<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO ______
COMMISSION FILE NUMBER 1-041077
T & W FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 91-1844249
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
------------------------------- ----------------
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
6416 PACIFIC HIGHWAY EAST, TACOMA, WASHINGTON 98424
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (253) 922-5164
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 [ ]
The number of shares outstanding of the registrant's common stock as of August
11, 1999 was 8,410,863.
<PAGE> 2
T & W FINANCIAL CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
INDEX
PART I. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Item 1. Financial Statements Page
----
<S> <C>
a) Consolidated Statements of Income for the six months ended June 30, 1999 and 1998...........1
b) Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998.......................2
c) Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and
1998 .......................................................................................3
d) Consolidated Statements of Shareholders' Equity for the periods ended June 30,
1999 and December 31, 1998..................................................................4
e) Notes to Interim Consolidated Financial Statements..........................................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations .................................................................................8
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K................................................................14
Signature
</TABLE>
<PAGE> 3
T&W Financial Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
(In Thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Lease contract revenue $ 3,585 $ 8,107 $ 8,554 $ 15,410
Gain on sale of leases 8,997 (600) 15,029 9,080
Fee income 473 1,002 890 1,781
Servicing & Other Income 1,589 823 2,176 1,649
-------- -------- -------- --------
Total Revenues 14,644 9,332 26,649 27,920
-------- -------- -------- --------
Expenses:
Interest expense 1,473 4,570 3,742 8,345
Compensation and related expenses 1,162 3,443 2,272 6,195
Amortization of initial direct cost 1,102 701 1,664 1,744
Provision for credit losses 1,038 2,652 1,428 5,173
Other general and administrative
expenses 2,446 3,663 2,974 6,549
-------- -------- -------- --------
7,221 15,029 12,080 28,006
-------- -------- -------- --------
Income (Loss)before minority interest
and income taxes 7,423 (5,697) 14,569 (86)
Minority Interest (1,113) 855 (2,185) 13
-------- -------- -------- --------
Income (Loss) before income taxes 6,310 (4,842) 12,384 (73)
Income Taxes (2,272) 1,493 (4,459) (138)
-------- -------- -------- --------
Income (Loss) before Preferred Dividends 4,038 (3,349) 7,925 (211)
Preferred Stock Dividends -- (88) -- (88)
-------- -------- -------- --------
Net Income (Loss) $ 4,038 $ (3,437) $ 7,925 $ (299)
======== ======== ======== ========
Earnings Per Share: Basic and Diluted $ 0.48 $ (0.41) $ 0.94 $ (0.04)
Weighted Average Number of shares of
Common Stock and Common Stock
Equivalents Outstanding 8,400 8,408 8,400 8,403
</TABLE>
See accompanying notes
1
<PAGE> 4
T&W Financial Corporation and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
(Audited) (Unaudited)
------------ -----------
<S> <C> <C>
Assets
Cash and cash equivalents $ 11,394 $ 8,455
Dealer floor plans 9,522 7,576
Net investment in leases 167,516 231,406
Securitization receivables 49,001 63,759
Intangible assets, net 5,260 19,879
Other assets 8,343 15,849
-------- --------
Total Assets $251,036 $346,924
======== ========
Liabilities
Accounts payable and other accrued liabilities $ 18,000 $ 12,156
Notes payable - recourse 103,758 210,284
Notes payable - nonrecourse 29,624 19,700
Security deposits 13,065 14,823
Deferred income taxes 17,642 17,618
-------- --------
Total Liabilities 182,089 274,581
-------- --------
Minority Interest 11,271 10,528
-------- --------
Redeemable Preferred Stock of Subsidiary -- 4,342
-------- --------
Commitments and Contingencies
Shareholders' Equity
Preferred Stock -- --
Common Stock and paid-in capital 28,306 28,402
Retained Earnings 29,370 29,071
-------- --------
Total Shareholders' Equity 57,676 57,473
-------- --------
Total Liabilities and Shareholders' Equity $251,036 $346,924
======== ========
</TABLE>
See accompanying notes
2
<PAGE> 5
T&W Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(in Thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
1998 1999
--------- ---------
<S> <C> <C>
Cash Flows From Operations
Lease Payments Received $ 23,425 $ 107,171
Cash from Sale of Leases 160,820 80,919
--------- ---------
184,245 188,090
Operating Expenses (8,116) (25,041)
Interest Payments on Debt (3,742) (8,345)
Income Taxes Paid -- (162)
--------- ---------
Net Cash Provided by Operating Activities 172,387 154,542
--------- ---------
Cash Flows From Investing Activities
Purchase of Leased Equipment (137,000) (241,119)
Net (Advances) Repayments on Floor Plan 1,256 1,946
Cash Paid in Business Acquisition -- (13,272)
Cash Received in Acquisition, net of Cash Paid -- 1,126
Purchase of Equipment (431) (622)
--------- ---------
Net Cash Used by Investing Activities (136,175) (251,941)
--------- ---------
Cash Flows From Financing Activities
Proceeds from Sale of Common Stock, net of costs 146 96
Borrowings Under Debt Agreements - Leases 65,045 285,452
Borrowings Under Debt Agreements - Acquisitions -- 20,000
Principal Payments on Debt (111,121) (210,358)
Distributions to Minority Interests -- (730)
--------- ---------
Net Cash Provided (Used) by Financing Activities (45,930) 94,460
--------- ---------
Net Decrease in Cash and Cash Equivalents (9,718) (2,939)
Cash and Cash Equivalents, beginning of period 16,619 11,394
--------- ---------
Cash and Cash Equivalents, end of period $ 6,901 $ 8,455
========= =========
Reconciliation of Net Income (Loss) to Net Cash
Provided by Operating Activities
Net Income (Loss) $ 7,925 $ (299)
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and depreciation 2,177 3,260
Provision for credit losses 1,428 5,173
Gain on sale of leases (15,029) (9,080)
Minority interest 2,185 (13)
Deferred taxes 4,459 (24)
Preferred dividends accrued -- 88
Lease payments received 10,615 86,758
Initial direct costs incurred (3,269) (2,217)
Proceeds from sale of lease portfolio 160,820 80,919
Debt Issue costs paid (508) (1,508)
Changes in assets and liabilities exclusive
of the effects of business acquisitions:
(Increase) decrease in other assets (6,644) (3,987)
Net increase in security deposits 1,190 1,573
Increase (decrease) in accounts payable and
other accrued liabilities 7,038 (6,101)
--------- ---------
$ 172,387 $ 154,542
========= =========
</TABLE>
See accompanying notes
3
<PAGE> 6
T&W Financial Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity
(In Thousands)
<TABLE>
<CAPTION>
Common
Stock and
Paid-in Retained
Shares Capital Earnings Total
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 (Audited) 8,384 $ 28,117 $ 12,584 $ 40,701
Issuance of common stock 13 189 189
Net Income 16,786 16,786
-------- -------- -------- --------
Balance at December 31, 1998 (Audited) 8,397 28,306 29,370 57,676
Issuance of common stock 14 96 96
Net Income (299) (299)
-------- -------- -------- --------
Balance at June 30, 1999 (Unaudited) 8,411 $ 28,402 $ 29,071 $ 57,473
======== ======== ======== ========
</TABLE>
4
<PAGE> 7
T & W FINANCIAL CORPORATION AND AFFILIATES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
T&W Financial Corporation ("T&W" or the "Company") is a specialized commercial
finance company that was formed in November 1997 to provide capital equipment
financing, principally in the form of leases, to commercial entities.
Previously, the Company's operations were part of a group of pass-through
entities, each having primarily the same two individual owners. The assets,
liabilities and operations of these pass-through entities were transferred to
T&W Financial Services Company, L.L.C. ("TWFSC") a newly formed limited
liability company owned 85% by T&W and 15% by T&W Funding Company VI, L.L.C., an
entity owned by certain members of T&W's senior management. The Company's
operations extend throughout the United States and Canada, with no significant
concentration in any region except the Pacific Northwest. The Company's
headquarters are located in Tacoma, Washington.
The accompanying consolidated balance sheets and related interim consolidated
statements of income, cash flows and shareholders' equity are unaudited and have
been prepared in accordance with generally accepted accounting principles. In
the opinion of management, all adjustments, which consist of only normal
recurring items necessary for the fair presentation of these interim financial
statements have been included. Interim results are not necessarily indicative of
the results expected for the entire year.
