFORMANCE AND COMPLIANCE WITH RECEIVABLES AND CONTRACTS. At its expense timely and fully perform and comply, and cause the Seller to comply, in all material respects, with all material provisions, covenants and other promises required to be observed by it or the Seller under the Contracts. (f) LOCATION OF RECORDS. Keep its chief place of business and chief executive office, and the offices where it keeps the Records, at the address of the Borrower referred to in SECTION 4.01(j), or, in any such case, upon 30 days' prior written notice to the Collateral Agent, at such other locations within the United States where all action required by SECTION 6.04 shall have been taken and completed. (g) CREDIT AND COLLECTION POLICIES. Comply in all material respects with the Credit and Collection Policy in regard to each Receivable and the related Contract. (h) COLLECTIONS. Instruct all Obligors to cause all Collections to be deposited directly to a Post Office Box or Lock-Box Account and if the Borrower shall receive any Collections, the Borrower shall hold such Collections in trust for the benefit of the Collateral Agent and deposit such Collections into a Lock-Box Account or the Collection Account within one Business Day following Borrower's receipt thereof. (i) COMPLIANCE WITH ERISA. Comply in all material respects with the provisions of ERISA, the IRC, and all other applicable laws, and the regulations and interpretations thereunder. (j) PERFECTED SECURITY INTEREST UNDER CONTRACTS. Take such action with respect to each Receivable as is necessary to ensure that the Borrower maintains, as against the Obligor thereunder, a perfected security interest in any Equipment relating thereto free and clear of Adverse Claims or, in the case of any Lease, to ensure that the Borrower would maintain such a perfected priority security interest in the event that a court or other Person were to determine that such Lease purported to transfer to the Obligor an ownership (rather than a leasehold) interest in the Equipment subject thereto; PROVIDED, that the Borrower shall not be required to file financing statements to maintain the effectiveness of previously filed financing statements with respect to any Eligible Receivables the -24- Outstanding Balance of which has been reduced below $5,000 so long as the aggregate Outstanding Balance of Receivables for which no such financing statements are in effect at any time remains less than 10% of the Discounted Receivables Balance. (k) MAINTENANCE OF INSURANCE. Maintain, or cause the Seller or each Obligor to maintain, with respect to the Contracts and the Equipment related thereto, casualty and general liability insurance which provide at least the same coverage as a fire and extended coverage insurance policy as is comparable for other companies in related businesses. Such insurance policies (and self- insurance where permitted) shall be maintained in an amount which is not less than the aggregate Discounted Values of the Receivables arising under the relevant Contracts. Each such casualty and liability policy if maintained by an Obligor, shall name the Seller or the Borrower as loss payee and additional insured, and the Seller shall have assigned any such interest to the Borrower. The Borrower shall remit, or shall cause to be remitted, the proceeds of any such insurance policy to a Lock-Box Account or the Collection Account. (l) SEPARATE IDENTITY. Take all actions required to maintain the Borrower's status as a separate legal entity. Without limiting the foregoing, the Borrower shall: (i) conduct all of its business, and make all communications to third parties (including all invoices (if any), letters, checks and other instruments) solely in its own name (and not as a division of any other Person), and require that its employees, if any, when conducting its business identify themselves as such and not as employees of any other Affiliate of the Borrower (including, without limitation, by means of providing appropriate employees with business or identification cards identifying such employees as the Borrower's employees); (ii) compensate all employees, consultants and agents directly or indirectly through reimbursement of the Seller each calendar quarter, from the Borrower's bank accounts, for services provided to the Borrower by such employees, consultants and agents and, to the extent any employee, consultant or agent of the Borrower is also an employee, consultant or agent of any Affiliate of the Borrower, allocate the compensation of such employee, consultant or -25- agent between the Borrower and such Affiliate on a basis which reflects the services rendered to the Borrower and such Affiliate; (iii) pay its own operating expenses and liabilities from its own funds, allocate all overhead expenses (including, without limitation, telephone and other utility charges) for items shared between the Borrower and any Affiliate on the basis of actual use to the extent practicable and, to the extent such allocation is not practicable, on a basis reasonably related to actual use and allocate taxes on [the basis of their respective incomes in accordance with applicable federal regulations]; (iv) at all times have at least one "Independent Director", as defined in and as required under the Borrower's Certificate of Incorporation and have at least one officer responsible for managing its day-to-day business and manage such business by or under the direction of its board of directors; (v) maintain its books and records separate from those of any Affiliate; (vi) prepare its financial statements separately from those of its other Affiliates and insure that any consolidated financial statements of the Seller have notes to the effect that the Borrower is a separate corporate entity whose creditors have a claim on its assets prior to those assets becoming available to its equity holders and therefore to any creditors of the Seller; (vii) use its best efforts not to commingle its funds or other assets with those of any other Affiliate, and not to hold its assets in any manner that would create an appearance that such assets belong to any other Affiliate, and not maintain bank accounts or other depository accounts to which any Affiliate is an account party, into which any Affiliate makes deposits or from which any Affiliate has the power to make withdrawals; (viii) not permit any Affiliate to pay its operating expenses (except pursuant to allocation arrangements that comply with the requirements of SUBSECTION (ii) or (iii) of -26- this SECTION 5.01(l) or pursuant to the terms of the Purchase Agreement); (ix) not guarantee any obligation of any Affiliate nor (to the extent that the Borrower has the legal power to prevent such) have any of its obligations guaranteed by any such Affiliate, (either directly or by seeking credit based on the assets of such Affiliate) or otherwise hold itself out as responsible for the debts of any Affiliate; (x) maintain at all times stationery and a telephone number separate from that of any Affiliate and which telephone number will be answered in its own name, and have all its officers and employees conduct all of its business solely in its own name; (xi) hold regular meetings of its board of directors in accordance with the provisions of its Certificate of Incorporation and otherwise take such actions as are necessary on its part to ensure that all corporate procedures required by its Certificate of Incorporation and by-laws are duly and validly taken; (xii) maintain a separate office from the offices of any of its Affiliates and identify such office by a sign in its own name; (xiii) pay dividends only if (A) no other dividend has been paid during the calendar month in which such dividend is paid, (B) such dividend has been duly authorized by its board of directors in accordance with applicable law and (C) its net worth, determined immediately after giving effect to such dividend is at least $2,000,000; and (xiv) take such other actions as are necessary on its part to ensure that the facts and assumptions set forth in the opinion described in SECTION 3.01(x) remain true and correct at all times. (m) TAXES. File or cause to be filed, and (to the extent it has legal power to cause such) cause each of its Affiliates with whom it shares consolidated tax liability to file, all federal, state and local tax returns which are required to be filed by it, except where the failure to file such returns -27- could not reasonably be expected to have a material adverse effect on the collectibility of the Transferred Assets or the ability of the Borrower to perform its obligations hereunder or under any other Facility Document to which it is a party or which could otherwise be reasonably expected to expose the Borrower to a material liability. The Borrower shall pay or cause to be paid all taxes shown to be due and payable on such returns or on any assessments received by it, other than any taxes or assessments, the validity of which are being contested in good faith by appropriate proceedings and with respect to which the Borrower or the applicable subsidiary shall have set aside adequate reserves on its books in accordance with GAAP and which proceedings could not reasonably be expected to have a material adverse effect on the collectibility of the Transferred Assets or the ability of the Borrower to perform its obligations hereunder or under any other Facility Document to which it is a party or which could otherwise be reasonably expected to expose the Borrower to a material liability. (n) INTEREST RATE HEDGES. Concurrently with each Triple-A Loan, enter into an Interest Rate Hedge with the Swap Provider as contemplated in the definition of "Discount Rate", and transfer, assign and otherwise convey to the Collateral Agent all of the Borrower's rights in, to and under such Interest Rate Hedge pursuant to an Interest Rate Hedge Assignment in substantially in the form of EXHIBIT F hereto, together with a certificate executed by the Swap Provider in substantially the form of Exhibit A to such Interest Rate Hedge Assignment. The Borrower shall thereafter maintain such Interest Rate Hedges in full force and effect at all times that the Triple-A Loans remain outstanding, in a notional amount equal to no less than 96% and no more than 105% of the outstanding principal amount of the Triple-A Loans and based on an amortization schedule which matches the amortization of the aggregate Receivables then outstanding and the terms of which otherwise reasonably satisfactory to the Collateral Agent. The Borrower acknowledges that Triple-A and/or the Surety on behalf of Triple-A have guaranteed the Borrower's performance of its obligations under the Interest Rate Hedges. The Borrower shall perform all of its obligations under the Interest Rate Hedges to the same extent as if its rights under the Interest Rate Hedges has not been assigned hereunder and shall indemnify each of Triple-A and the Surety against any payments by either such party on account of the Borrower's failure to perform its obligations under the -28- Interest Rate Hedges, including, without limitation, any payments by the Surety under the Swap Bond, which indemnity shall survive any termination of this Credit Agreement. The exercise by the Collateral Agent of any of its rights hereunder or under the Interest Rate Hedge Assignment shall not relieve the Borrower from such obligations. (o) FACILITY DOCUMENTS. Comply in all material respects with the terms of and employ the procedures outlined in and enforce the obligations of the Seller under the Purchase Agreement, and all of the other Facility Documents to which it is a party, take all such action to such end as may be from time to time reasonably requested by the Collateral Agent, maintain all such Facility Documents in full force and effect and make to the Seller such reasonable demands and requests for information and reports or for action as the Borrower is entitled to make thereunder and as may be from time to time reasonably requested by the Collateral Agent. (p) SEGREGATION OF COLLECTIONS. Prevent the deposit into any of the Lock-Box Accounts of any funds other than Collections in respect of the Transferred Assets and, to the extent that any such funds are nevertheless deposited into any of such Lock-Box Accounts, promptly identify any such funds to the Servicer for segregation and remittance to the owner thereof. SECTION 5.02. REPORTING REQUIREMENTS OF THE BORROWER. From the Closing Date until the later of the Termination Date or the Collection Date, the Borrower will, unless the Collateral Agent shall otherwise consent in writing, furnish to the Collateral Agent and to CapMAC: (a) as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Borrower, balance sheets of the Borrower as of the end of such quarter, and (to the extent available) statements of income and retained earnings of the Borrower for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, certified by the chief financial officer, chief accounting officer or treasurer of the Borrower; (b) as soon as available and in any event within 105 days after the end of each fiscal year of the Borrower, a copy of the balance sheet of the Borrower as of the end of such year and -29- the related statements of income and retained earnings of the Borrower for such year each reported on by nationally recognized independent public accountants acceptable to the Collateral Agent (the Collateral Agent acknowledges that any of the "Big 5" accounting firms will be acceptable to the Collateral Agent); (c) promptly upon receipt thereof, copies of (i) all annual and quarterly financial statements delivered to the Borrower by the Seller pursuant to the Purchase Agreement and (ii) all other reports and other written information not specified above which are required to be delivered by the Seller (individually, or as Servicer) to the Borrower pursuant to the terms of the Purchase Agreement; (d) as soon as possible and in any event within five Business Days after the occurrence of each Event of Termination or Wind-Down Event or each event which, with the giving of notice or lapse of time or both, would constitute an Event of Termination or Wind-Down Event, the statement of the chief financial officer, chief accounting officer or treasurer of the Borrower setting forth details of such Event of Termination or Wind-Down Event and the action which the Borrower proposes to take with respect thereto; (e) promptly after the filing or receiving thereof, copies of all reports and notices with respect to any Reportable Event defined in Article IV of ERISA which the Borrower or any Affiliate files under ERISA with the IRS or the PBGC or the DOL or which the Borrower receives from the PBGC; (f) on or before the 15th day of each month (or if such day is not a Business Day, the immediately succeeding Business Day), a copy of the Settlement Report for the most recent calendar month, which shall include a summary of the portfolio of Interest Rate Hedges as of such day; and (g) promptly, from time to time, such other information, documents, records or reports respecting the Receivables or the conditions or operations, financial or otherwise, of the Borrower as the Collateral Agent may from time to time reasonably request in order to protect the interests of the Collateral Agent or of Triple-A under or as contemplated by this Credit Agreement. -30- SECTION 5.03. NEGATIVE COVENANTS OF THE BORROWER. From the