NOTE 2. NET INVESTMENT IN LEASES
The Company's investments in leases have been pledged as collateral for certain
notes payable. The investment in leases which are in Special Purpose Entities
(the "SPEs") and pledged as collateral for related debt are referred to herein
as "Securitized". The net investment in leases presented by type of borrowing
for which the investment is pledged as collateral is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
December 31, 1998 June 30, 1999
(Audited) (Unaudited)
----------------- -------------
<S> <C> <C>
SECURITIZED:
Minimum lease payments receivable........ $ 36,349 $ 73,705
Estimated residual value of leased
equipment, net ....................... 5,481 4,491
Unearned lease revenue .................. (5,473) (10,573)
--------- ---------
36,357 67,623
--------- ---------
NOT SECURITIZED:
Minimum lease payments receivable........ 131,859 192,340
Estimated residual value of leased
equipment, net ....................... 16,370 7,003
Unearned lease revenue .................. (20,021) (36,671)
--------- ---------
128,208 162,672
--------- ---------
Allowance for credit losses ............. (2,106) (4,419)
Initial direct costs, net ............... 5,057 5,530
--------- ---------
Net Investment in Leases ............. $ 167,516 $ 231,406
========= =========
</TABLE>
The allowance for credit losses is maintained at a level the Company believes is
sufficient for estimate future losses related to uncollectible lease
receivables. A summary of activity in the allowance for credit losses account is
as follows (in thousands):
<TABLE>
<CAPTION>
Year ended Six Months ended
December 31, 1998 June 30, 1999
(Audited) (Unaudited)
----------------- ----------------
<S> <C> <C>
BALANCE, beginning ........................... $ 1,235 $ 2,106
Provision for credit losses .................. 5,249 5,173
Charge-offs .................................. (2,875) (2,680)
Recoveries ................................... 454 51
Additional allowance related to leases
acquired through business combinations ..... -- 769
Allowance allocated to leases sold ........... (1,957) (1,000)
------- -------
BALANCE, ending .............................. $ 2,106 $ 4,419
======= =======
</TABLE>
5
<PAGE> 8
NOTE 3. NOTES PAYABLE - RECOURSE
Notes payable for which the lender has recourse against the Company are secured
by guarantees of certain shareholders of the Company and for lines of credit
borrowings, underlying pledged leases and dealer floor plans, and are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
December June 30,
31, 1998 1999
(Audited) (Unaudited)
--------- -----------
<S> <C> <C>
US DOLLAR OBLIGATIONS
Payable to bank drawn on a $75 million credit facility, interest
payable monthly at prime (7.75% at June 30, 1999),
due November 1999 $ 60,000 $ 75,000
Payable to bank drawn on a $15 million credit line, interest
payable monthly at 1.5% above 30 day LIBOR, due as payments are made 240 --
on underlying leases (last lease payment due October 2001)
Payable to bank drawn on a $3 million credit line, interest
payable monthly at 1% over prime (8.75% at June 30, 1999),
due August 1999 1,750 3,000
Payable to bank drawn on a $7.5 million credit line, interest
payable monthly at 2.0% above 30 day LIBOR
(7.00% at June 30, 1999), due upon demand 6,645 7,275
Payable to financial institution, drawn on a $100 million credit
line, interest payable monthly at 1.25% above 30 day LIBOR
(6.19% at June 30, 1999), due July 1999 1,523 49,987
Payable to financial institution, drawn on a $20 million credit
line, interest payable monthly at 6.0% above 30 day LIBOR
(10.94% at June 30, 1999), due December 1999, secured by
securitization receivables -- 20,000
Acquisition notes payable, interest at 8%, $1 million paid
January, 1999, with remaining principal and interest due
quarterly to 2007, net of imputed interest discount of
$225,000 and $200,000 at December 31, 1998 and
June 30, 1999, respectively 4,487 3,343
-------- --------
74,645 158,605
-------- --------
CANADIAN DOLLAR OBLIGATIONS
Payable to bank drawn on a Cdn$30 million credit line
(temporarily increased to Cdn$ 40 million at
December 31, 1998) interest payable monthly at 0.75%
above prime (6.5% at June 30, 1999), due September, 1999 25,155 13,587
Payable to bank drawn on a Cdn$135 million securitization facility
interest payable monthly at 5.53% -- 35,540
Payable to bank drawn on a Cdn$3 million credit line, interest
payable monthly At 7.25% due on demand -- 1,079
Payable lease, interest payable monthly at 12.5%, due December 2000 -- 688
Debenture--Accel, interest payable quarterly at 9%,
due December 31, 1999 -- 228
Debenture--Onset, interest payable quarterly at 9%, due
October 1, 2004 -- 509
Other -- 48
Loan payable to affiliate with interest imputed at 8%, due 2003 3,958 --
-------- --------
29,113 51,679
-------- --------
$103,758 $210,284
======== ========
</TABLE>
6
<PAGE> 9
NOTE 4. SECURITIZATIONS
On March 31, 1999 the Company closed a securitization facility for $110 million
which was privately placed and in connection therewith, SPEs were formed to
issue lease-backed notes. Pursuant to terms of the facility, the Company sells
and transfers pools of leases to the first SPE, which then sells and transfers
rights and pledges an interest in the leased equipment to a second SPE. The
Company retains servicing rights for which it receives monthly servicing fee
income. The Company accounted for such transaction for financial reporting
purposes as a sale of the lease interests.
In May 1999, Onset Capital Corporation, a Canadian joint venture, completed its
second securitization. The Cdn$20.2 million (US$13.4 million) facility was
structured by CIBC Wood Gundy, the investment banking arm of Canadian Imperial
Bank of Canada. This is the second securitization of an overall committed
facility for Cdn$135 million (US$89.5 million). Under this facility, the initial
cash flows to the Company are considered debt under generally accepted
accounting principles and there is no immediate recognition of gain from the
sale of the lease receivables. The Company will recognize the net interest
margin over the lives of the leases.
NOTE 5. ACQUISITION AND REDEEMABLE PREFERRED STOCK
In April 1999, the Company completed the stock acquisition of Accel Financial
Group ("AFG"), a Canadian financial services company and joint venture partner
in Onset for Cdn$2.50 per share, (US$13.2 million cash). Additionally, in
connection with the acquisition, 2,603,287 shares of AFG common stock were
converted to 2,603,287 shares of TWFC Financial Holdings Ltd. ("LTD"), a
subsidiary of TWFSC, Class B Redeemable Preferred Stock at Cdn$2.50, (US$4.3
million).
The Class B Preferred Stock is non voting, has no par value, has liquidation
preferences at Cdn$2.50, and is redeemable at the rate of 10% a year for 10
years at a redemption price of Cdn$2.50 per share. Dividends on the Class B
Stock are payable quarterly at the rate of 8% per year and in preference to any
dividends on LTD's common stock. In the event of any liquidation, dissolution or
winding up of LTD, the holders of the outstanding shares of Class B Redeemable
Preferred Stock shall be entitled to be paid an amount equal to the face value
per share held before any sums shall be paid or assets distributed to the
holders of the common stock. If assets are insufficient to fully liquidate the
Redeemable Preferred Stock, then a pro-rata liquidation will be made. Holders of
Redeemable Preferred Stock are not entitled to vote on matters submitted to the
common shareholders of LTD unless required by Yukon law. TWFSC has guaranteed
the payment of all preferred dividends and the mandatory redemption's of the
Class B Preferred Stock of LTD.
7
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-looking statements are made throughout this Management's Discussion and
Analysis of Financial Condition and Results of Operations. Any statements
contained herein that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words
"believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar
expressions are intended to identify forward-looking statements.
The Company's forward looking statements are based primarily on the Company's
current expectations and are subject to a number of risks and uncertainties.