Closing Date until the later of the Termination Date or the Collection Date, the Borrower will not, without the written consent of the Collateral Agent: (a) SALES, LIENS, ETC. AGAINST RECEIVABLES AND RELATED SECURITY. Except as otherwise provided herein, sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist, any Adverse Claim upon or with respect to, any Receivable, Related Security, Collections, or any related Contract, or upon or with respect to any Lock-Box Account to which any Collections of any Receivable are sent, or assign any right to receive income in respect thereof, or upon any other Transferred Asset, except that the Borrower shall have no responsibility for any Adverse Claim created by an Obligor upon or with respect to any Equipment owned by such Obligor so long as such Adverse Claim is subordinate to the security interest of the Borrower in such Equipment. (b) EXTENSION OR AMENDMENT OF RECEIVABLES. Except for actions of the Servicer otherwise permitted in the Purchase Agreement, extend, amend or otherwise modify, the terms of any Receivable, or amend, modify or waive, any term or condition of any Contract related thereto, whether for any reason relating to a negative change in the related Obligor's creditworthiness or inability to make any payment under the related Contract or otherwise. (c) CHANGE IN BUSINESS OR CREDIT AND COLLECTION POLICY. Make any change in the character of its business or in the Credit and Collection Policy, which change would, in either case, impair the collectibility of any Transferred Asset. (d) CHANGE IN PAYMENT INSTRUCTIONS TO OBLIGORS. Add or terminate any bank as a Lock-Box Bank from those listed in EXHIBIT I to the Purchase Agreement or make any change in its instructions to Obligors regarding payments to be made to the Borrower or payments to be made to any Lock-Box Bank, unless the Collateral Agent shall have received (i) ten Business Days' prior notice of such addition, termination or change and (ii) prior to the effective date of such addition, termination or change, (x) executed copies of Lock-Box Agreements executed by each new Lock-Box Bank and the Borrower and (y) copies of all agreements -31- and documents signed by either the Borrower or the respective Lock-Box Bank with respect to any new Lock-Box Account. (e) STOCK, MERGER, CONSOLIDATION, ETC. Sell any shares of any class of its capital stock to any Person (other than the Seller) or consolidate with or merge into or with any other corporation, or purchase or otherwise acquire all or substantially all of the assets or capital stock, or other ownership interest of, any Person or sell, transfer, lease or otherwise dispose of all or substantially all of its assets to any Person, except for the conveyances of a security interest in favor of the Collateral Agent as expressly permitted under the terms of this Credit Agreement. (f) CHANGE IN CORPORATE NAME. Make any change to its corporate name or use any trade names, fictitious names, assumed names or "doing business as" names. (g) ERISA MATTERS. (i) Engage or permit any ERISA Affiliate to engage in any prohibited transaction for which an exemption is not available or has not previously been obtained from the DOL; (ii) permit to exist any accumulated funding deficiency, as defined in Section 302(a) of ERISA and Section 412(a) of the IRC, or funding deficiency with respect to any Benefit Plan other than a Multiemployer Plan; (iii) fail to make any payments to any Multiemployer Plan that the Borrower or any ERISA Affiliate may be required to make under the agreement relating to such Multiemployer Plan or any law pertaining thereto; (iv) terminate any Benefit Plan so as to result in any liability; or (v) permit to exist any occurrence of any reportable event described in Title IV of ERISA which represents a material risk of a liability of the Borrower or any ERISA Affiliate under ERISA or the IRC; PROVIDED, HOWEVER, the Borrower's ERISA Affiliates may take or allow such prohibited transactions, accumulated funding deficiencies, payments, terminations and reportable events described in clauses (i) through (iv) above so long as such events occurring within any fiscal year of the Borrower, in the aggregate, involve a payment of money by or an incurrence of liability of any such ERISA Affiliate (collectively, "ERISA Liabilities") in an amount which does not exceed $500,000. (h) TERMINATE OR REJECT CONTRACTS. Without limiting SECTION 5.03(b), terminate or reject any Contract prior to the -32- term of such Contract, whether such rejection or early termination is made pursuant to an equitable cause, statute, regulation, judicial proceeding or other applicable law (including, without limitation, Section 365 of the Bankruptcy Code), unless prior to such termination or rejection, the Borrower pays the Collateral Agent, for the benefit of Triple-A, an amount equal to the Termination Amount owed with respect thereto. (i) INDEBTEDNESS. Create, incur, assume or suffer to exist any Indebtedness except for (i) Indebtedness to Triple-A, the Collateral Agent or any Liquidity Bank expressly contemplated hereunder, (ii) Ordinary Course Expenses (to the extent, if any, that such Ordinary Course Expenses constitute Indebtedness) in an aggregate amount outstanding at any time not to exceed $10,000 (exclusive of taxes) and (iii) Indebtedness to the Seller pursuant to the Purchase Agreement. (j) GUARANTEES. Guarantee, endorse or otherwise be or become contingently liable (including by agreement to maintain balance sheet tests) in connection with the obligations of any other Person, except endorsements of negotiable instruments for collection in the ordinary course of business and reimbursement or indemnification obligations in favor of Triple-A, the Collateral Agent, or any Liquidity Bank as provided for under this Credit Agreement. (k) LIMITATION ON TRANSACTIONS WITH AFFILIATES. Enter into, or be a party to any transaction with any Affiliate, except for: (i) the transactions contemplated by the Purchase Agreement; (ii) transactions related to the allocation of shared overhead expenses or taxes as described in clause (iii) of SECTION 5.01(l); and (iii) to the extent not otherwise prohibited under this Credit Agreement, other transactions in the nature of employment contracts and directors' fees, upon fair and reasonable terms materially no less favorable to the Borrower than would be obtained in a comparable -33- arm's-length transaction with a Person not an Affiliate. (l) FACILITY DOCUMENTS. Except as otherwise permitted under SECTION 10.01, (a) terminate, amend or otherwise modify any Facility Document to which it is a party, or grant any waiver or consent thereunder, (b) without the prior consent of the Collateral Agent, exercise any discretionary rights granted to the Borrower under the Purchase Agreement pursuant to provisions thereof providing for certain actions to be taken "with the consent of the Buyer", "acceptable to the Buyer" as "specified by the Buyer", "in the reasonable judgment of the Buyer" or similar provisions (it being understood that inaction by the Borrower shall not be considered to be an exercise of such discretionary rights) or (c) without the prior written consent of the Collateral Agent, consent to any amendment or modification of the Credit and Collection Policy. (m) CHARTER AND BY-LAWS. Amend or otherwise modify its Certificate of Incorporation or By-laws in any manner which requires the consent of the "Independent Director" (as defined in the Borrower's Certificate of Incorporation) without the prior written consent of the Collateral Agent and delivery of an opinion of counsel that such amendment shall not alter the conclusions set forth in the legal opinion described in SECTION 3.01(x). (n) LINES OF BUSINESS. Conduct any business other than that described in SECTION 4.01(p), or enter into any transaction with any Person which is not contemplated by or incidental to the performance of its obligations under the Facility Documents. (o) ACCOUNTING TREATMENT. Prepare any financial statements or other statements (including any tax filings which are not consolidated with those of the Seller) which shall account for the transactions contemplated by the Purchase Agreement in any manner other than as the sale of, or a capital contribution of, the Transferred Assets by the Seller to the Borrower (it being understood that non-recognition of such transaction due to the application of consolidated financial reporting principles under GAAP or the filing of tax returns on a consolidated basis shall not constitute a violation of this covenant). -34- (p) LIMITATION ON INVESTMENTS. Make or suffer to exist any loans or advances to, or extend any credit to, or make any investments (by way of transfer of property, contributions to capital, purchase of stock or securities or evidences of indebtedness, acquisition of the business or assets, or otherwise) in, any Affiliate or any other Person except for (i) Permitted Investments, (ii) the purchase of Receivables and other Transferred Assets pursuant to the terms of the Purchase Agreement and (iii) the acceptance of investments in exchange for Defaulted Receivables in an effort to maximize the recoveries thereon. ARTICLE VI SECURITY INTEREST SECTION 6.01. GRANT OF SECURITY INTERESTS. To secure the prompt and complete payment when due of Obligations and the performance by the Borrower of all of the covenants and obligations to be performed by it pursuant to this Credit Agreement, the Borrower hereby assigns and pledges to the Collateral Agent and grants to the Collateral Agent, on behalf of Triple-A and the Surety, a security interest in all of the Borrower's right, title and interest in and to all personal property and all interests in personal property of the Borrower of any kind or nature, whether tangible or intangible and whether now owned or existing or hereafter arising or acquired and wheresoever located, including, without limitation, the following property and interests in property (collectively, the "COLLATERAL"): (a) all Receivables, together with all Related Security, Contracts, Records and other Transferred Assets related thereto, including, without limitation, all Collections and other monies due and to become due to the Borrower in respect of any Receivable and any security therefor; (b) all right, title and interest of the Borrower in, to and under the Purchase Agreement, including, without limitation, all monies due and to become due to the Borrower from the Seller or the Servicer under or in connection therewith; -35- (c) all right, title and interest of the Borrower in, to and under all computer software used to account for the Transferred Assets and in which an interest has been assigned under SECTION 2.04 of the Purchase Agreement; (d) all right, title and interest of the Borrower in, to and under all Interest Rate Hedges; (e) the Collection Account and all other bank and similar accounts established for the benefit of Triple-A or the Collateral Agent, and all funds held therein or in such other accounts, and all income from the investment of funds therein; (f) all Post Office Boxes, lock boxes, Lock-Box Accounts, and all other bank and similar accounts relating to the collection of Receivables and all funds held therein or in such other accounts, and all income from the investment of funds in the Lock-Box Accounts and such other accounts; (g) all certificates and instruments if any, from time to time representing or evidencing any of the foregoing property described in clauses (a) through (f) above; (h) all proceeds of the foregoing property described in clauses (a) through (g) above, including interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for or on account of the sale or other disposition of any or all of the then existing Collateral and including all payments under insurance (whether or not Triple-A is the loss payee thereof) or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the Collateral; and (i) all other monies or property of the Borrower coming into the actual possession, custody or control of the Collateral Agent or Triple-A (whether for safekeeping, deposit, custody, pledge, transmission, collection or otherwise). -36- SECTION 6.02. CONTINUING LIABILITY OF THE BORROWER. The security interests described above are granted as security only and shall not subject the Collateral Agent nor Triple-A nor their respective assigns to, or transfer or in any way affect or modify, any obligation or liability of the Borrower with respect to, any of the Collateral or any transaction in connection therewith. Neither Triple-A nor the Collateral Agent nor their respective assigns shall be required or obligated in any manner to make any inquiry as to the nature or sufficiency of any payment received by it or the sufficiency of any performance by any party under any such obligation, or to make any payment or present or file any claim, or to take any action to collect or enforce any performance or the payment of any amount thereunder to which any such Person may be entitled at any time. SECTION 6.03. FILINGS; FURTHER ASSURANCES. (a) The Borrower will, at all times on and after the date hereof, and at its expense, cause UCC financing statements and continuation statements to be filed in all applicable jurisdictions as required to continue the perfection of the security interests created by this Credit Agreement. The Borrower will, from time to time, at its expense and in such manner and form as the Collateral Agent or its agents or representatives may reasonably require, execute, deliver, file and record any other statement, continuation statement, specific assignment or other instrument or document and take any other action that may be necessary or desirable, or that Triple-A, its permitted assigns or their respective agents or representatives, may reasonably request, to create, preserve, perfect or validate the security interests created hereunder or to enable Triple-A to exercise and enforce its rights hereunder with respect to any of the Collateral. (b) The Borrower shall, on or prior to the date of Purchase of any Receivables, deliver the related Contract File to the Custodian, in suitable form for transfer by delivery, or accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Triple-A. In the event that the Borrower receives any other instrument or any writing constituting chattel paper which, in either event, evidences a Receivable or other Collateral, the Borrower shall deliver such instrument or chattel paper to the Custodian on behalf of Triple-A within three (3) Business Days after the Borrower's receipt, in suitable form for transfer by delivery, or accompanied by duly executed instruments of transfer -37- or assignment in blank, all in form and substance satisfactory to Triple-A. (c) The Borrower hereby authorizes Triple-A, and gives Triple-A its irrevocable power of attorney (which authorization is coupled with an interest), in the name of the Borrower or otherwise, to execute, deliver, file and record any financing statement, continuation statement, specific assignment or other paper and to take any other action that Triple-A in its sole discretion may deem necessary or appropriate to further perfect the security interests created hereby. The Borrower agrees that a carbon, photographic, photostatic, or other reproduction of this Credit Agreement or of a financing statement is sufficient as a financing statement where permitted by applicable law. SECTION 6.04. PLACE OF BUSINESS; CHANGE OF NAME. (a) As of the date hereof, the chief executive office of the Borrower and chief place of business and the location where it maintains all Records relating to the Receivables and the other Collateral are maintained are listed on EXHIBIT E hereto. The Borrower will not (x) change its principal place of business or chief executive office from the location listed on such Exhibit, (y) change its name, identity or corporate structure or (z) change the location of its Records relating to the Collateral from those specified on EXHIBIT E hereto, unless in any such event the Borrower shall have given the Collateral Agent at least thirty (30) days' (or such shorter period to which the Collateral Agent may consent in writing) prior written notice thereof and shall have taken all action necessary or reasonably requested by the Collateral Agent to amend its existing financing statements and continuation statements so that they are not misleading and to file additional financing statements in all applicable jurisdictions to perfect the security interests of Triple-A in all of the Collateral. SECTION 6.05. LOCK-BOX ACCOUNTS; COLLECTION ACCOUNT. The Borrower has established and will maintain a system of operations, accounts and instructions to the Lock-Box Banks and will establish and maintain the Collection Account as provided in this SECTION 6.05. Pursuant to a Lock-Box Agreement, each Lock-Box Account shall be irrevocably instructed to wire all funds to the Collection Account, which Collection Account shall be maintained in the name of the Collateral Agent on behalf of Triple-A. Neither the Borrower, nor any Person claiming by, through or under the Borrower shall have any control over the use of, or any -38- right to withdraw any item or amount from, any Lock-Box Account or the Collection Account except as expressly provided in the Lock-Box Agreements or the Collection Account Agreement, respectively. The Collateral Agent on behalf of Triple-A is hereby irrevocably authorized and empowered, as the Borrower's attorney-in-fact, to endorse any item deposited in a lock-box or presented for deposit in any Lock-Box Account or the Collection Account requiring the endorsement of the Borrower, which authorization is coupled with an interest. SECTION 6.06. COLLECTION ACCOUNT. (a) On the Closing Date, the Borrower shall establish for the sole and exclusive benefit of the Collateral Agent for the benefit of Triple-A, the Surety and their respective assigns, a cash collateral account (the "COLLECTION ACCOUNT"). The Collection Account shall be a special purpose segregated trust account maintained with Bank of Boston but shall be under the sole dominion and control of, and in the name of, the Collateral Agent. All funds held in the Collection Account, including investment earnings thereon, shall be invested in Permitted Investments at the direction of the Borrower; PROVIDED, HOWEVER, that from and after the Termination Date or otherwise upon the occurrence and during the continuance of any Event of Termination, the Collateral Agent shall have the sole right to restrict the maturities of any investments held in the Collection Account and to direct the withdrawal of any such investments for the purposes of paying the Obligations, including the principal on the Triple-A Loans. The Collateral Agent shall have the sole and exclusive right to withdraw or order a transfer of funds from the Collection Account in accordance with the terms and provisions of this SECTION 6.06.; PROVIDED however, that the Collateral Agent agrees to turn over to the Seller any funds which are deposited in the Collection Account and which do not constitute Collections or other proceeds of Collateral, less all reasonable and appropriate out-of-pocket costs and expenses incurred by the Collateral Agent in connection with such misdirected funds. (b) All funds in the Collection Account shall be held in trust for the benefit of Triple-A and the Surety and, except as otherwise provided in SECTION 6.06(d) below with respect to any Business Day from and after the Designated Termination Date, may be used solely for the following purposes and in the following order of priority: -39- (i) To remit to the Borrower any Collections representing sales or other taxes or insurance payments for the purpose of satisfying the Borrower's obligations in respect of such taxes or insurance; (ii) To pay any Carrying Costs which are then due and payable; (iii) To make any mandatory prepayments of the Triple-A Loans as provided in SECTION 2.07; (iv) To pay any other Obligations which may be due and owing at such time; and (v) To make any voluntary prepayments of the Triple-A Loans as provided in SECTION 2.07; and (vi) If such day is a Settlement Date, to be remitted to the Borrower for any purposes not otherwise prohibited by this Credit Agreement or to the Seller for the Purchase of new Receivables; PROVIDED, however, that such funds shall only be remitted to the Borrower or the Seller, as applicable, to the extent that, after giving effect to such transfer of funds and such Purchases, the principal amount of Triple-A Loans then outstanding does not exceed the Borrowing Base then in effect. The Borrower, in making any request for funds to be withdrawn from the Collection Account, shall certify to each of the Collateral Agent and the Collection Account Bank that the funds will be used for one of the purposes described above in this SECTION 6.06(b). If, on any Business Day prior to the Designated Termination Date, the funds on deposit in the Collection Account and available for withdrawal under CLAUSE (ii) above are less than the amount of the obligations described in such CLAUSE, such available funds shall be allocated in the priority set forth in SECTION 6.06(c) below; if, on any such Business Day, the funds on deposit in the Collection Account and available for withdrawal under CLAUSE (iv) above are less than the amount of the obligations described in such CLAUSE, such available funds shall be allocated to the Persons to whom such obligations are owed ratably according to the respective amounts owed. -40- (c) On each Business Day prior to the Designated Termination Date, to the extent that the funds on deposit in the Collection Account and available under CLAUSE (ii) of SECTION 6.06(b) are insufficient to pay all Carrying Costs which are then due and payable, such funds shall be applied to the Carrying Costs in the following order of priority: (i) To pay any accrued and unpaid interest on the Triple-A Loans (either directly, by paying to the Swap Provider amounts owed under the Interest Rate Hedges or by reimbursing Triple-A and/or the Surety for payments made by either of them to the Swap Provider on account of amounts owed under the Interest Rate Hedges); (ii) To pay any accrued and unpaid fees owing under the Fee Letter; (iii) To pay any accrued and unpaid expenses of the Collateral Agent; (iv) To pay any accrued and unpaid Servicing Fee; and (v) To pay ordinary course expenses of the Borrower to the extent the same are due or past due. If, on any such Business Day, the funds on deposit in the Collection Account and available for withdrawal under either CLAUSE (ii) or (v) above are less than the amount of the obligations described in such CLAUSE, such available funds shall be allocated to the Persons to whom such obligations are owed ratably according to the respective amounts owed. (d) On each Business Day from and after the Designated Termination Date, funds shall be withdrawn from the Collection Account solely upon direction of the Collateral Agent to be applied against the Obligations in the following order of priority; (i) To remit to the Borrower any Collections representing sales or other taxes or insurance payments for the purpose of satisfying the Borrower's obligations in respect of such taxes or insurance; -41- (ii) To pay any accrued and unpaid Servicing Fee (if the Servicer is a party other than the Seller or an Affiliate thereof); (iii) To pay accrued and unpaid interest on the Triple-A Loans (either directly or by paying to the Swap Provider amounts owed under the Interest Rate Hedges or by reimbursing Triple-A and/or the Surety for payments made by either of them to the Swap Provider on account of amounts owed under the Interest Rate Hedges); (iv) To pay any accrued and unpaid fees owing under the Fee Letter; (v) To repay the principal amount of any Triple-A Loans then outstanding; (vi) To pay the accrued and unpaid expenses of the Collateral Agent; (vii) To pay any other accrued and unpaid Obligations which have not been paid pursuant to clauses (i) through (vii) above; (viii) To pay any other Carrying Costs which are due and owing but have not been paid pursuant to clauses (i) through (vii) above; and (ix) To pay any accrued and unpaid Servicing Fee owed to the Seller or an Affiliate thereof. If, on any such Business Day, the funds on deposit in the Collection Account and available for withdrawal under either CLAUSE (iv), (vi), (vii) or (viii) above are less than the amount of the obligations described in such CLAUSE, such available funds shall be allocated to the Persons to whom such obligations are owed ratably according to the respective amounts owed. Any funds remaining in the Collection Account after payment of the foregoing Obligations and other fees and expenses shall be remitted to the Borrower or as otherwise required by law. -42- ARTICLE VII WIND-DOWN EVENTS; REMEDIES SECTION 7.01. WIND-DOWN EVENTS. Each of the following events shall constitute a "WIND-DOWN EVENT" within the meaning of this Credit Agreement: (a) The occurrence of any Event of Termination; (b) The Borrower shall fail to make any payment or deposit to be made by it hereunder when due and, solely in the case of any such payments which do not constitute payments of principal or interest on the Triple-A Loans, such failure shall remain unremedied for three Business Days after written notice from the Collateral Agent; or (c) The Borrower shall fail to perform or observe any term, covenant or agreement contained in SECTION 5.03 and any such failure shall remain unremedied for five Business Days after written notice from the Collateral Agent; or (d) Any representation or warranty made or deemed to be made by the Borrower (or any of its officers) under or in connection with this Credit Agreement, any Settlement Report or other information or report delivered pursuant hereto shall prove to have been false or incorrect in any material respect when made; PROVIDED, HOWEVER, that (i) to the extent any breach of any such representation or warranty may be cured within ten Business Days, the Borrower shall have ten Business Days after learning of such breach to make such representation and warranty true and correct and (ii) if any such false or incorrect representation or warranty has given rise to a deemed Collection as provided under SECTION 2.05 of the Purchase Agreement, then, upon the Seller's payment of such deemed Collection at the time and in the manner required under the Purchase Agreement, the breach of such representation or warranty shall not give rise to a Wind-Down Event under this subsection (d); or; (e) The Borrower shall fail to perform or observe any other term, covenant or agreement contained in this Credit Agreement on its part to be performed or observed and any such failure shall remain unremedied for ten Business Days after written notice from the Collateral Agent (it being understood -43- that if any such failure gives rise to a deemed Collection under SECTION 2.05 of the Purchase Agreement, then, the payment of such deemed Collection at the time and in the manner required under the Purchase Agreement shall be deemed a remedy of such failure); or (f) The security interest of the Collateral Agent in the Collateral shall for any reason, except to the extent permitted by the terms hereof, cease to create a valid and perfected first priority interest in such Collateral; PROVIDED, HOWEVER, if any such failure results in a deemed Collection under SECTION 2.05 of the Purchase Agreement and the Seller satisfies in full its payment obligations under such section with respect to such deemed Collection, then such failure shall not give rise to a Wind-Down Event under this subsection (f); or (g) (i) An Insolvency Event shall occur with respect to the Borrower or the Seller or (ii) the Borrower or the Seller shall take any corporate action to authorize the filing of any Insolvency Proceeding; or (h) As of the close of business on any Settlement Date, the Borrowing Base shall be less than the aggregate outstanding principal amount of all Triple-A Loans; or (i) The Seller shall cease to own 100% of the issued and outstanding stock of the Borrower; or (j) There shall have occurred, since the Closing Date, a material adverse change in the financial condition of the Borrower or there shall have occurred any event which materially and adversely affects the collectibility or the Receivables generally or the ability of the Borrower to perform hereunder; or (k) Triple-A or the Surety shall determine that continuation of this Credit Agreement without exercise of remedies under SECTION 7.02 will impose a material adverse regulatory impact on Triple-A or the Surety, as the case may be. SECTION 7.02. REMEDIES. During the existence of a Wind-Down Event, the Collateral Agent on behalf of Triple-A may, by written notice to the Borrower, take any or all of the following actions, at the same or different times: (i) declare the Termination Date to have occurred; (ii) declare the -44- Obligations to be immediately due and payable; (iii) pursue any other remedy under this Credit Agreement and the other Facility Documents and (iv) exercise any rights and remedies of a secured party under Article 9 of the UCC, which rights and remedies shall be cumulative to those provided for under this Credit Agreement and the other Facility Documents; PROVIDED, HOWEVER, that in the case of any event described in clause (i) of SUBSECTION 7.01(g) above, then, automatically upon the occurrence of such event without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in the Triple-A Note to the contrary notwithstanding, the Obligations shall be immediately due and payable and the Termination Date shall be deemed to have occurred automatically. The rights and remedies of a secured party which may be exercised by the Collateral Agent pursuant to clause (iv) of this SECTION 7.02 shall include, without limitation, the right to (y) identify and engage a Successor Servicer to act as servicer for the Receivables in the event of a Servicing Termination Event, and (z) without notice except as specified below solicit and accept bids for and sell the Collateral or any part thereof in one or more parcels at a public or private sale, at any exchange, broker's board or at any of the Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Collateral Agent may deem commercially reasonable. The Borrower agrees that, to the extent notice of sale shall be required by law, 10 Business Days' notice to the Borrower of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification and that it shall be commercially reasonable for the Collateral Agent to sell the Collateral on an as-is basis, without representation or warranty of any kind. The Collateral Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given and may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. -45- ARTICLE VIII MISCELLANEOUS SECTION 8.01. AMENDMENTS, ETC. No amendment to or waiver of any provision of this Credit Agreement nor consent to any departure by the Borrower, shall in any event be effective unless the same shall be in writing and signed by (i) the Collateral Agent on behalf of itself and Triple-A and the Borrower (with respect to an amendment) or (ii) the Collateral Agent on behalf of itself and Triple-A (with respect to a waiver or consent by it) or the Borrower (with respect to a waiver or consent by it), as the case may be, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. This Credit Agreement contains a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement (together with the exhibits hereto) among the parties hereto with respect to the subject matter hereof, superseding all prior oral or written understandings. SECTION 8.02. NOTICES, ETC. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including telex communication and communication by facsimile copy) and mailed, telexed, transmitted or delivered, as to each party hereto, at its address set forth under its name on the signature pages hereof or at such other address as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective, upon receipt, or in the case of delivery by mail, five days after being deposited in the mails, or, in the case of notice by telex, when telexed against receipt of answer back, or in the case of notice by facsimile copy, when verbal communication of receipt is obtained, in each case addressed as aforesaid, except that notices and communications pursuant to Article II shall not be effective until received. SECTION 8.03. NO WAIVER; REMEDIES. No failure on the part of the Collateral Agent or Triple-A to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or -46- the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 8.04. BINDING EFFECT; ASSIGNABILITY. This Credit Agreement shall be binding upon and inure to the benefit of the Borrower, Triple-A, the Collateral Agent and their respective successors and permitted assigns (which successors of the Borrower shall include a trustee in bankruptcy). The Borrower may not assign any of its rights and obligations hereunder or any interest herein without the prior written consent of Triple-A and the Collateral Agent. Each of Triple-A and the Collateral Agent may assign at any time its rights and obligations hereunder and interests herein to any other Person without the consent of the Borrower. Without limiting the foregoing, the Borrower hereby acknowledges that Triple-A has agreed pursuant to the Liquidity Agreement and certain related agreements that, subject to the restrictions set forth therein, certain parties providing credit enhancements and/or liquidity for Triple-A in connection with the Credit Agreement shall be entitled to exercise Triple-A's rights under this Credit Agreement and in addition, shall constitute third-party beneficiaries of this Agreement. The Borrower hereby consents to the foregoing and agrees to cooperate with any such Person electing to exercise Triple-A's rights under this Credit Agreement. This Credit Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until such time, after the Termination Date, as the Collection Date shall occur; PROVIDED, HOWEVER, that the rights and remedies with respect to any breach of any representation and warranty made by the Borrower pursuant to Article IV and Article VIII shall be continuing and shall survive any termination of this Credit Agreement. SECTION 8.05. GOVERNING LAW; WAIVER OF JURY TRIAL. THIS CREDIT AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE INTERESTS OF THE COLLATERAL AGENT IN THE COLLATERAL OR REMEDIES HEREUNDER OR THEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. THE BORROWER HEREBY AGREES TO THE JURISDICTION OF ANY FEDERAL COURT LOCATED WITHIN THE STATE OF NEW YORK, AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE BORROWER AT -47- THE ADDRESS SET FORTH ON THE SIGNATURE PAGE HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE PREPAID, OR, AT THE OPTION OF EITHER TRIPLE-A OR THE COLLATERAL AGENT, BY SERVICE UPON CT CORPORATION SYSTEM, 1633 BROADWAY, NEW YORK, NEW YORK 10019, WHICH THE BORROWER HEREBY IRREVOCABLY APPOINTS AS ITS AGENT FOR THE PURPOSE OF ACCEPTING SERVICE OF PROCESS. THE BORROWER HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE BORROWER AND TRIPLE-A AND/OR THE COLLATERAL AGENT ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS CREDIT AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY. WITH RESPECT TO THE FOREGOING CONSENT TO JURISDICTION, THE BORROWER HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION 8.05 SHALL AFFECT THE RIGHT OF TRIPLE-A OR THE COLLATERAL AGENT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF TRIPLE-A OR THE COLLATERAL AGENT TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. SECTION 8.06. COSTS, EXPENSES AND TAXES. (a) The Borrower agrees to pay on demand all reasonable costs and expenses in connection with the preparation, execution, delivery and administration (including periodic auditing fees as provided for in SECTION 5.01(c) and any requested amendments, waivers or consents) of this Credit Agreement and the other documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for Triple-A and the Collateral Agent with respect thereto and with respect to advising Triple-A and the Collateral Agent as to its rights and remedies under this Credit Agreement, and the other agreements executed pursuant hereto and all costs and expenses, if any (including reasonable counsel fees and expenses), in connection with the enforcement of this Credit Agreement and the other agreements and documents to be delivered hereunder. (b) In addition, the Borrower shall pay any and all stamp, sales, excise and other taxes and fees payable or determined to be payable in connection with the execution, -48- delivery, filing and recording of this Credit Agreement or the other agreements and documents to be delivered hereunder, and agrees to indemnify the Collateral Agent, Triple-A and their respective assignees against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. SECTION 8.07. EXECUTION IN COUNTERPARTS; SEVERABILITY. This Credit Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. In case any provision in or obligation under this Credit Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 8.08. NO BANKRUPTCY PETITION AGAINST TRIPLE-A. The Borrower covenants and agrees that it will not institute against Triple-A, or join any other Person in instituting against Triple-A, any Insolvency Proceeding under bankruptcy law or under any similar federal or state law. -49- IN WITNESS WHEREOF, the parties below have caused this Credit Agreement to be duly executed by their duly authorized officers and delivered as of the day and year first above written. HPSC BRAVO FUNDING CORP. By: /s/ John Everets, Jr. ------------------------------------- John Everets, Jr. Title: President Address: Sixty State Street 35th Floor Boston, MA 02109-1803 Attn: President Telephone: (617) 720-7251 Telecopy: (617) 720-7272 TRIPLE-A ONE FUNDING CORPORATION By: Capital Markets Assurance Corporation, its Attorney-in-Fact By: /s/ Authorized Signatory ------------------------------------ Authorized Signatory Title: Vice President Address: 885 Third Avenue New York, New York 10022 Attn: Head of Exposure Management Telephone: (212) 755-1155 Telecopy: (212) 755-5487 CAPITAL MARKETS ASSURANCE CORPORATION By: /s/ Authorized Signatory ------------------------------------ Authorized Signatory Title: Vice President Address: 885 Third Avenue New York, New York 10022 Attn: Head of Exposure Management Telephone: (212) 755-1155 Telecopy: (212) 755-5487 -50- EX-10.33 13 EXHIBIT 10.33 EXHIBIT 10.33 HPSC, INC. Agreement to Furnish Copies of Omitted Exhibits to Certain Agreements with HPSC Bravo Funding Corp. --------------------------------------------------- HPSC, Inc. ("Registrant") is not filing as exhibits to its Annual Report on Form 10-K for its fiscal year ended December 31, 1994 copies of the following exhibits to the following agreements dated January 31, 1995 among Registrant, HPSC Bravo Funding Corp. and various other parties, which agreements are so filed as Exhibits 10.31 and 10.32, respectively, thereto: exhibits identified on page iv of the Purchase and Contribution Agreement; and exhibits identified in the Credit Agreement. Registrant agrees to furnish to the Securities and Exchange Commission, upon request, copies of such omitted exhibits. HPSC, INC. (Registrant) Dated: March 27, 1995 By: /s/ John W. Everets -------------------- John W. Everets Chairman of the Board Chief Executive Officer EX-13 14 EXHIBIT 13 EXHIBIT 13 HPSC INNOVATIVE FINANCIAL SERVICES 1994 ANNUAL REPORT "We have made substantial progress toward our goal: becoming the financial services company serving the healthcare professional." Volume 4th Quarter 1994: $12,480,000 Year: $32,609,000 Best 4th Quarter Volume since 1988 Stock Repurchase Stock Price: (High) 4, (Low) 3 1/4 Volume 3rd Quarter 1994: $9,185,000 Best Volume in 15 Quarters Volume 2nd Quarter 1994: $6,296,000 Stock Price: (High) 4 1/8, (Low) 3 1/4 Added: American Commercial Finance Corporation Added: Midwest Division Volume 1st Quarter 1994: $4,648,000 Volume 4th Quarter 1993: $3,403,000 $70 million asset securitization Stock Price: (High) 4, (Low) 3 1/4 *Volume 3rd Quarter 1993: $3,031,000 Strategic Planning begins June 1993: Healthco International Bankruptcy Stock Price: (High) 4, (Low) 2 * Transactions activated - at cost MARK TWAIN Life on the Mississippi: "Two things seemed pretty apparent to me. One was, that in order to be a pilot a man had got to learn more than any one man ought to be allowed to know; and the other was, that he must learn it, all over again in a different way every twenty-four hours." JOHN W. EVERETS Chairman, Chief Executive Officer, HPSC, Inc.: "...not unlike the financial services business." TO OUR STOCKHOLDERS 1994 was a year of transition for your company as we sought to rebuild our portfolio and improve operations and customer service in the wake of the bankruptcy of our sole vendor, Healthco International, Inc. The challenge was significant; but our people have met it head on, and I am proud to report that we have closed the year having made significant progress on all fronts. In last year's annual report, I listed seven key goals for this transition period. Let me report on them here: [Photograph] HPSC EXHIBITS AT MAJOR HEALTHCARE CONVENTIONS. 1. ACHIEVE A HIGHLY COMPETITIVE RETURN ON STOCKHOLDERS' EQUITY - Your company was profitable in every quarter during this transition year. 2. CREATE A HIGH QUALITY, DIVERSIFIED PORTFOLIO OF LEASES AND NOTES SECURED BY EQUIPMENT AND MERCHANDISE WITH PRIMARY EMPHASIS ON THE HEALTHCARE PROFESSIONS, INCLUDING BUT NOT LIMITED TO THE DENTAL PROFESSION - The HPSC portfolio has expanded to include six medical specialties as well as asset-based lending. 3. INCREASE SUBSTANTIALLY THE SIZE OF THE PORTFOLIO THROUGH NEW BOOKINGS AND PORTFOLIO ACQUISITIONS - By the fourth quarter of 1994, our backlog had grown substantially as compared to the same period in 1993. Fourth quarter volume of more than $12,000,000 was the largest since 1989. [Photograph] PODIATRY EXAMINING CHAIR 4. BUILD INVESTOR CONFIDENCE SO HPSC STOCK IS PRICED AT AN APPROPRIATE PREMIUM-TO-BOOK VALUE - In 1994, our increased bank credit line, growing backlog, portfolio securitizations and stock repurchase have contributed to increased investor confidence. 5. OFFER HPSC CUSTOMERS AND VENDORS EXCELLENT SERVICE - Our focus on customer service last year contributed greatly to strong repeat business from existing customers, as well as to a growing backlog. 6. INCREASE SIGNIFICANTLY THE NUMBER OF VENDORS WE NOW SERVE - In 1993 we had one vendor relationship; at the end of last year we had 100 vendor relationships. [Photograph] DENTAL OPERATORY WITH INTRA-ORAL CAMERA 7. MAINTAIN STRONG CONTROLS ON OVERHEAD EXPENSES WHILE MANAGING OPERATIONS THROUGH STATE-OF-THE-ART DATA PROCESSING - During the year, we expanded our services nationwide and still maintained profitability. Furthermore, we began development and testing of an enterprise-wide data processing system that is expected to be fully operational this summer, enabling us to provide greater levels of customer service with highly competitive rates. 1 [Photograph] PANORAMIC X-RAY Several developments in 1994 had an impact on the medical leasing market generally and on HPSC specifically. An important emerging influence was the rapid technological advancement in imaging, computer and diagnostic equipment. As these technologies lead to new and better medical products, companies that are focused on understanding and serving the equipment financing needs of the medical community at competitive rates should continue to find new opportunities. [Photograph] HOSPITAL NEONATAL INTENSIVE CARE UNIT Technology is also having a strategic impact on our own business because it contributes to our goal of providing unparalleled service to our customers. When fully operational, HPSC's new data processing technology will allow us to automate labor-intensive processes, providing faster responses to customer requests, more complete and accurate reporting and significant time savings for both the Company and its customers. [Photograph] QUARTERLY NEWSLETTER Another development was the failure of Congress to enact national healthcare legislation, which may have led to a greater willingness of doctors to consider purchasing new equipment. In addition, the prospects for reduced or stable lending rates and a healthier economy should continue to contribute to a feeling of greater security in the national medical equipment market. We also established sales locations in northern California, southern California, Georgia, Missouri and Illinois. We currently have customers in all fifty states, and our ongoing strategy is to establish sales offices in strategic markets that have a critical mass of customers and represent a healthy environment for medical equipment purchases. Our regional growth strategy, coupled with our focus on broadening the medical specialties we serve, is expected to help insulate the Company against the periodic regional economic downturns. In addition, in 1994 we formed American Commercial Finance Corporation (ACFC), a wholly-owned subsidiary, to provide asset-based lending, which immediately began building its portfolio. OB/GYN MONITOR 2 [Photograph] PHYSICIAN'S EXAMINING ROOM As we progress through 1995, we will continue to work to meet our goals of increased volume, portfolio growth, and profitability during this time of transition. We intend to accomplish these goals by becoming the finance company of choice for the medical profession through relationships with our customers that reflect the same level of commitment and attention they bring to their own professions, through ongoing efforts to add value via increased support and innovative, highly competitive financing programs. [Photograph] OPEN-PLAN DENTAL OFFICE As always, our employees have been, and will continue to be, critical to any progress we make. Now, through their own direct investment and our employee stock plans, most are shareholders. [Photograph] OPHTHALMIC EXAMINING LANE We began the difficult transition effort in the last quarter of 1993. Along with our dedicated board of directors, committed senior management, and employees at all levels, we have made substantial progress. Now, as we go through 1995 and beyond, we are optimistic about the future. /S/ John W. Everets John W. Everets CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER HEALTHCARE MARKETS SERVED BY HPSC ACTIVE PRACTITIONERS OFFICE BASED* Dentistry 120,000 Chiropractic 53,000 OB/GYN 33,000 Ophthalmology 16,000 Optometry 36,000 Podiatry 12,500 Veterinary 51,000 ----------------------------------- TOTAL 321,500 *Estimates from trade sources. 