Important factors to consider in evaluating the Company's forward looking
statements include (1) the Company's ability to reduce its use of gain on sale
accounting, to manage growth and credit risk and to integrate new technologies;
(2) the level of credit enhancement required by rating agencies to achieve
investment grade status for debt securities issued by the special purpose
entities or owner trusts which purchase leases from the Company (the "SPEs");
(3) the collectability of securitization receivables which represent the excess
cash flows anticipated by the SPEs; (4) the Company's ability to identify
suitable acquisition candidates or complete acquisitions on reasonable terms and
to integrate acquisitions successfully; (5) the Company's ability to attract and
retain qualified management personnel; (6) the existence of a market for used
equipment that must be sold or re-leased to recover the residual value of such
equipment recorded by the Company, when guarantors of the residual values cannot
satisfy their obligations to the Company; (7) the Company's ability to create
and maintain relationships with equipment providers and referral sources to
generate sufficient origination volume; and (8) the ability of lessees to comply
with the terms of their leases so these leases may qualify to serve as
collateral under the Company's bank lines of credit or as part of the lease pool
under the Company's securitization facilities. In view of the risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this Quarterly Report on Form 10-Q will, in fact, have the results
indicated, and accordingly, the actual results of the Company may differ
materially from those indicated by such forward-looking statements.
OVERVIEW
This report should be read in conjunction with the Company's audited annual
report (Form 10-K) for the year ended December 31, 1998 which has additional
information and disclosures that will assist the reader in understanding the
Company, the financial statements presented and the analysis that follows.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS AS OF OR FOR THE SIX
ENDED JUNE 30, MONTHS ENDED JUNE 30,
(UNAUDITED) (UNAUDITED)
------------------------ -------------------------------
1998 1999 1998 1999
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING DATA:
Lease financing Receivables Originated
Number of contracts ..................... 871 3,160 1,904 5,528
Lease originations(1) ................... $ 73,400 $122,942 $ 137,000 $ 241,119
Leases serviced Number of contracts ........ 10,521 19,137
Portfolio of leases serviced(2) ......... $ 403,348 $ 765,771
Average portfolio yield(3) .............. 13.3% 12.9%
Credit quality statistics Delinquencies
as a percentage of portfolio of
leases serviced
31--60 days ............................ 2.00% 2.78%
61--90 days ............................ 1.60% 1.27%
91--120 days ........................... 1.90% 0.77%
Over 120 days .......................... 0.90% 1.95%
----------- -----------
Total ............................. 6.40% 6.76%
=========== ===========
Net charge-offs(4) ....................... 0.53% 0.78%
</TABLE>
(1) Represents the equipment cost for leases originated during the period.
(2) Represents the aggregate of minimum lease payments, excluding residual
values except for guaranteed residuals related to the Specialty Vehicle
Finance Division under all leases serviced by the Company held as direct
financing leases and leases sold to SPEs.
(3) Represents the average yield recognized during the period for the
portfolio of leases serviced.
(4) Represents charge-offs (reduced by recoveries), divided by the
respective period's average net investment, including residuals, under
all leases serviced by the Company and either held as direct financing
leases or sold.
8
<PAGE> 11
RESULTS OF OPERATIONS
The Company's revenues are comprised of lease contract revenue, gain on sale of
leases, fee income, and servicing and other income. Lease contract revenue is
the revenue recognized from the net investment in leases held. Gain on sale of
leases is the revenue recognized under sale treatment for leases securitized.
Fee income represents security deposits which are recognized as income upon
lease expirations and commitment fees received upon the origination of leases.
Servicing and other income includes normal servicing fees, interest income and
amounts received from the owner trust relating to interest rate collar
agreements.
The Company's expenses are comprised of interest expense, compensation and
related expenses, amortization of initial direct costs, provisions for credit
losses and other general and administrative expenses. Interest expense includes
the expense related to notes payable and the amortization of related debt
issuance costs. Compensation and related expenses include salaries and bonuses
for employees and management fees to affiliates. Amortization of initial direct
costs relates to costs associated with originating leases, including
commissions, which are amortized over the period of the leases. Provisions for
credit losses are provided based on estimated future credit losses. Other
general and administrative expenses include trustee, legal and other
professional fees, and occupancy and other office-related expenses.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998.
Leases originated increased from $137.0 million for the six months ended June
30, 1998 to $241.1 million for the comparable period in 1999, representing an
increase of 76%. The portfolio of leases serviced increased from $403 million at
June 30, 1998 to $766 million at June 30, 1999, representing an increase of 90%.
This increase was due to a 76% increase in lease originations for the six months
ended June 30, 1999 as compared to the six months ended June 30, 1998.
Lease contract revenue increased from $8.6 million for the six months ended June
30, 1998 to $15.4 million for the comparable period in 1999, representing an
increase of 79% due primarily to an increased average net investment in leases
owned during the 1999 period.
Gain on sale of leases decreased from $15.0 million for the six months ended
June 30, 1998 to $9.1 million for the comparable period in 1999 representing a
decrease of 39%, due to management's decision not to sell leases in the second
quarter of 1999 as part of the Company's goal to retain more assets on the
balance sheet.
Fee income increased from $890,000 for the six months ended June 30, 1998 to
$1.8 million for the comparable period in 1999, representing an increase of
102%. This increase was due primarily to the Company's increased level of
originations and lease portfolio.
Servicing and other income decreased from $2.2 million for the six months ended
June 30, 1998 to $1.6 million for the comparable period in 1999, representing a
decrease of 27%, due primarily to reduced interest income resulting from reduced
levels of investable funds.
Total revenues increased from $26.6 million for the six months ended June 30,
1998 to $27.9 million for the comparable period in 1999, representing an
increase of 5% as a result of the net changes discussed above.
Interest expense increased from $3.7 million for the six months ended June 30,
1998 to $8.3 million for the comparable period in 1999, representing an increase
of 124%. The increase was due to increased average borrowings outstanding during
the 1999 period as compared to the prior year, and a higher interest rate on
certain borrowings.
Compensation and related expenses increased from $2.3 million for the six months
ended June 30, 1998 to $6.2 million for the comparable period in 1999,
representing an increase of 170%. The increase was due primarily to the increase
in the number of employees as the Company continues to increase its portfolio of
leases serviced.
The provision for credit losses increased from $1.4 million for the six months
ended June 30, 1998 to $5.2 million for the comparative period in 1999,
representing an increase of 271%. This increase was due to increased
originations and an increase in the provision rate, as a percentage of
originations from 1% in 1998 to 2% in 1999.
Other general and administrative expenses increased from $3.0 million for the
six months ended June 30, 1998 to $6.5 million for the comparable period in
1999, representing an increase of 117%. The increase was due primarily to
increased occupancy and related costs associated with supporting the Company's
growth and from the amortization of goodwill associated with acquisitions.
Total expenses increased from $12.1 million for the six months ended June 30,
1998 to $28.0 million for the comparable period in 1999, representing an
increase of 131%.
9
<PAGE> 12
As a result of the above factors, the Company reported net income of $7.9
million for the six months ended June 30, 1998 and a net loss of $299,000 for
the comparable period in 1999.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998.
Leases originated increased from $73.4 million for the three months ended June
30, 1998 to $122.9 million for the comparable period in 1999, representing an
increase of 67%. The portfolio of leases serviced increased from $403 million at
June 30,1998 to $766 million at June 30, 1999, representing an increase of 90%.
This increase was due to an increase in lease originations.
Lease contract revenue increased from $3.6 million for the three months ended
June 30, 1998 to $8.1 million for the comparable period in 1999, representing an
increase of 125% due primarily to an increased average net investment in leases
owned during the 1999 period.
As described above, the Company's securitizations have predominantly been
structured as sales for financial reporting purposes, rather than as financing
transactions as was the case in prior years. During the three months ended June
30, 1998, the Company recognized a gain on sale of $9.1 million. During the
three months ended June 30, 1999, the Company did not sell leases. Since the
Company plans to begin to structure its securitizations as debt transactions and
retaining leases on its balance sheet, it anticipates that gain on sale of
leases will continue to decrease and lease contract revenue will increase in the
future.
Fee income increased from $473,000 for the three months ended June 30, 1998 to
$1.0 million for the comparable period in 1999, representing an increase of
111%. This increase was due primarily to the Company's increased level of
originations and lease portfolio.
Servicing and other income decreased from $1.6 million for the three months
ended June 30, 1998 to $823,000 for the comparable period in 1999, representing
a decrease of 49%, due primarily to reduced interest income resulting from
reduced levels of investable funds.