3 CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 25, (IN THOUSANDS, EXCEPT SHARE AMOUNTS) 1994 1993 ASSETS CASH AND CASH EQUIVALENTS $ 419 $ 16,600 RESTRICTED CASH 7,936 -- INVESTMENT IN LEASES AND NOTES: Lease contracts receivable and notes receivable due in installments 103,531 126,369 Estimated residual value of equipment at end of lease term 9,321 12,325 Less unearned income (16,924) (21,803) Less allowance for losses (4,595) (6,897) Less security deposits (2,639) (2,860) Deferred origination costs 2,499 2,618 ---------------------------------------------------------------------------------------------------------- Net investment in leases and notes 91,193 109,752 ---------------------------------------------------------------------------------------------------------- OTHER ASSETS: Other assets 2,154 1,812 Refundable income taxes 1,446 2,273 ---------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 103,148 $ 130,437 ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY NOTES PAYABLE TO BANKS $ 16,500 $ 7,130 NOTES PAYABLE - TREASURY STOCK PURCHASE 4,500 -- ACCOUNTS PAYABLE 2,450 5,348 ACCRUED INTEREST 293 3,434 INCOME TAXES: Currently payable 20 310 Deferred 5,539 6,632 SENIOR NOTES 41,024 50,000 SUBORDINATED DEBT (net of unamortized discount of $38) -- 19,962 ---------------------------------------------------------------------------------------------------------- Total Liabilities 70,326 92,816 ---------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY: Preferred Stock, $1.00 par value; authorized 5,000,000 shares; Issued - None -- -- Common Stock, $.01 par value; 15,000,000 shares authorized; and issued 5,574,395 in 1994 and 4,923,571 shares in 1993 56 49 Treasury Stock (at cost) 1,225,182 shares (5,023) -- Additional paid-in capital 15,916 13,645 Retained earnings 24,601 24,151 Cumulative foreign currency translation adjustments (552) (224) ---------------------------------------------------------------------------------------------------------- 34,998 37,621 Less deferred ESOP and SESOP compensation (2,176) -- ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 32,822 37,621 ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $ 103,148 $ 130,437 ---------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 4 CONSOLIDATED STATEMENTS OF INCOME
EACH OF THE YEARS ENDED ------------------------------------------- DECEMBER 31, DECEMBER 25, DECEMBER 26, (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS) 1994 1993 1992 REVENUES Earned income on leases and notes $ 12,319 $ 17,095 $ 21,734 Provision for losses (754) (15,104) (4,307) -------------------------------------------------------------------------------------------------- Net Revenues 11,565 1,991 17,427 -------------------------------------------------------------------------------------------------- EXPENSES Selling, general and administrative 6,970 5,160 3,574 Interest, net 3,845 8,979 10,609 -------------------------------------------------------------------------------------------------- Total Expenses 10,815 14,139 14,183 -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- Income (Loss) before Income Taxes 750 (12,148) 3,244 -------------------------------------------------------------------------------------------------- Provision (Benefit) for Income Taxes 300 (4,870) 1,260 -------------------------------------------------------------------------------------------------- Net Income (Loss) $ 450 $ (7,278) $ 1,984 -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- Net Income (Loss) per Share $ .09 $ (1.48) $ .40 -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- Shares Used to Compute Net Income (Loss) per Share 4,989,391 4,923,233 4,922,473
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 5 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
DEFERRED CUMULATIVE COMMON STOCK ADDITIONAL ESOP & FOREIGN CURRENCY (IN THOUSANDS, EXCEPT -------------------- PAID-IN RETAINED TREASURY SESOP TRANSLATION SHARE AMOUNTS) SHARES AMOUNT CAPITAL EARNINGS STOCK COMPENSATION ADJUSTMENTS TOTAL ---------------------------------------------------------------------------------------------------------------------- Balance at December 28, 1991 4,921,427 $ 49 $ 13,640 $ 29,445 $ -- $ -- $ 251 $43,385 Issuance of Common Stock 1,250 -- 3 -- -- -- -- 3 Net income -- -- -- 1,984 -- -- -- 1,984 Foreign currency translation adjustments -- -- -- -- -- -- (331) (331) ---------------------------------------------------------------------------------------------------------------------- Balance at December 26, 1992 4,922,677 49 13,643 31,429 -- -- (80) 45,041 Issuance of Common Stock 894 -- 2 -- -- -- -- 2 Net loss -- -- -- (7,278) -- -- -- (7,278) Foreign currency translation adjustments -- -- -- -- -- -- (144) (144) ---------------------------------------------------------------------------------------------------------------------- Balance at December 25, 1993 4,923,571 49 13,645 24,151 -- -- (224) 37,621 Issuance of Common Stock 824 -- 3 -- -- -- -- 3 Net income -- -- -- 450 -- -- -- 450 Purchase of Treasury Stock -- -- -- -- (5,023) -- -- (5,023) Issuance of Common Stock to ESOP & SESOP 650,000 7 2,268 -- -- (2,275) -- -- ESOP Compensation -- -- -- -- -- 99 -- 99 Foreign currency translation adjustments -- -- -- -- -- -- (328) (328) ----------------------------------------------------------------------------------------------------------------------- Balance at DECEMBER 31, 1994 5,574,395 $56 $15,916 $24,601 $(5,023) $(2,176) $(552) $32,822 ----------------------------------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 6 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE YEARS ENDED ----------------------------------------- DECEMBER 31, DECEMBER 25, DECEMBER 26, (IN THOUSANDS) 1994 1993 1992 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $450 $(7,278) $1,984 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 450 1,088 982 Deferred income taxes (1,093) (4,333) (1,483) Provision for losses on lease contracts and notes receivable 754 15,104 4,307 (Decrease) in accrued interest (3,141) (79) (392) (Decrease) increase in accounts payable (2,898) 882 (893) (Decrease) increase in accrued income taxes (290) (880) 1,035 Decrease (increase) in refundable income taxes 827 (1,968) 214 Decrease (increase) in other assets 837 (953) (225) ---------------------------------------------------------------------------------------------------------- Cash (used in) provided by operating activities (4,104) 1,583 5,529 ---------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (625) (214) (114) Proceeds from sale of receivables 6,958 -- -- Lease contracts receivable and notes receivable 11,957 41,136 26,269 Estimated residual value of equipment 2,339 2,734 1,599 Unearned income (3,346) (11,988) (9,782) Security deposits (221) (603) (131) Deferred origination costs 119 923 269 ---------------------------------------------------------------------------------------------------------- Cash provided by investing activities 17,181 31,988 18,110 ---------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Repayment of senior notes (78,976) -- (18,000) Repayment of subordinated debt (20,000) -- -- Repayment of notes payable to banks -- (14,000) (24,400) Proceeds from issuance of senior notes 70,000 -- -- Increase in notes payable treasury stock purchase 4,500 -- -- Net (decrease) increase in demand notes payable to banks (7,130) (3,454) 991 Proceeds from revolving notes payable to banks 16,500 -- 14,400 Purchase of treasury stock (5,023) -- -- Debt issuance costs (967) -- -- Increase in restricted cash (7,936) -- -- Proceeds from issuance of common stock 3 2 3 Contribution to employee stock ownership plan 99 -- -- Other (328) (144) (331) ---------------------------------------------------------------------------------------------------------- Cash used in financing activities (29,258) (17,596) (27,337) ---------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (16,181) 15,975 (3,698) Cash and cash equivalents at beginning of year 16,600 625 4,323 ---------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $419 $16,600 $625 ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- Supplemental disclosures of cash flow information: Interest paid $7,105 $8,103 $10,170 Income taxes paid 2,018 2,587 1,719
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A ------------------------------------------------------------------------------- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL - Until Healthco International, Inc. ("Healthco") filed for bankruptcy on June 9, 1993, Healthco referred to the Company substantially all of the Company's financing business. Healthco was a leading distributor of merchandise, equipment and services to dentists and institutional providers of dental care, including dental schools and dental laboratories. Healthco also provided certain sales and related services to the Company as well as certain management, data processing and administrative services to the Company. Healthco also owned 1,949,182 shares of the Company's Common Stock, which it had pledged to certain of its secured creditors (the "Secured Creditors") and, as a result of the bankruptcy of Healthco, the Secured Creditors and the Company made certain claims against each other for moneys due. During 1994, HPSC replaced substantially all of the business that was previously referred to it by Healthco with business from other vendors and now provides for itself the sales, management, data processing and administrative services previously provided by Healthco. As of November 1, 1994, the Company entered into a Purchase and Sale Agreement with the Secured Creditors pursuant to which the Company and certain individual investors agreed to acquire the shares of the Company's stock pledged to the Secured Creditors and to resolve all claims, which may arise out of the Healthco bankruptcy, between the Company and the Secured Creditors. The total consideration to be paid under the Purchase and Sale Agreement was $9 million, $4.5 million to be paid at closing and $4.5 million to be paid in the form of a six-month promissory note, collateralized by the shares of HPSC Common Stock purchased by the Company. On December 30, 1994, the Company and the Secured Creditors closed the transaction provided for in the Purchase and Sale Agreement. The Company acquired 1,225,182 shares of its Common Stock, subject to the pledge of those shares to the Secured Creditors. Individual investors acquired the remaining 724,000 shares. Mutual releases of claims were exchanged at the closing; provided, that the release of the Secured Creditors' claims against HPSC, if any, is contingent upon the Company's repayment in full of the note. The Company entered into an agreement to sell substantially all the finance assets of Credident Inc. ("Credident"), the Company's Canadian subsidiary, effective June 30, 1994, to Newcourt Credit Group, Inc. ("Newcourt") for approximately (US) $7 million cash. The Company also entered into a service agreement whereby Newcourt will manage certain accounts over the next two years for a fee related to collections. The sale did not have a material effect on the Company's operations. Subsequent to the sale, all of Credident's Canadian bank debt was retired. The sale of substantially all of Credident's finance assets is consistent with the Company's strategic plan to focus on its business in the United States. As of December 31, 1994, in light of the fact that the Company had discontinued its Canadian operations, the Company wrote off all assets deemed uncollectible at that time. Credident's total assets at December 31, 1994, were approximately 1.5% of the Company's total consolidated assets and Credident's earned revenues represented 4.0% of total consolidated earned revenues. CONSOLIDATION - The accompanying consolidated financial statements include the following wholly-owned subsidiaries: HPSC Funding Corp. I ("HPSCF"), a special-purpose corporation formed in connection with a securitization transaction; Credident, and American Commercial Finance Corporation ("ACFC"), an asset-based lender focused primarily on accounts receivable and inventory financing at variable rates. All intercompany transactions have been eliminated. REVENUE RECOGNITION - At the inception of a transaction, the Company records the minimum payments and the estimated residual value, if any, associated with the transaction. The difference between the sum of the payments due plus residual less the cost of the transaction is recorded as unearned income. The unearned income is recognized as revenue over the life of the transaction using the interest method in substantially all cases. Recognition of revenue on these assets is suspended no later than when a transaction becomes 145 days delinquent in scheduled payments. CASH AND EQUIVALENTS - The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. FINANCING OPERATIONS - The Company provides credit to healthcare professionals. The Company finances dental, ophthalmic, chiropractic, veterinary, podiatry and other medical equipment utilized in the healthcare professions, as well as leasehold improvements, office furniture and equipment and certain other costs involved in opening or maintaining a healthcare provider's office. The Company also finances the acquisition of healthcare practices by healthcare professionals and, through its wholly-owned subsidiary, ACFC, engages in asset-based lending. The Company finances equipment only after a customer's credit has been approved and a financing agreement for the transaction has been executed. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses. The Company does not carry any inventory. The Company acquires the financed equipment from vendors at their customary selling price to other customers. ALLOWANCE FOR LOSSES - In connection with the Company's financing transactions, it records an allowance for losses in its portfolio. The extent of the allowance is based on a specific analysis of potential loss accounts, delinquencies and historical loss experiences. An account is reserved for or written off when deemed uncollectible. The Company occasionally repossesses equipment from lessees who have defaulted on their obligations to the Company. The amount of such equipment held for sale at December 31, 1994 was $0 compared to $7,800 at December 25, 1993. 8 Substantially all of the Company's financing agreements with its customers are non-cancelable and provide for a full payout at a fixed financing rate with a fixed payment schedule over a term of three to seven years. All leases are classified as direct financing leases. Delinquent installments on the Company's financing agreements amounted to $3,496,000 at December 31, 1994 compared to $4,805,000 at December 25, 1993. An account is considered delinquent when not paid within thirty days of the billing due date. Total balances on accounts in non-accrual status at December 31, 1994, and December 25, 1993, were $6,181,000 and $7,395,000, respectively. INCOME TAXES - Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", which requires the use of the liability method of accounting for deferred income taxes. The cumulative effect of the adoption of SFAS 109 was not material for fiscal year 1993. Under the provisions of SFAS 109, the Company elected not to restate prior years' financial statements. Investment and similar credits are applied as a reduction of US income taxes using the flow-through method. TRANSLATION OF FOREIGN CURRENCIES - The assets and liabilities of Credident are translated at the exchange rate in effect at each year-end and the related translation adjustments are deferred as a separate component of stockholders' equity. Income statement accounts are translated at the average rate of exchange prevailing during the year. INCOME (LOSS) PER SHARE - Income per share computations for the years ended December 31, 1994, and December 26, 1992, are based on the weighted average number of common and common share equivalents outstanding. At December 31, 1994, the calculation included only allocated shares under the Company's ESOP and SESOP plans. Fully diluted and primary income per share are the same for each of the periods presented. For the year ended December 25, 1993, the weighted average number of common shares outstanding was used to calculate (loss) per share. DEFERRED ORIGINATION COSTS - The Company capitalizes initial direct costs that directly relate to the origination of leases and notes receivable. These initial direct costs are comprised of certain specific activities related to processing requests for financing. Deferred origination costs are amortized over the life of the receivable as an adjustment of yield. NOTE B ------------------------------------------------------------------------------- NOTES PAYABLE TO BANKS AND OTHER DEBTS The Company retired its outstanding $50,000,000 10.125% Senior Notes with the proceeds of the Securitization described below (principal and interest of $52,527,000) on December 27, 1993. The Company's $20,000,000 10% Subordinated Notes were retired at par value plus accrued interest of $1,000,000 on January 15, 1994. The Company raised $70,000,000 in a receivable-backed securitization transaction ("Securitization") on December 27, 1993. Under the terms of the Securitization, the Company formed a wholly-owned, special-purpose subsidiary, HPSC Funding Corp. I ("HPSCF") to which the Company sold or contributed certain of its equipment lease contracts, conditional sales agreements, leasehold improvement loans, equipment residual rights and rights to underlying equipment ("Collateral"). HPSCF subsequently issued $70,000,000 of secured notes ("Notes"), bearing interest at 5.01%, secured by the Collateral. The Notes are rated "AAA" by Standard & Poor's. Monthly payments of interest and principal on the Notes are made through the application of regularly scheduled monthly receivable payments on the Collateral. The Company is the servicer of the Collateral portfolio, subject to its meeting certain covenants. The required monthly payments of interest and principal to holders of the Notes are unconditionally guaranteed by Municipal Bond Investor Assurance Corporation pursuant to the terms of a Note guarantee insurance policy. In connection with the Securitization, the Company made an investment in HPSCF. Some or all of the Company's investment in HPSCF may be required to fund payments to holders of the Notes if certain default and delinquency ratios applicable to the Collateral are not met. As of December 31, 1994, HPSCF had approximately $53,903,000 of gross receivables as collateral to the Notes. The Agreement also provides for restrictions on cash balances under certain conditions; at December 31, 1994, this restricted cash amounted to $7,936,000. Note payments to investors, based on projected cash flows from the Collateral, for the years 1995 through 1999 are expected to be as follows: $19,263,000, $13,419,000, $6,270,000, $1,744,000 and $328,000, respectively. On June 23, 1994, the Company executed a $20,000,000 revolving credit agreement with the First National Bank of Boston as Agent Bank ("Revolving Loan Agreement"). Under this agreement, the Company may acquire US dollar loans at variable rates of prime plus 1/4% to 1/2% or Eurodollar loans at LIBOR plus 1.75% to 2.0%, depending on certain performance covenants and borrowing base as defined in the agreements. At December 31, 1994, the Company had $3,500,000 available under this agreement. This agreement expires at December 31, 1995. In February, 1995, the Revolving Loan Agreement was amended to increase availability under the Agreement to $25,000,000 through April 30, 1995. As of November 30, 1994, the Company executed a Purchase and Sale Agreement with the Healthco Secured Creditors (as described in Note A) to purchase 1,225,182 shares for $6,285,000, payable $1,785,000 at closing (December 30, 1994) and $4,500,000 pursuant to a Promissory Note which provides for six equal monthly payments of $750,000 beginning February 1, 1995. As of January 31, 1995, the Company, along with its newly-formed, wholly-owned, special-purpose subsidiary, HPSC Bravo Funding Corp. ("Bravo") completed a $50,000,000 revolving credit facility structured and guaranteed by Capital Markets Assurance Corporation ("CapMAC"). Under the terms of the facility, Bravo, to which the Company has sold and may continue to sell or contribute certain of its portfolio assets, pledges its interests in these assets to a commercial-paper conduit entity. Bravo incurs interest at variable rates 9 in the commercial paper market and enters into interest rate swap agreements to assure fixed rate funding. Monthly settlements of principal and interest payments are made from the collection of payments on Bravo's transactions. Additional sales to Bravo from HPSC may be made subject to certain covenants regarding Bravo's portfolio performance and borrowing base calculations. The Company is the servicer of the Bravo portfolio, subject to meeting certain covenants. The required monthly payments of principal and interest to purchasers of the commercial paper are guaranteed by CapMAC pursuant to the terms of the agreement. Amortization of debt discount of $38,000, $872,000, and $763,000 in 1994, 1993, and 1992, respectively, is included in interest expense. Deferred underwriting expense of $975,000 (included in other assets) was amortized over a ten-year term of the Subordinated Notes. The Company's long-term debt, as shown on the accompanying balance sheet, reflects its approximate fair market value. The fair market value is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same maturity. Certain debt/securitization agreements contain restrictive covenants which, among other things, include minimum net worth, interest coverage ratios, capital expenditures, and portfolio performance guidelines. At December 31, 1994, the Company was in compliance with the provisions of its debt covenants. Debt of the Company as of December 31, 1994, and December 25, 1993 is summarized below.
DEC. 31, DEC. 25, (IN THOUSANDS) 1994 1993 ---------------------------------------------------------- Senior Notes Due Dec. 28, 1993 -- $ 50,000 Senior Notes (HPSCF) Due Dec., 1999 $ 41,024 Notes Payable - treasury stock purchase Due July 1, 1995 4,500 Subordinated Notes, less unamortized discount, Due Jan. 15, 1994 -- 19,962 Bank Borrowings: Bank of Montreal credit line with interest at prime (5 1/2% at Dec. 25, 1993) due on demand -- 7,130 Revolving credit arrangement Due Dec. 31, 1995 16,500 ---------------------------------------------------------- Total $ 62,024 $ 77,092 ---------------------------------------------------------- ----------------------------------------------------------
Interest expense is net of interest income of $358,000, $78,000 and $54,000 in 1994, 1993, and 1992, respectively. NOTE C ------------------------------------------------------------------------------- LEASE COMMITMENTS The Company leases various office locations under non-cancelable lease arrangements that have terms of from three to five years and that generally provide renewal options from one to five years. Rent expense under all operating leases was $198,000, $92,000 and $163,000 for 1994, 1993 and 1992, respectively. Future minimum lease payments for commitments exceeding twelve months under non-cancelable operating leases as of December 31, 1994, are as follows (in thousands):
1995 . . . . . . . . . . . . . . . . . . . . . .$ 264 1996 . . . . . . . . . . . . . . . . . . . . . . 267 1997 . . . . . . . . . . . . . . . . . . . . . . 260 1998 . . . . . . . . . . . . . . . . . . . . . . 245 1999 and thereafter. . . . . . . . . . . . . . . 147
NOTE D ------------------------------------------------------------------------------- INCOME TAXES Deferred income taxes reflect the impact of "temporary differences" between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. The components of income (loss) before income taxes are as follows:
FOR EACH OF THE YEARS ENDED DEC. 31, DEC. 25, DEC. 26, (IN THOUSANDS) 1994 1993 1992 ----------------------------------------------------------------- Domestic $ 891 $(11,661) $ 2,835 Foreign (141) (487) 409 ----------------------------------------------------------------- Income (loss) before income taxes $ 750 $(12,148) $ 3,244 ----------------------------------------------------------------- -----------------------------------------------------------------
Income taxes consist of the following:
FOR EACH OF THE YEARS ENDED DEC. 31, DEC. 25, DEC. 26, (IN THOUSANDS) 1994 1993 1992 ----------------------------------------------------------------- Federal Current $ 808 $ (1,079) $ 1,743 Deferred (530) (2,663) (1,024) State Current 635 -- 954 Deferred (563) (957) (569) Foreign Current (50) 542 46 Deferred -- (713) 110 ----------------------------------------------------------------- Provision (credit) for income taxes $ 300 $ (4,870) $ 1,260 ----------------------------------------------------------------- -----------------------------------------------------------------
10 Deferred income taxes arise from the following:
FOR EACH OF THE YEARS ENDED DEC. 31, DEC. 25, DEC. 26, (IN THOUSANDS) 1994 1993 1992 ----------------------------------------------------------------- Operating method $(3,498) $ (4,277) $ (2,537) Alternative minimum tax credit 2,147 -- 1,179 Other 258 (56) (125) ----------------------------------------------------------------- $(1,093) $ (4,333) $ (1,483) ----------------------------------------------------------------- -----------------------------------------------------------------
A reconciliation of the statutory federal income tax rate and the effective tax rate as a percentage of pre tax income for each year is as follows:
1994 1993 1992 ----------------------------------------------------------------- Statutory rate 34.0% 34.0% 34.0% State and franchise taxes net of US federal income tax benefit 5.2 5.2 8.0 Income not subject to income tax -- -- (4.9) Other .8 .8 1.7 ----------------------------------------------------------------- 40.0% 40.0% 38.8% ----------------------------------------------------------------- -----------------------------------------------------------------
The items which comprise a significant portion of deferred tax asset and liabilities as of December 31, 1994, and December 25, 1993, are as follows:
1994 1993 DEF. TAX DEF. TAX DEF. TAX (IN THOUSANDS) LIABILITIES ASSET LIABILITIES ------------------------------------------------------------------- Operating methodd $ 6,122 $ 1,211 $ 8,726 State income tax accrual 1,273 -- 1,836 Alt. minimum tax credit (609) -- (2,710) Other (1,247) (453) (1,220) ------------------------------------------------------------------- Deferred income taxes $ 5,539 $ 758 $ 6,632 ------------------------------------------------------------------- -------------------------------------------------------------------
At December 31, 1994, the Company had available alternative minimum tax credit carry forward of $609,000. At December 31, 1994, consolidated retained earnings included $387,000 of unremitted earnings net of cumulative foreign currency translation adjustments from the Company's foreign subsidiary. In the event of repatriation, the Company does not anticipate any significant additional income taxes. NOTE E ------------------------------------------------------------------------------- SCHEDULED FUTURE RECEIPTS ON LEASES AND NOTES Scheduled future receipts on leases and notes, excluding the residual value of the equipment, are as follows (in thousands):
1995 . . . . . . . . . . . . . . . . . . . .$ 38,445 1996 . . . . . . . . . . . . . . . . . . . . 29,883 1997 . . . . . . . . . . . . . . . . . . . . 18,527 1998 . . . . . . . . . . . . . . . . . . . . 10,204 1999 and thereafter. . . . . . . . . . . . . 6,472
NOTE F ------------------------------------------------------------------------------- STOCK OPTIONS AND STOCK PURCHASE PLANS The Company has outstanding options under three stock option plans: its Key Employee Stock Option Plan, dated March 23, 1983, as amended April 26, 1984 (the "1983 Plan") pursuant to which 220,000 shares are reserved; its Stock Option Plan, dated March 5, 1986 (the "1986 Plan") pursuant to which 500,000 shares are reserved; and its 1994 stock plan dated March 23, 1994 (the "1994 Plan") pursuant to which 200,000 shares are reserved. The 1983 Plan expired on March 23, 1993. All Plans provide that the option price, the option term and the terms and conditions upon which the options may be exercised, including the dates on which they may be exercised, will be determined by the Company's Board of Directors with respect to each option at the time it is granted. Options granted under the 1983 Plan are either incentive stock options or non-qualified options and were granted at no less than 85% of the fair market value of the Common Stock on the date of grant. Options outstanding under the 1983 Plan to purchase 69,750 shares were exercisable as of December 31, 1994. Officers and directors of the Company and its subsidiaries are eligible to participate under the 1986 Plan. Only non-qualified stock options may be granted under the 1986 Plan. Options outstanding under the 1986 Plan to purchase 178,000 shares of Common Stock are exercisable. A total of 155,000 shares of Common Stock were available for the grant of options under the 1986 Plan at December 31, 1994. Key employees and directors of, and consultants to, the Company are eligible to participate in the 1994 Plan. Only non-qualified options may be granted under the 1994 Plan, and the option exercise price may not be less than 50% of the fair market value of the Common Stock on the date of grant. Options outstanding under the 1994 Plan to purchase 21,000 shares of Common Stock are currently exercisable, and a total of 10,000 shares remained available for grant under the plan at December 31, 1994. An aggregate of 182,500 shares of Common Stock were originally reserved for issuance pursuant to the Company's 1986 Employee Stock Purchase Plan, dated September 11, 1986 and effective as of January 5, 1987 (the "Stock Purchase Plan"). Available shares are reduced by options granted under the 1983 Plan after the effective date of the Stock Purchase Plan. 11 Under the Stock Purchase Plan, eligible employees have the right to acquire, through authorized payroll deductions, shares of common stock. The Stock Purchase Plan provides that an employee may elect to acquire stock twice each year, on the first day of a six-month payment period, with the actual purchase to take place on the last business day of each such payment period at a purchase price of the lesser of 85% of the fair market value of the shares on the election date or on the purchase date. The maximum number of shares that an eligible participant will be allowed to purchase in any given period will be equal to the number of whole shares equal in value to ten percent (10%) of the employee's compensation divided by the purchase price. The Plan will remain in effect until the earlier of the date that all or substantially all of the unissued shares of common stock reserved under the Plan have been purchased or the date that the Plan is terminated by the Board of Directors. At December 31, 1994, employees had elected to acquire 317 shares of Common Stock which were subsequently purchased on January 1, 1995. During 1994 and 1993, 824 and 894 shares, respectively, were issued under the Stock Purchase Plan. The following table summarizes 1994 and 1993 activity under the Stock Option Plans and the Stock Purchase Plan:
1983 STOCK 1986 1994 OPTION PURCHASE OPTION OPTION PLAN PLAN PLAN PLAN ----------------------------------------------------------------- Shares available at Dec. 26, 1992 -- 70,448 500,000 -- Options granted in 1993: Price $2.625 -- -- 240,000 -- Price $3.25 21,875 -- 135,000 -- Price $3.75 -- -- 30,000 -- Shares purchased in 1993 -- 894 -- -- Options canceled in 1993 -- -- (60,000) -- 1983 Plan expired Mar. 23, 1993, remaining options (48,259) -- -- -- 1994 Stock Plan Shares available Mar. 29, 1994 -- -- -- 200,000 Options granted in 1994 Price $3.375 -- -- -- 10,000 Price $3.5625 -- -- -- 80,000 Price $3.625 -- -- -- 10,000 Price $3.75 -- -- -- 50,000 Price $4.00 -- -- -- 55,000 Shares purchased in 1994 -- 824 -- -- Options canceled in 1994 (25,000) -- -- (15,000) Options outstanding at Dec. 31, 1994 101,875 -- 345,000 190,000 Shares available at Dec. 31, 1994 -- 71,855 155,000 10,000 ----------------------------------------------------------------- -----------------------------------------------------------------
NOTE G ------------------------------------------------------------------------------- TRANSACTIONS BETWEEN AFFILIATED COMPANIES Until Healthco filed for bankruptcy on June 9, 1993, Healthco provided certain sales and related services to the Company. The cost to the Company of such services was approximately $267,000 and $843,000 in 1993 and 1992, respectively. In addition, Healthco provided certain management, data processing, and administrative services to the Company. The cost of these services was $129,000 and $239,000 in 1993 and 1992, respectively. The Company leased its office space from Healthco until August 9, 1993. Rental expense, including real estate taxes, in connection with this lease was $48,000 and $156,000 in 1993 and 1992, respectively. The Company leased certain equipment to Healthco, which is also accounted for as direct financing leases. The amount due from Healthco was $1,051,000 at December 25, 1993. Payments received in connection with these leases were $680,000 in 1993. Until mid-1993, the Company purchased from Healthco substantially all of the dental equipment which it leased to its customers. Such purchases were $6,603,000 and $20,657,000 in 1993 and 1992, respectively. The Company also financed Healthco's customers through conditional sale agreements in the amount of $2,890,000 and $4,887,000 in 1993 and 1992, respectively. The amount payable to Healthco was $1,925,000 at year-end 1993. In addition, Healthco from time to time purchased repossessed dental equipment from the Company. Healthco is currently being liquidated pursuant to a proceeding under Chapter 7 of the United States Bankruptcy Code. Healthco is no longer providing services, leasing equipment or office space or selling equipment to the Company under the arrangements describe above. As described in Note A, certain Healthco Secured Creditors and the Company have entered into releases covering claims which may arise out of the Healthco bankruptcy. Accordingly, there are no balances in payables or receivables between the Company and Healthco as of December 31, 1994. The Company provided an elective employee saving plan for all eligible employees through its participation in the Healthco Retirement Savings Plan, which qualified as a thrift plan under Section 401(k) of the Internal Revenue Code. The Company's participation in this Plan was terminated July 1, 1993. The costs to the Company relating to the Plan were $6,059 in 1993. As described under "Employee Benefit Plans" the Company has established a Savings Plan for its employees. 12 NOTE H ------------------------------------------------------------------------------- EMPLOYEE BENEFIT PLANS In December 1993, the Company established a stock bonus type of Employee Stock Ownership Plan ("ESOP") for the benefit of all eligible employees. The ESOP is expected to be primarily invested in common stock of the Company on behalf of the employees. The Company made contributions of $99,000 in 1994 for the 1993 allocation to the ESOP. Employees with five or more years of service with the Company from and after December 1993 at the time of termination of employment will be fully vested in their benefits under the ESOP. For a participant with fewer than five years of service from December 1993 through his or her termination date, his or her account balance will vest at the rate of 20% for each year of employment. Upon the retirement or other termination of an ESOP participant, the shares of common stock in which he or she is vested, at the option of the participant, may be converted to cash or may be distributed. The unvested shares are allocated to the remaining participants on a rational basis. The Company has issued 300,000 shares of Common Stock to this plan in consideration of a Promissory Note in the principal amount of $1,050,000; 28,280 shares of Common Stock were allocated to participant accounts for 1993 under the ESOP. No allocation has yet been made for 1994. In July 1994, the Company adopted a Supplemental Employee Stock Ownership Plan ("SESOP") for the benefit of all eligible employees. Eligibility requirements are similar to the ESOP discussed above except that any amounts allocated under the SESOP would first be allocated to the accounts of certain highly compensated employees to make up for certain limitations on Company contributions under the ESOP required by the 1993 Tax Act and next to all eligible employees on a non-discriminatory basis. The Company has issued 350,000 shares of Common Stock to this plan in consideration for a Promissory Note in the principal amount of $1,225,000. No allocations have yet been made to participant accounts for 1994. In July 1993, the Company established a Savings Plan for its employees, which allows participants to make contributions by salary deductions pursuant to Section 401(k) of the Internal Revenue Code. The Company matches employee contributions up to a maximum of 2% of the employee's salary. Both employee and employer contributions are vested immediately. The Company's contributions to the Savings Plan were $ 37,975 in 1994, and $5,263 in 1993. NOTE I ------------------------------------------------------------------------------- PREFERRED STOCK PURCHASE RIGHTS PLAN Pursuant to a rights agreement between the Company and the First National Bank of Boston, as rights agent, dated August 3, 1993, the Board of Directors declared a dividend on August 3, 1993 of one preferred stock purchase right ("Right") for each share of the Company's common stock (the "Shares") outstanding on or after August 13, 1993. The Right entitles the holder to purchase one one-hundredth of a share of Series A Preferred Stock, which fractional share is substantially equivalent to one share of Common Stock, at an exercise price of $20.00. The Rights will not be exercisable or transferable apart from the Common Stock until the earlier to occur of (i) 10 days following a public announcement that a person or affiliated group has acquired 15 percent or more of the outstanding Common Stock (such person or group, an "Acquiring Person"), or (ii) 10 business days after an announcement or commencement of a tender offer which would result in a person or group's becoming an Acquiring Person, subject to certain exceptions. The Rights beneficially owned by the Acquiring Person and its affiliates become null and void upon the Rights becoming exercisable. If a person becomes an Acquiring Person or certain other events occur, each Right entitles the holder, other than the Acquiring Person, to purchase common stock (or one one-hundredths of a share of Preferred Stock, in the discretion of the Board of Directors) having a market value of two times the exercise price of the Right. If the Company is acquired in a merger or other business combination, each exercisable Right entitles the holder, other than the Acquiring Person, to purchase Common Stock of the acquiring company having a market value of two times the exercise price of the Right. At any time after a person becomes an Acquiring Person and prior to the acquisition by such person of 50% or more of the outstanding Common Stock, the Board of Directors may direct the Company to exchange the Rights held by any person other than an Acquiring Person at an exchange ratio of one share of Common Stock per Right. The Rights may be redeemed by the Company, subject to approval of the Board of Directors, for one cent per Right in accordance with the provisions of the Rights Plan. The Rights have no voting or dividend privileges. 13 REPORT OF INDEPENDENT ACCOUNTANTS ------------------------------------------------------------------------------- TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF HPSC, INC.: We have audited the accompanying consolidated balance sheets of HPSC, Inc. as of December 31, 1994 and December 25, 1993, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of HPSC, Inc. as of December 31, 1994 and December 25, 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand, L.L.P. Boston, Massachusetts March 15, 1995 14 MARKET INFORMATION The table below sets forth the representative high and low bid prices for shares of the Common Stock in the over the counter market as reported by NASDAQ National Market System (Symbol: "HPSC") for the fiscal years 1994 and 1993:
1994 Fiscal Year High Low 1993 Fiscal Year High Low --------------------------------------------------------------------------------------------------- First Quarter. . . . . .$ 3 3/4 $ 3 1/4 First Quarter. . . . . $ 4 $ 3 1/8 Second Quarter . . . . .4 1/8 3 1/4 Second Quarter . . . . . 4 2 Third Quarter. . . . . .3 7/8 3 1/16 Third Quarter. . . . . . 3 1/2 2 5/8 Fourth Quarter . . . . .4 3 1/4 Fourth Quarter . . . . . 4 3 1/4
The foregoing quotations represent prices between dealers, and do not include retail markups, markdowns, or commissions. HOLDERS Approximate Number of Record Holders Title of Class (as of February 28, 1995) ------------------------------------------------------------------------------- Common Stock, par value $.01 per share 110 (1) (1) Excluded from the number of stockholders of record are approximately 1,000 "nominee" or "street name" holders. DIVIDENDS The Company has never paid any dividends and anticipates that for the foreseeable future its earnings will be retained for use in its business. 15 SELECTED FINANCIAL DATA
FOR EACH OF THE YEARS ENDED ---------------------------------------------------------------------- DECEMBER 31, DECEMBER 25, DECEMBER 26, DECEMBER 28, DECEMBER 29, (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1994 1993 1992 1991 1990 INCOME STATEMENT DATA Revenues: Earned Income on Leases and Notes $ 12,319 $ 17,095 $ 21,734 $ 25,565 $ 27,677 Provision for Losses (754) (15,104) (4,307) (4,403) (4,400) ---------------------------------------------------------------------- Net Revenues $ 11,565 $ 1,991 17,427 $ 21,162 $ 23,277 -------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- Net Income (Loss) $ 450 (7,278) $ 1,984 $ 3,182 $ 4,327 -------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- Income (Loss) per Share $ .09 (1.48) $ .40 $ .65 $ .88 -------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- Shares Used to Compute Earnings per Share 4,989,391 4,923,233 4,922,473 4,921,145 4,922,936 --------------------------------------------------------------------------------------------------------------------
AS AT ----------------------------------------------------------------------- DECEMBER 31, DECEMBER 25, DECEMBER 26, DECEMBER 28, DECEMBER 29, 1994 1993 1992 1991 1990 BALANCE SHEET DATA Cash and Cash Equivalents $ 419 16,600 $ 625 $ 4,323 $ 2,610 Restricted Cash 7,936 -- -- -- -- Lease Contracts Receivable and Notes Receivable 103,531 126,369 184,928 217,304 235,842 Unearned Income 16,924 21,803 33,791 43,573 51,648 Total Assets 103,148 130,437 158,857 185,168 195,476 Bank Debt 16,500 7,130 24,584 33,593 27,345 Senior Debt 41,024 50,000 50,000 68,000 92,000 Subordinated Debt -- 19,962 19,090 18,326 17,679 Stockholders' Equity 32,822 37,621 45,041 43,385 40,216