Total revenues decreased from $14.6 million for the three months ended June 30,
1998 to $9.3 million for the comparable period in 1999, representing a decrease
of 36%.
Interest expense increased from $1.5 million for the three months ended June 30,
1998 to $4.6 million for the comparable period in 1999, representing an increase
of 207%. The increase was due to increased average borrowings outstanding during
the 1999 period as compared to the prior year, and a higher interest rate on
certain borrowings.
Compensation and related expenses increased from $1.2 million for the three
months ended June 30, 1998 to $3.4 million for the comparable period in 1999,
representing a decrease of 183%. The increase was due primarily to the increase
in the number of employees as the Company continues to increase its portfolio of
leases serviced.
Amortization of initial direct costs decreased from $1.1 million for the three
months ended June 30, 1998 to $701,000 for the comparable period in 1999,
representing a decrease of 36%. Initial direct costs, relative to the investment
in leases, decreased from December 31, 1996 to December 31, 1997 (the beginning
of the three month periods ended June 30, 1998 and 1997, respectively), which
resulted in decreased amortization charges during the 1998 period as compared to
the prior year.
The provision for credit losses increased from $1.0 million for the three months
ended June 30, 1998 to $2.7 million for the comparative period in 1999,
representing an increase of 170%. This increase was due to increased
originations and an increase in the provision rate, as a percentage of
originations from 1% in 1998 to 2% in 1999.
Other general and administrative expenses increased from $2.4 million for the
three months ended June 30, 1998 to $3.7 million for the comparable period in
1999, representing an increase of 54%. The increase was due primarily to costs
of moving into the new headquarters building, the amortization of goodwill
associated with acquisitions, and increased professional fees related to the
increased number of securitization facilities.
Total expenses increased from $7.2 million for the three months ended June 30,
1998 to $15.0 million for the comparable period in 1999, representing an
increase of 108%.
As a result of the above factors, the Company reported net income of $4.0
million for the three months ended June 30, 1998 and a net loss of $3.4 million
for the comparable period in 1999.
10
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
The Company requires a substantial amount of cash to implement its business
strategy, including, without limitation, cash to: (i) finance the purchase of
equipment that it leases; (ii) pay the fees and expenses incurred in the
securitization of leases; (iii) pay the fees and interest expense under its bank
lines of credit; (iv) pay operating expenses; and (v) satisfy working capital
requirements. These cash requirements, which have been satisfied through
securitizations, bank borrowings and the initial public offering of the
Company's stock, will increase as the Company's lease originations increase. No
assurance can be given that the Company will have access to the capital markets
in the future for equity or debt issuances or for securitizations or that
financing through bank lines of credit or other means will be available on
acceptable terms to satisfy the Company's cash requirements.
The following table sets forth the major components of the increase in cash and
cash equivalents:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
1998 1999
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Net cash provided by operating activities ..... $ 172,387 $ 154,542
Net cash used by investing activities ......... (136,175) (251,941)
Net cash provided (used) by financing
activities ................................ (45,930) 94,460
--------- ---------
Net decrease in cash and cash equivalents ..... $ (9,718) $ (2,939)
========= =========
</TABLE>
The Company must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support lease originations and satisfy line
of credit repayment requirements. The Company generally maintains sufficient
cash and short-term investments to meet short-term liquidity needs. At June 30,
1999, cash and cash equivalents totaled $8.5 million or 2.5% of total assets. At
June 30, 1999, the Company maintained various lines of credit which provided for
immediately available advances of up to $205.5 million. Advances under these
lines of credit totaled $172 million. In addition, the Company had a committed
Cdn$135 million (US $89.5 million) securitization facility. Advances on this
facility totaled US $35.5 million.
The Company believes, based on its historical cash requirements and anticipated
uses of cash, that the cash currently available and the cash to be derived from
the Company's operating, investing and financing activities will be sufficient
to meet its cash requirements and implement its business plan through the end of
2000.
SECURITIZATIONS.
Securitizations involve the pooling of lease receivables for sale in the
secondary market. The primary advantages of securitizations include: (i) quick
access to significant amounts of capital to fund growth in lease originations;
(ii) relatively lower cost of funds than commercial bank financing; and (iii)
greater flexibility with respect to sources of funding. From 1992 through 1999
the Company has completed the following securitizations:
<TABLE>
<CAPTION>
COMMENCEMENT SUBORDINATION
DATE AMOUNT RATING AGENCY LEVEL
------------ ------------- -------- ------------------ -------------
<S> <C> <C> <C> <C>
April 1992..... $12.1 million AA+ Duff & Phelps 20%
May 1993....... 10.6 million AAA/Aaa S&P/Moody's 13%
June 1994...... 30.0 million A-1/P-1 S&P/Moody's 13%
July 1995...... 90.0 million AAA/Aaa S&P/Moody's 8%
February 1997.. 61.6 million AAA/Aaa S&P/Moody's 8%
October 1997... 74.3 million AAA/Aaa Duff & Phelps 2%
March 1998 .... 86.0 million AAA/BBB Duff & Phelps/Fitch 2.5%
June 1998 ..... 117.5 million A-1/P-1 S&P/Moody's 0.0%
September 1998. 77.4 million AAA/A Duff & Phelps/Fitch 3.0%
December 1998.. 67.5 million A-1/P-1 S&P/Moody's 0.0%
March 1999..... 110.0 million AAA/A Duff & Phelps/Fitch 0.0%
--------------
TOTAL..... $737.0 million
==============
</TABLE>
The Company continually seeks to improve the efficiency of its securitizations
by reducing the Company's cost of capital or improving upon existing financing
terms. In the Company's latest securitization the subordination level was 0% and
the
11
<PAGE> 14
spread was 55 basis points over comparable United States Treasury securities.
The effect of these reduced subordination levels and spreads has been to
decrease the effective cost of the securitizations to the Company.
The Company has been able to fund substantially all of its lease originations
without impairing its working capital. Cash used for principal payments on notes
payable is principally generated from the monthly lease payments, which are
pledged as collateral for the notes.
Historically, the Company has structured its securitization facilities such that
they would be considered sales under generally accepted accounting principles.
As previously announced, the Company intends to reduce the use of such
structured facilities and structure future facilities to be considered as debt
transactions and retaining leases on its balance sheet. The primary effect under
this change is there is no immediate recognition of gain upon the sale of the
lease receivables, and income is recognized based on the net interest margin
over the life of the receivables.
12
<PAGE> 15
Part II. Other Information
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
10.1 Employment and Noncompetition Agreement dated as of June 30,
1999 between Thomas J. Virgin and T & W Financial Services Company
L.L.C.
10.2 Amalgamation Agreement dated as of November 6, 1998 entered into
among Accel Financial Group, Ltd., 802685 Alberta Ltd. and T&W Financial
Services Company L.L.C.
10.3 Amendment Agreement dated as of December 7, 1998 to Amalgamation
Agreement dated as of November 6, 1998 entered into among Accel
Financial Group, Ltd., 802685 Alberta Ltd. and T&W Financial Services
Company L.L.C.
10.4 Second Amendment Agreement dated January 29, 1999 to
Amalgamation Agreement dated as of November 6, 1998 entered into among
Accel Financial Group, Ltd., 802685 Alberta Ltd. and T&W Financial
Services Company L.L.C.
10.5 Third Amendment Agreement dated as of February 12, 1999 to
Amalgamation Agreement dated as of November 6, 1998 entered into among
Accel Financial Group, Ltd., 802685 Alberta Ltd. and T&W Financial
Services Company L.L.C.
10.6 Fourth Amendment Agreement dated as of March 1, 1999 to
Amalgamation Agreement dated as of November 6, 1998 entered into among
Accel Financial Group, Ltd., 802685 Alberta Ltd. and T&W Financial
Services Company L.L.C.
11. Computation of Earnings Per Share is on page 4.
27. Financial Data Schedule.
(B) REPORTS ON FORM 8-K
On February 12, 1998, T&W Financial Corporation filed a report on Form
8-K/A1 to amend a current report filed on Form 8-K filed on December 15,
1997. The Form 8-K/A1 was filed solely to add the financial statements
of the business unit acquired as required by Item 7(a) and the pro forma
financial information required by Item 7(b).
ITEMS 1 THROUGH 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
T & W Financial Corporation
Date: August 12, 1999 By: /s/ Thomas J. Virgin
-------------------------------------
Thomas J. Virgin
Senior Vice President,
Chief Financial Officer
13
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS AGREEMENT is entered into effective as of June 30, 1999 between
Thomas J. Virgin ("Employee") and T & W FINANCIAL SERVICES COMPANY L.L.C., a
Washington limited liability company ("T&W").
In consideration of the mutual covenants herein contained, the parties
agree as follows:
1. Employment.
Subject to the terms and conditions of this Agreement, T&W agrees to
appoint and employ Employee as the Senior Vice President and Chief Financial
Officer. Employee accepts employment effective as of the effective date of this
Agreement upon the following terms and conditions.
2. Term of Employment.
Employment under this Agreement shall be for a period of two (2) years
commencing on the effective date of this Agreement and terminating on the
earlier to occur of the following:
(a) June 30, 2001;
(b) Employee's death;
(c) at the option of T&W upon thirty (30) days prior written notice
to Employee in the event of the inability of Employee to perform
his duties hereunder by reason of injury or illness
incapacitating Employee for a continuous period exceeding one
hundred twenty (120) days; or
(d) upon the termination of Employee's employment by T&W for cause
in accordance with Section 9.1.
(e) upon the termination of Employee's employment by Employee
without cause in accordance with Section 9.2.
(f) upon the termination of Employee's employment by Employee for
cause in accordance with Section 9.3.
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<PAGE> 2
At the expiration date, this Agreement may be renewed by mutual
agreement of the parties.
2.2 T&W's Personnel Policies. T&W has implemented and adopted a
Policy and Procedure Manual which contains general policies regarding dress and
grooming, attendance and work rules and regulations. Employee acknowledges that
he has received a copy of T&W's Policy and Procedure Manual and agrees to follow
all rules therein pertaining to Employee's employment at T&W. However, the
Policy and Procedure Manual may be modified by T&W at any time without notice
and anything contained in the manual, or any modification to the manual, shall
not constitute a modification of this agreement. In the event of a conflict
between this Agreement and the Policy and Procedure Manual, this Agreement
controls.
3. Duties and Extent of Services.
3.1 Employee's principal duties on behalf of T&W at the effective
date of this Agreement shall be to perform the normal and usual duties of a
chief financial officer, and such other duties and responsibilities as assigned
to Employee by T&W from time to time.
3.2 Employee will devote substantially his entire time and attention
to the business of T&W, and shall not, during such employment, engage in any
other business activity which interferes with Employee's duties and
responsibilities under this Agreement. Employee shall not directly or indirectly
engage or participate in any activities at any time during the term of this
Agreement in conflict with the best interest of T&W.
4. Compensation.
In addition to other benefits referred to herein, T&W shall pay
Employee for all services rendered by Employee under this Agreement an annual
salary of $150,000 per year. Employee's salary shall be paid in semi-monthly
installments on the 15th and last day of each month, commencing on July 31,
1999, and shall be subject to normal payroll withholding. Unless changed by
agreement of the parties, the annual salary to Employee shall remain the same as
provided herein. Employee's annual salary shall be subject to annual review.
5. Additional Benefits.
Corporation agrees at all times during Employee's employment to provide
and maintain for Employee, and Employee shall be entitled to participate in, all
fringe benefits in effect which are available for salaried employees of the
Corporation or as introduced by Corporation during Employee's employment. To the
extent that it has the right to do so with its other salaried employees,
Corporation reserves the right to modify, suspend or discontinue any or all of
such benefits at any time. In addition to the compensation provided in Section
4, Employee shall have the following additional benefits during the term herein:
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<PAGE> 3
5.1 Bonus. In addition to the salary described above, Employee shall
participate in the Senior Management bonus program and shall be entitled to
receive an annual bonus based on Return on Average Assets and annual stock
appreciation of T & W Financial Corporation, with a minimum quarterly bonus of
$12,500.00. The annual bonus as provided herein shall be paid in quarterly
installments paid in quarterly installments 60 days after the end of the 1st,
2nd and 3rd quarter and 75 days after the end of the 4th quarter during the term
of this Agreement; provided, however, any adjustment to the annual audit that
has an impact on the above calculation which was the basis of the quarterly
installment payment on the bonus will be made in the first quarter of the
following year. At the election of Employee, up to fifty percent (50%) of the
annual bonus can be taken in current stock options at a four (4) options to one
dollar ($1.00) ratio.
5.2 Expenses. T&W will reimburse Employee for or pay for Employee
all reasonable and necessary business related expenses incurred by him in
carrying out his duties and responsibilities under this Agreement and expenses
in maintaining license as a Certified Public Accountant. The Employee shall
present to T&W from time to time an itemized account of such expenses in such
form as may be required by T&W.
6. Noncompetition/Nondisclosure.
As a condition of employment with T&W, and in consideration of
continuing employment, the compensation of Employee by T&W during the term of
this Agreement, the use and enjoyment by Employee of T&W's facilities and
equipment, the ongoing disclosure to Employee of T&W's confidential and
proprietary information, the opportunity for Employee to serve T&W's customers,
and the mutual covenants contained herein, T&W and Employee recognize and agree
as follows:
(a) Confidential Information. Employee recognizes and
acknowledges that during the course of his employment hereunder, he will have
access to certain information not generally known to the public, relating to
products, sales, services or business of T&W, which may include without
limitation data, programs, customer or contact lists, contact with T&W's
customers, acquisition of information as to the nature and character of the
business and the names and requirements of the customers, prospects or
projections, techniques, processes, research , work in process, intellectual
property, including but not limited to any patents, trademarks, service marks,
copyrights, ideas, creations, and properties invented, created, written,
developed, furnished, produced, or disclosed by Employee, in the course of
rendering services to T&W except for items in the public domain or items
obtained by Employee from third parties not affiliated with T&W (collectively
the "Confidential Information").
(b) Possession. Employee agrees that upon request by T&W,
and in any event upon termination of employment, except for items in the public
domain or items obtained by Employee from third parties not affiliated with T&W,
Employee shall turn over to T&W all
Page 3
<PAGE> 4
documents, notes, papers, data, files, customer lists, office supplies or other
materials or work product in Employee's possession or under his control which
were created pursuant to, or connected with or derived from Employee's services
to T&W, or which are related in any manner to T&W's business activities, whether
or not such materials are at the date of this Agreement in Employee's
possession.
(c) Non-Disclosure of Confidential Information. Employee
agrees that for and during the entire time he is employed by T&W, any
Confidential Information shall be considered and kept as private and privileged
records of T&W and will not be divulged to any person or entity. Further, upon
termination of this Agreement for any reason, Employee agrees that he will
continue to treat as private and privileged any Confidential Information and
will not release any such Confidential Information to any person or entity,
either by statement, deposition, or as a witness, except upon the issuance of a
proper subpoena from a court of competent jurisdiction, and T&W shall be
entitled to an injunction by any competent court to enjoin and restrain the
unauthorized disclosure of such information. Employee hereby agrees to notify
T&W of any request for such information, whether by subpoena or otherwise.
(d) Covenant Not to Divulge Confidential Information.
Employee further recognizes and acknowledges that because the goodwill of T&W's
business is a valuable asset, and because the solicitation of T&W's customers by
Employee after Employee has ceased to be employed by or associated with T&W will
cause irreparable harm to the goodwill of T&W, T&W would not offer employment to
Employee unless Employee assures that such solicitation would not occur.
Employee therefore agrees and covenants that during Employee's employment by T&W
and for a period of thirty-six (36) months after termination of such employment
for any reason, Employee shall not disclose any Confidential Information about
the business of T&W as presently conducted, or as it may evolve in the ordinary
course of business between the date of this Agreement and the expiration of this
covenant.
(e) Non-Competition Agreement. Employee hereby agrees that,
during the term of employment with T&W and at all times thereafter, Employee
shall not, directly or indirectly, provide any competitor or potential
competitor of T&W doing or planning to do business in the same business as T&W
with any information relating in any way to T&W's Confidential Information.