16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION RESULTS OF OPERATIONS ------------------------------------------------------------------------------- FISCAL 1994 COMPARED TO 1993 The Company's net income of $450,000 or $0.09 per share in 1994 compared with a loss of $7,278,000 or $1.48 per share in 1993. This increase was due principally to a decrease in the provision for losses and interest expense, offset by a decline in earned income on portfolio assets as well as a continuing increase in selling, general and administrative costs as part of the Company's continuing transition into an independent, "open-market" financial services company. Revenue from leases and notes for 1994 was $12,319,000 compared to $17,095,000 in 1993. This decline of 28% resulted primarily from a reduction of average portfolio assets from 1993 to 1994 of 26%. However, as the Company made the transition to an independent, open-market financial services company in 1994, it financed portfolio assets at a cost of $32,609,000 in 1994 compared to $16,402,000 in 1993, an approximately 99% increase in the amount of assets financed. At December 31, 1994, the Company had a $25,000,000 backlog, consisting of customer applications which have been approved but have not yet resulted in a completed transaction, compared to $6,400,000 at the end of 1993. Not all approved applications will result in financing transactions for the Company. The Company has reduced its cost of capital as a result of securitization and revolving line of credit transactions (see Note B to Financial Statements and Liquidity and Capital Resources). By reducing its cost of capital, the Company has been able to maintain competitive rates which it charges to its customers. Selling, general and administrative expenses were $6,970,000 in 1994 compared to $5,160,000 in 1993. As a result of the Healthco bankruptcy, the Company now maintains services which were formerly provided by Healthco under intercompany agreements between the two companies, including computer, tax compliance, human resources and certain advertising services. After the Healthco bankruptcy the Company hired additional senior management and sales and support personnel to assist the Company in its transition to a financial services organization no longer affiliated with a single vendor. In addition, as discussed above, the Company's level of activity in financing portfolio assets increased approximately 99% in 1994 over 1993. The Company has also incurred substantial legal fees in connection with the Healthco bankruptcy and the transition of the Company to an open market financial services organization. The provision for losses was $754,000 in 1994 compared to $15,104,000 in 1993. The allowance for losses of $4,595,000 for 1994 was approximately 5.0% of net investment in leases and notes compared to $6,897,000 or 6.3% in 1993. Net write-offs were $3,056,000 in 1994 compared to $17,423,000 in 1993. This 1994 amount includes approximately $1,166,000 of write-offs taken against the portfolio of Credident Inc., the Company's wholly-owned Canadian subsidiary. In June 1994, the Company entered into an agreement to sell substantially all the finance assets of Credident to Newcourt Credit Group, Inc. ("Newcourt") for approximately (US) $7,000,000 in cash. The Company entered into a service agreement whereby Newcourt will manage certain accounts over the next two years. Since the Company no longer generates new business in Canada, these managed accounts were written down to estimated net realizable value. The decrease in the provision for losses in 1994 is due in part to the decline in portfolio size, the increase in the allowance for losses in 1993 (see Management's Discussion and Analysis of Financial Condition Results of Operations for 1993 regarding the Healthco bankruptcy), and management's continuing analysis of the risks and diversification in its current portfolio of assets. The exposure to certain accounts generated in the mid to late 1980's has decreased significantly in the Company's portfolio to 7.7% at December 31, 1994. This category of accounts represented a substantial portion of the 1993 provision for losses. Net interest expense for 1994 was $3,845,000 compared to $8,979,000 in 1993. This 57% decrease resulted from a reduced level of average borrowings (30%) as well as reduced overall interest rates on outstanding debt. The Company funded its business in 1994 in part with fixed rate and revolving credit arrangements. The Company had income before income taxes in 1994 of $750,000 compared to a loss of $12,148,000 in 1993. The provision for income taxes was $300,000 in 1994 compared to a credit in 1993 of $4,870,000. Despite the adverse developments arising out of the Healthco bankruptcy in 1993, the Company replaced the business previously supplied by Healthco with referrals from other equipment vendors. The Company has established relationships with dental, medical, and other healthcare equipment distributors representing diversified sources of new business. All of the new financings entered into by the Company in 1994 involved equipment vendors other than Healthco. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1994, the Company had $419,000 in cash and cash equivalents compared with $16,600,000 at the end of 1993. As discussed in Note B to the Company's consolidated financial statements $7,936,000 of cash was restricted as of December 31, 1994, pursuant to the Securitization agreement with HPSCF discussed below. Cash used in operating activities was $4,104,000 for the year ended December 31, 1994 compared to cash provided by operating activities of $1,583,000 in 1993. Cash provided by investing activities was $17,181,000 for the 1994 year compared to $31,988,000 in 1993. On December 27, 1993, the Company raised $70,000,000 through an asset Securitization transaction in which a wholly-owned subsidiary, HPSC Funding Corp. I ("HPSCF"), issued senior secured notes at a rate of 5.01%. The notes were secured by a portion of the Company's portfolio which it sold in part and contributed in part to HPSCF. Proceeds of this financing were used to retire $50,000,000, 10.125% senior notes due December 28, 1993, and $20,000,000, 10% subordinated notes due January 15, 1994. 17 On June 23, 1994, the Company executed a $20,000,000 revolving credit agreement with the First National Bank of Boston as Agent Bank ("Revolving Loan Agreement"). Under this Agreement, the Company may acquire US dollar loans at variable rates of prime plus 1/4% to 1/2% or Eurodollar loans at LIBOR plus 1.75% to 2.0%, dependent on certain performance covenants. At December 31, 1994, the Company had $3,500,000 available under the Revolving Loan Agreement. This Agreement expires at December 31, 1995. In February, 1995, this Agreement was amended to increase availability to $25,000,000 until April 30, 1995. Also, as of November 1, 1994, the Company entered into a Purchase and Sale Agreement with the Healthco Secured Creditors pursuant to which the Company and certain individual investors agreed to acquire the shares of the Company's stock pledged to the Secured Creditors and to resolve all claims, which may arise out of the Healthco bankruptcy, between the Company and the Secured Creditors. The total consideration to be paid under the Purchase and Sale Agreement was $9 million, $4.5 million to be paid at closing and $4.5 million to be paid in the form of a six-month promissory note, collateralized by the shares of HPSC Common Stock purchased by the Company. On December 30, 1994, the Company and the Secured Creditors closed the transaction provided for in the Purchase and Sale Agreement. The Company acquired 1,225,182 shares of its Common Stock, subject to the pledge of those shares to the Secured Creditors. Individual investors acquired the remaining 724,000 shares. Mutual releases of claims were exchanged at the closing; provided, that the release of the Secured Creditors' claims against HPSC, if any, is contingent upon the Company's repayment in full of the note. As of January 31, 1995, the Company, along with its newly-formed, wholly-owned, special-purpose subsidiary, HPSC Bravo Funding Corp. ("Bravo") completed a $50,000,000 revolving credit facility structured and guaranteed by Capital Markets Assurance Corporation ("CapMAC"). Under the terms of the facility, Bravo, to which the Company has sold and may continue to sell or contribute certain of its portfolio assets, pledges its interests in these assets to a commercial-paper conduit entity. Bravo incurs interest at variable rates in the commercial paper market and enters into interest rate swap agreements to assure fixed rate funding. Monthly settlements of principal and interest payments are made from the collection of payments on Bravo's transactions. Additional sales to Bravo from HPSC may be made subject to certain covenants regarding Bravo's portfolio performance and borrowing base calculations. The Company is the servicer of the Bravo portfolio, subject to meeting certain covenants. The required monthly payments of principal and interest to purchasers of the commercial paper are guaranteed by CapMAC pursuant to the terms of the agreement. Amortization of debt discount of $ 38,000, $872,000, and $763,000 in 1994, 1993, and 1992, respectively, is included in interest expense. Deferred underwriting expense of $975,000 (included in other assets) was amortized over a ten-year term of the Subordinated Notes. The Company's long-term debt, as shown on the accompanying balance sheet, reflects its approximate fair market value. The fair market value is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same maturity. In order to finance adequately its anticipated growth, the Company will continue to seek to raise additional capital from bank and non-bank sources in 1995. The Company expects that it will be able to obtain additional capital at competitive rates, but there can be no assurance it will be able to do so. Inflation in the form of rising interest rates could have an adverse impact on the interest rate margins of the Company and its ability to maintain timely and adequate earning spreads on its portfolio assets. RESULTS OF OPERATIONS ------------------------------------------------------------------------------- FISCAL 1993 COMPARED TO 1992 The Company experienced a net loss of $7,278,000 or $1.48 per share in 1993 compared with net income of $1,984,000 or $.40 per share in 1992. In 1993 the Company experienced a substantial decrease in new business, increased selling, general and administrative costs and a substantial adjustment to its loan loss reserves, in each case largely as a result of the bankruptcy of Healthco, which previously had referred to the Company substantially all of the Company's business. Healthco filed for bankruptcy on June 9, 1993 and subsequently liquidated under Chapter 7 of the US Bankruptcy Code. Revenue from leases and notes for 1993 was $17,095,000 compared to $21,734,000 in 1992. This decline resulted from the effects of the Healthco bankruptcy and lower margins caused by declining interest rates. The 18% decline in revenue in 1993 resulted primarily from a reduction of average portfolio assets from 1992 to 1993 of 15%. The Company financed assets at a cost of $16,402,000 in 1993 compared to $30,625,000 in 1992. By reducing its cost of capital, the Company was able to lower the rates which it charged to its customers, thereby becoming more competitive while at the same time maintaining its margins on its financings. Selling, general and administrative expenses were $5,160,000 in 1993 compared to $3,574,000 in 1992. As a result of the Healthco bankruptcy, the Company had to replace services which were formerly provided by Healthco under intercompany agreements between the two companies, including computer, tax compliance, human resources and certain advertising services. After the Healthco bankruptcy the Company hired additional senior management and sales and support personnel to assist the Company in its transition to a financial services organization no longer affiliated with a single vendor. The Company also incurred substantial legal fees in connection with the Healthco bankruptcy and the transition of the Company to an open market financial services organization. 18 The provision for losses was $15,104,000 in 1993 compared to $4,307,000 in 1992. The allowance for losses of $6,897,000 for 1993 was approximately 6.3% of net investment in leases and notes compared to $9,216,000 or 5.9% in 1992. Net write-offs were $17,423,000 in 1993 compared to $6,124,000 in 1992. Delinquent installments amounted to $4,805,000 at December 25, 1993, compared to $9,917,000 at December 26, 1992. The Company continued to review credit guidelines in 1993 to adjust them as necessary to reflect current market and economic conditions. After the Healthco bankruptcy the Company carefully reviewed its existing loan loss reserves to ascertain the effects on its portfolio of the Healthco bankruptcy, a prolonged recession and recent tax increases. Based upon this review, management decided to increase substantially the Company's loan loss reserves from previous levels. This increase did not result from existing credit policies or collection procedures. A substantial portion of the additional loan loss reserves was taken on accounts generated in the mid to late 1980s. These accounts were previously reserved for in part but required additional reserves because the underlying value of Healthco equipment collateral had diminished substantially. Despite the Company's efforts to collect many of these accounts through aggressive and persistent collection litigation, the combination of reduced equipment value and the obligors' diminished ability to pay resulting from the prolonged recession made additional reserves necessary. Net interest expense for 1993 was $8,979,000 compared to $10,609,000 in 1992. This decrease resulted from a reduced level of borrowings as well as reduced interest rates on outstanding debt. The overall debt level was reduced by approximately $17,000,000 compared to the prior year. The decline in interest expense of 15% resulted primarily from a reduction in average debt from 1992 to 1993 of 20%. The Company funded its business in 1993 in part with a revolving credit arrangement, thereby taking advantage of more favorable finance rates of approximately 4.75% in 1993 compared to 5.0% in 1992. The Company had a loss before income taxes in 1993 of $12,148,000 compared to income of $3,244,000 in 1992. The provision for income taxes was a credit in 1993 of $4,870,000 compared to a provision of $1,260,000 in 1992. Despite the adverse developments arising out of the Healthco bankruptcy, the Company began in 1993 to replace the business previously supplied by Healthco with referrals from other equipment vendors. The Company established relationships with several dental, healthcare and other equipment distributors representing diversified sources of new business. Substantially all of the new financings entered into by the Company in the last half of 1993 involved equipment vendors other than Healthco. 19 OFFICERS JOHN W. EVERETS Chairman Chief Executive Officer RAYMOND R. DOHERTY President Chief Operating Officer RENE LEFEBVRE Vice President Treasurer Chief Financial Officer DIRECTORS John W. Everets Chairman Chief Executive Officer RAYMOND R. DOHERTY President Chief Operating Officer LOUIS J.P. CALISTI, DDS MPH Senior Vice President JOSEPH A. BIERNAT (2) Retired Former Senior Vice President United Technologies Corp. J. KERMIT BIRCHFIELD, JR. (1) Independent Consultant DOLLIE COLE (1) (2) Chairperson Dollie Cole Corporation Dallas, Texas SAMUEL P. COOLEY (1) (2) Retired Former Executive Vice President Shawmut National Corp. THOMAS M. MCDOUGAL, DDS (2) Practicing Dentist AUDITORS Coopers & Lybrand, L.L.P. One International Place Boston, Massachusetts 02110 TRANSFER AGENT First National Bank of Boston 100 Federal Street Boston, Massachusetts 02110 10-K HPSC's Annual Report on Form 10-K is available to stockholders without charge by writing to: Investor Relations Department HPSC, Inc. Sixty State Street, Suite 3520 Boston, Massachusetts 02109 (1) Member, Compensation Committee (2) Member, Audit Committee 20 HPSC Sixty State Street Boston, Massachusetts 02109 Tel 800-225-2488 | Fax 800-526-0259 EX-21 15 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF HPSC, INC. Name of Subsidiary Jurisdiction of Incorporation ------------------ ----------------------------- Credident, Inc. Canada American Commercial Finance Corporation Delaware HPSC Funding Corp. I Delaware HPSC Bravo Funding Corp. Delaware EX-23 16 EXHIBIT 23 EXHIBIT 23 ---------- CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We consent to the incorporation by reference in the registration statements of HPSC, Inc. on Form S-8 (File Nos. 33-10796 and 33-6075) of our reports dated March 15, 1995, on our audits of the consolidated financial statements and financial statement schedule of HPSC, Inc. as of December 31, 1994 and December 25, 1993 and for each of the three years in the period ended December 31, 1994, which reports are included or incorporated by reference in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. ---------------------------- Coopers & Lybrand L.L.P. Boston, Massachusetts March 24, 1995 EX-27 17 EXHIBIT 27 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1994 JAN-01-1994 DEC-31-1994 8,355 0 95,788 4,595 0 99,548 903 247 103,148 23,743 41,024 56 0 0 32,822 103,148 0 12,319 0 6,970 0 754 3,845 750 300 450 0 0 0 450 0.09 0.09