During the term of this Agreement, Employee agrees that he shall not, whether as
an employee, agent, proprietor, partner, officer, director, member, shareholder,
independent contractor, or in any other capacity whatsoever, and in any fashion
in which he is beneficially interested, render any services or engage in any
activities in the United States and Canada in the business of equipment leasing
and related financial services that are in
Page 4
<PAGE> 5
direct competition with T&W, or any of its affiliated companies. For a period of
thirty six (36) months after Employee leaves T&W's employment, Employee agrees
that he shall not, whether as an employee, agent, proprietor, partner, officer,
director, member, shareholder, independent contractor, or in any other capacity
whatsoever, and in any fashion in which he is beneficially interested, engage in
the business of equipment leasing and related financial services that are in
direct competition with T&W, or any of its affiliated companies. The period of
time during which Employee is prohibited from engaging in certain activities
pursuant to the terms of this section shall be extended by the length of time
during which Employee is in breach of the terms of this section. However, the
noncompetition provisions of this agreement shall not be applicable if this
agreement is terminated by Employee for cause in accordance with section 9.2 or
if T&W elects not to renew the agreement prior to any automatic renewal period
as provided in section 2.
(f) Because of the difficulty in determining the magnitude
of damages or potential damages to T&W in the event of solicitation of an
existing customer of T&W, or competition in violation of this Agreement,
Employee will pay to T&W liquidated damages equal to the net income Employee
derives in noncompliance with this noncompetition provision. Such liquidated
damages shall be due immediately upon the rendering of the prohibited activity
or services and shall bear interest at the rate of twelve percent (12%) per
annum thereafter.
7. Reasonableness of Restrictions.
7.1 T&W and Employee agree and stipulate that the agreements and
covenants contained in this Agreement, including the covenant not to divulge
Confidential Information, is fair and reasonable for the protection of T&W's
Confidential Information, goodwill and other protectable interests, in light of
all the facts and circumstances of the relationship between Employee and T&W. In
the event a court of competent jurisdiction should decline to enforce any
provision of this Agreement, such provision shall be deemed to be modified or
eliminated as required by the court's order, but all remaining provisions shall
remain in full force and effect.
7.2 Employee further acknowledges, agrees and stipulates that, in
the event of the termination of employment with T&W, Employee's experience and
capabilities are such that Employee can obtain employment in business activities
which are of a different and non-competing nature with his activities as an
employee of T&W, and that the enforcement of a remedy hereunder by way of
injunction shall not prevent Employee from earning a reasonable livelihood.
8. Injunctive Relief.
Employee acknowledges that disclosure of any Confidential Information or
breach or threatened breach of any of the covenants or other agreements
contained herein would give rise to irreparable injury to T&W or customers of
T&W, which injury would be inadequately compensable in monetary damages.
Accordingly, T&W may seek and obtain injunctive relief from the breach or
threatened breach of any provision, requirement, or covenant of this Agreement,
in addition to and not in limitation of any other legal remedies which may be
available. Employee further acknowledges, agrees and stipulates that the
covenants and agreements contained herein are necessary for the protection of
T&W's legitimate business
Page 5
<PAGE> 6
interests and are reasonable in scope and content. Any breach by Employee of
this Agreement (specifically including the covenant not to compete) may cause
irreparable injury to T&W. Upon breach or threatened breach, T&W may obtain
temporary restraining orders, injunctions, or other equitable relief from a
court in addition to, and not in lieu of, damages and any other available
remedy.
9. Termination.
9.1 Termination by T&W for Cause. Without limiting in any way other
provisions of this Agreement, Employee may be terminated for cause upon ten (10)
days' prior written notice. In such event, Employee shall be entitled to
compensation only to the date of such termination. For purposes of this
Agreement, cause is defined as:
(a) Conviction of Employee for any crime involving moral
turpitude, or the charging of Employee with any felony involving moral turpitude
which results in a suspended sentence or deferred prosecution;
(b) Fraud, embezzlement, theft, destruction or conversion of
T&W's property;
(c) Employee's sexual, gender or other forms of harassment
of T&W's employees;
(d) Engaging in competition with T&W during the period of
Employee's employment with T&W;
(e) Material breach of this Agreement by Employee;
(f) Divulging T&W trade secrets or other breach of
confidentiality; or
(g) Gross negligence by Employee in the performance of his
duties.
In the event T&W terminates Employee's employment for cause as provided
for in this Section 9.1, and Employee disagrees with the T&W's determination
that just cause for termination exists, then the Employee and T&W agree to seek
a fair and prompt negotiated resolution. However, if this is not successful, the
dispute shall be resolved by binding arbitration in accordance with arbitration
procedures agreed to by Employee and T&W or, if they are unable to agree, by a
court of competent jurisdiction.
9.2 Termination Without Cause by T&W. T&W, in its discretion and for
any reason, may terminate this agreement at any time by delivering thirty (30)
days prior written notice to Employee prior to such intended termination
("Termination Date"). This agreement shall terminate on the Termination Date
and, except as provided in this Section 9.2, the parties shall
Page 6
<PAGE> 7
have no further duties or obligations to each other. T&W shall pay to Employee
all amounts that may have accrued under Section 4 and Section 5.1 through the
date of termination but not previously paid to Employee, and T&W shall also pay
an amount equal to six (6) months of the base compensation as provided under
Section 4 for the calendar year in which employment terminated based on results
for the entire year, but prorated for the partial year prior to the Termination
Date.
9.3 Termination by Employee With Cause. In the event that T&W
defaults in any of its obligations to Employee under this Employment and
Noncompetition Agreement, and T&W fails to cure such default within ten (10)
days after receiving written notice thereof, Employee may terminate his
employment and seek any relief which may be available to Employee at law or in
equity, including damages and/or injunctive relief as a result of such breach
with it being specifically understood and agreed that Employee shall be relieved
from the non-competition provisions hereof.
10. Indemnification. T&W shall indemnify Employee, hold Employee
harmless, and defend Employee to the fullest extent permitted by applicable law
from and against all claims, threats, suits (whether instituted by T&W or any
other person or entity), damages, penalties, liabilities, costs and expenses
including, without limitation, legal fees, costs and disbursements (all
collectively referred to as "liabilities") incurred, suffered, or expended by or
threatened against Employee with respect to any action or inaction in the course
or performance of Employee's duties under this Agreement except for liabilities
arising out of the gross negligence or willful misconduct of Employee. This
indemnification shall continue in effect after the expiration or termination of
this Agreement and shall not be deemed exclusive of any other indemnification
right to which Employee may be entitled under applicable law, agreement or the
vote of T&W's Board of Directors.
11. Miscellaneous.
11.1 Assignment. This Agreement shall not be assignable by Employee.
11.2 Amendment and/or Modification. Neither this Agreement nor any
term or provision hereof, may be changed, waived, discharged, amended, modified
or terminated orally, or in any manner other than by an instrument in writing
signed by the parties hereto.
11.3 Binding Effect. Subject to the restrictions on assignment
described above, this Agreement shall be binding upon and inure to the benefit
of the respective parties, their successors and assigns and Employee's heirs and
personal representative.
11.4 Section Headings. The section headings are for convenience only
and in no way define, limit, extend or interpret the scope of this Agreement or
of any particular paragraph hereof.
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<PAGE> 8
11.5 Interpretation and Fair Construction of Contract. This Agreement
has been reviewed and approved by each of the parties. Both T&W and Employee
have received independent legal advice in connection with the negotiation,
execution and performance of their respective obligations under this Agreement.
In the event a court of competent jurisdiction determines that any provision of
this Agreement is ambiguous, the language in all parts of this Agreement shall
be construed as a whole according to its fair meaning and not strictly construed
for nor against either party.
11.6 Validity. If any term of this Agreement shall be determined by a
court of competent jurisdiction to be invalid, illegal, or unenforceable, in
whole or in part, the validity of any of the other terms of this Agreement shall
not, in any way, be affected thereby.
11.7 Variations in Pronouns. All pronouns include the masculine,
feminine, neuter, singular and plural as the identification of persons, places
or entities and the context may require.
11.8 Waiver or Breach. Either party's failure to insist upon strict
performance of any of the covenants and agreements herein contained, or to
exercise any option or right herein conferred, in any one or more instances,
shall not be construed to be a waiver or relinquishment of any such option or
right, or of any other covenants or agreements, but the same shall be and remain
in full force and effect.
11.9 Notices. To be effective, any notice hereunder shall be in
writing, delivered in person or mailed by certified or registered mail, postage
prepaid, to the appropriate party or parties at such other address as the
parties may hereinafter designate from time to time.
11.10 Entire Agreement. This Agreement contains the entire agreement
and understanding of the parties with respect to the entire subject matter
hereof, and there are no representations, inducements, promises or agreements,
oral or otherwise, not embodied herein. Any and all prior discussions,
negotiations, commitments and understandings relating to the subject matter
hereof are merged herein. There are no conditions precedent to the effectiveness
of this Agreement other than as stated herein, and there are no related
collateral agreement existing between the parties that are not referenced
herein.
11.11 Governing Law. This Agreement shall be governed by, construed
and enforced in
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<PAGE> 9
accordance with the laws of the State of Washington. Venue of any dispute
involving the interpretation or enforcement of this Agreement shall be in Pierce
County, Washington.
EMPLOYEE: T & W:
T & W Financial Services Company L.L.C.
- ------------------------------------
Thomas J. Virgin By T & W Financial Corporation,
its manager,
----------------------------------------
Thomas W. Price, President
Page 9
<PAGE> 1
EXHIBIT 10.2 AMALGAMATION AGREEMENT
THIS AMALGAMATION AGREEMENT is dated for reference the 6th day of November, 1998
BETWEEN:
ACCEL FINANCIAL GROUP LTD., a corporation incorporated under the
laws of Alberta
(the "Corporation")
AND:
802685 ALBERTA LTD., a corporation incorporated under the laws
of Alberta
("Holdco")
AND:
T&W FINANCIAL SERVICES COMPANY L.L.C., a limited liability
company incorporated under the laws of the State of Washington
("T&W")
RECITALS:
(A) The Corporation and Holdco have agreed to amalgamate pursuant to the
Business Corporations Act (Alberta) upon the terms and conditions hereinafter
set forth;
(B) The authorized capital of the Corporation consists of an unlimited
number of common shares and an unlimited number of preferred shares of which, as
of November 6, 1998, 8,664,657 common shares are issued and outstanding and a
further 2,595,768 common shares have been reserved for issuance pursuant to
outstanding share purchase or conversion rights (collectively, the "Share
Purchase Rights");
(C) The authorized capital of Holdco consists of an unlimited number of
common shares of which, as of the date hereof, five common shares are issued and
outstanding and are held by T&W and T&W has agreed to enter into this Agreement
as an inducement for the Corporation to proceed with the amalgamation with
Holdco;
(D) The Corporation and Holdco have each made disclosure to the other of
their respective assets and liabilities; and
(E) It is desirable that this amalgamation should be effected.
NOW THEREFORE in consideration of the mutual covenants and agreements contained
herein and other good and valuable consideration (the receipt and sufficiency of
which are hereby acknowledged) the parties agree as follows:
<PAGE> 2
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1. INTERPRETATION
In this Agreement:
"Act" means the Business Corporations Act (Alberta), S.A. 1981, c.B-15, as
amended;
"AFG Common Shares" means the common shares in the capital of the Corporation;
"Agreement" means this amalgamation agreement, and the expressions "hereof",
"herein", "hereto", "hereunder", "hereby" and similar expressions refer to this
agreement;
"Amalco" means the corporation continuing as a result of the Amalgamation;
"Amalco Class A Preferred Shares" means the Class A Redeemable Preferred Shares
in the capital of Amalco having the rights, privileges, restrictions and
conditions set forth in Schedule A;
"Amalco Class B Preferred Shares" means the Class B Redeemable Retractable
Preferred Shares in the capital of Amalco having the rights, privileges,
restrictions and conditions set forth in Schedule A;
"Amalco Common Shares" means the common shares of Amalco having the rights,
privileges, restrictions and conditions set forth in Schedule A;
"Amalgamating Corporations" means the Corporation and Holdco;
"Amalgamation" means the amalgamation of the Amalgamating Corporations as
contemplated in this Agreement;
"Business Day" means any day other than a Saturday, Sunday or civic or statutory
holiday in the City of Calgary, Alberta;
"Depository" means Montreal Trust Company of Canada;
"Designated Hamilton Shares" means a total of 2,603,287 Common Shares held by
the Hamilton Group;
"Dissenting Shareholder" means a registered Shareholder who, in connection with
the special resolution of the Shareholders which approves and adopts this
Agreement, has exercised the right to dissent pursuant to section 184 of the Act
in strict compliance with the provisions thereof and thereby becomes entitled to
receive the fair value of his or her AFG Common Shares;
"Effective Date" means the date shown on the certificate of amalgamation to be
issued in respect of the Amalgamation which will be January 15, 1999 or such
earlier date on which all conditions precedent to the Amalgamation have been
satisfied or waived;
"Hamilton Group" means Rodney J. Hamilton, the President and Chief Executive
Officer of the Corporation, and his affiliates;
"Holdco" means 802685 Alberta Ltd., a wholly-owned subsidiary of T&W Financial
Services Company L.L.C.;
<PAGE> 3
- 3 -
"Holdco Common Shares" means the common shares in the capital of the Holdco;
"Meeting" means the special meeting (and any adjournments thereof) of
Shareholders to be held to consider the approval of the special resolution which
approves and adopts this Agreement;
"Minority Shareholders" means all holders of AFG Common Shares other than the
Hamilton Group and other parties not eligible to vote in connection with the
minority approval of Amalgamation as provided for in Ontario Securities
Commission Policy 9.1.
"Record Date" means October 29, 1998, the record date for the Meeting;
"Redemption Consideration" means $2.50 per Amalco Class A Redeemable Preferred
Share; and
"Shareholder" means a holder of AFG Common Shares.
Words and phrases used but not defined in this Agreement and defined in the Act
shall have the same meaning in this Agreement as in the Act unless the context
or subject matter otherwise requires.
2. AGREEMENT TO AMALGAMATE
The Amalgamating Corporations hereby agree to amalgamate as of the Effective
Date and to continue as one corporation on the terms and conditions set out in
this Agreement.
3. NAME
The name of Amalco shall be Accel Financial Group Ltd.
4. REGISTERED OFFICE
The registered office of Amalco shall be 1600 Canada Place, 407 2nd Avenue,
S.W., Calgary, Alberta, T2P 2Y3.
5. AUTHORIZED CAPITAL
Amalco is authorized to issue an unlimited number of Amalco Common Shares, an
unlimited number of Amalco Class A Preferred Shares and an unlimited number of
Amalco Class B Preferred Shares. The rights, privileges, restrictions and
conditions attaching to each class of shares of Amalco shall be as described in
Schedule A to this Agreement.
6. PRIVATE COMPANY RESTRICTIONS
Following the redemption of Amalco Class A Preferred Shares, the right to
transfer shares of Amalco shall be restricted in that no share shall be
transferred except with the consent of the board of directors of Amalco, to be
expressed either by a resolution passed at a meeting of the board of directors
or by an instrument or instruments in writing signed by a majority of the
directors.
Immediately following the redemption of the Amalco Class A Preferred Shares, the
number of shareholders of Amalco, exclusive of persons who are in its employment
or the employment of an affiliate and exclusive of persons
<PAGE> 4
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who, having been formerly in the employment of Amalco were, while in that
employment, and have continued after the termination of that employment to be,
shareholders of Amalco, is limited to not more than fifty, two or more persons
who are the joint registered owners of one or more shares being counted as one
shareholder.
Any invitation to the public to subscribe for securities of Amalco is
prohibited; for the purposes hereof, the issuance of Amalco Class A Preferred
Shares upon the Amalgamation shall not constitute an invitation to the public to
subscribe for securities of Amalco.
7. RESTRICTIONS ON BUSINESS
There shall be no restrictions on the business which Amalco is authorized to
carry on.
8. NUMBER OF DIRECTORS
The board of directors of Amalco shall, until otherwise changed in accordance
with the Act, consist of a minimum number of one and a maximum number of 10
directors. The number of directors of Amalco shall initially be two and the
directors of Amalco shall be empowered to determine from time to time the number
of directors of Amalco within the said minimum and maximum numbers provided for
in the Articles of Amalco, as the same may be amended from time to time.
9. INITIAL DIRECTORS
The first directors of Amalco shall be the persons whose names and residential
addresses appear below:
<TABLE>
<CAPTION>
NAME PLACE OF RESIDENCE RESIDENT CANADIAN
- ---- ------------------ -----------------
<S> <C> <C>
Paul Luke Tacoma, Washington No
Robert Kadlec West Vancouver, B.C. Yes
</TABLE>
Such directors shall hold office until the next annual meeting of shareholders
of Amalco or until their successors are elected or appointed.
10. BY-LAWS
The by-laws of Amalco, until repealed, amended or altered, shall be the by-laws
of the Corporation, except that the first year end of Amalco shall be December
31 of the year in which the Effective Date occurs.
11. AMALGAMATION
On the Effective Date:
(i) the issued and outstanding AFG Common Shares (other than the
Designated Hamilton Shares and AFG Common Shares held by Dissenting
Shareholders) will be converted into Amalco Class A Preferred Shares on
the basis of one Amalco Class A Preferred Share for each issued and
outstanding AFG Common Share;
<PAGE> 5
- 5 -
(ii) each Designated Hamilton Share will be converted into one Amalco
Class B Preferred Share;
(iii) each issued and outstanding Holdco Common Share will be
converted into one Amalco Common Share; and
(iv) Dissenting Shareholders will be entitled to be paid the fair
value of their AFG Common Shares.
12. STATED CAPITAL ACCOUNTS
There shall be added to the stated capital account in the accounting records of
Amalco maintained for:
(i) the Amalco Class A Preferred Shares an amount equal to the
aggregate stated capital of each AFG Common Share converted into an
Amalco Class A Preferred Share on the Amalgamation;
(ii) the Amalco Class B Preferred Shares an amount equal to the
aggregate stated capital of each AFG Common Share converted into an
Amalco Class B Preferred Share on the Amalgamation;
(iii) the Amalco Common Shares an amount equal to the aggregate stated
capital of each Holdco Common Share converted into an Amalco Common
Share.
The amount of stated capital attributable to the Amalco Class A Preferred Shares
shall be adjusted to reflect payments that may be made to Dissenting
Shareholders.
13. SHARE CERTIFICATES
No certificates shall be issued in respect of the Amalco Class A Preferred
Shares and such shares shall be evidenced by the certificates representing AFG
Common Shares.
14. CONTRIBUTION OF ASSETS
Each of the parties hereto shall contribute to Amalco all its assets, subject to
its liabilities, as such exist, immediately before the date of the certificate
of Amalgamation.
15. PROPERTY OF AMALCO
Amalco shall possess all the property, rights, privileges and franchises and
shall be subject to all the liabilities, contracts, disabilities and debts of
each of the parties hereto as such exist immediately before the date of the
certificate of Amalgamation.
<PAGE> 6
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16. RIGHTS OF CREDITORS
All rights of creditors against property, rights and assets of each of the
parties hereto and all liens upon their property, rights and assets shall be
unimpaired by the Amalgamation and all debts, contracts, liabilities and duties
of each of the parties hereto shall thenceforth attach to Amalco and may be
enforced against it.
17. RIGHTS OF HOLDERS OF SHARE PURCHASE RIGHTS
All outstanding Share Purchase Rights will continue unimpaired except as such
rights are varied by their own terms as a result of the Amalgamation and the
parties will, and will cause Amalco to, take all necessary steps contemplated to
be taken under the terms of the Share Purchase Rights as a result of, or in
order to give effect to, the Amalgamation.
18. GENERAL CONDITIONS PRECEDENT
The respective obligations of the parties hereto to consummate the transactions
contemplated hereby, and in particular the Amalgamation, are subject to the
satisfaction, on or before the Effective Date unless otherwise provided, of the
following conditions any of which may be waived by the mutual consent of such
parties without prejudice to their rights to rely on any other or others of such
conditions:
(a) this Agreement and the transactions contemplated hereby,
including in particular the Amalgamation, shall have been approved by:
(i) the sole shareholder of Holdco;
(ii) not less than two-thirds of the votes cast by the
holders of AFG Common Shares who, being entitled to do so, vote
in person or by proxy at the Meeting in accordance with the
provisions of the Act and in accordance with other applicable
regulatory requirements;
(iii) not less than 50% of the votes cast by the Minority
Shareholders who, being entitled to do so, vote in person or by
proxy at the Meeting, in accordance with the provisions of the
Act and in accordance with other applicable regulatory
requirements;
(b) the following approvals have been obtained:
(i) all necessary stock exchange, securities regulatory,
Competition Act, Investment Canada Act, federal or provincial
companies or companies registration legislation, or other
regulatory or legislative authorities' approvals have been
obtained;
(ii) approval by the Corporation's directors and satisfaction
of all requirements of Ontario Securities Commission Policy 9.1
and under Quebec Securities Commission Policy Q-27 (if
applicable) including obtaining a satisfactory valuation or
fairness opinion to the extent required;
(iii) all approvals required under existing credit, lease or
other material agreements of the Corporation;
<PAGE> 7
- 7 -
(c) Rodney J. Hamilton and other key management employees entering
into management agreements with the Corporation having the attributes
described in Schedule B and otherwise in form and substance satisfactory
to T&W and Rodney J. Hamilton;
(d) the Corporation establishing a management incentive plan having
the attributes described in Schedule C and otherwise in form and
substance satisfactory to T&W and Rodney J. Hamilton;
(e) no further issuances of Shares except pursuant to the exercise
of those options, debentures, warrants and other rights presently
outstanding which are described in the attached Schedule D;
(f) there shall not be in force any order or decree restraining or
enjoining the consummation of the transactions contemplated by this
Agreement, including, without limitation, the Amalgamation;
(g) before the date of the Meeting, Holdco secures a firm financing
commitment sufficient to permit it to complete the Amalgamation, such
commitment to be on terms and conditions satisfactory to Holdco, acting
reasonably;
(h) on or before the date of the Meeting, Holdco will provide the
Corporation with evidence satisfactory to the Corporation, acting
reasonably, of Holdco's ability to meet the condition described in
Section (i); and
(i) on or before the end of the Business Day immediately preceding
the Effective Date Holdco will deliver to the Depository at its main
office in Vancouver, British Columbia an amount, in readily available
funds, equal to the total Redemption Consideration required in order to
fully redeem all Amalco Class A Preferred Shares which will be issued
pursuant to the Amalgamation.
19. TERMINATION
This Agreement may, prior to the issuance of a certificate of Amalgamation, be
terminated by agreement between the board of directors of the Corporation and
the board of directors of Holdco notwithstanding the approval thereof by the
shareholders of the Corporation and Holdco.
20. DISSENTING SHAREHOLDERS
AFG Common Shares which are held by a Dissenting Shareholder shall not be
converted into Amalco Class A Preferred Shares. However, in the event that a
Shareholder fails to perfect or effectively withdraws such Shareholder's claim
under section 184 of the Act or forfeits such Shareholder's right to make a
claim under section 184 of the Act or his rights as a shareholder of the
Corporation are otherwise reinstated, such Shareholder's AFG Common Shares shall
thereupon be deemed to have been converted as of the Effective Date into Amalco
Class A Preferred Shares on the basis set forth in Section 11.
<PAGE> 8
- 8 -
21. FILING OF DOCUMENTS
Upon the shareholders of each of the Amalgamating Corporations approving this
Agreement by special resolution in accordance with the Act and subject to the
other provisions of this Agreement, the Amalgamating Corporations shall, on
January 15, 1999 or such earlier date on which the conditions precedent to the
Amalgamation have been satisfied or waived, jointly file with the Registrar
under the Act articles of amalgamation and such other documents as may be
required including, without limitation, the statutory declaration confirming the
solvency of Amalco as required under Section 179 of the Act.
22. T&W GUARANTEE
T&W acknowledges and confirms that Holdco's ability to satisfy the conditions
set out in Section 18(g), (h) and (i) depends entirely upon T&W's ability and
willingness to provide financing to Holdco on terms and conditions satisfactory
to it and T&W covenants and agrees that it will
(a) use its reasonable commercial efforts to obtain a firm financing
commitment sufficient to permit Holdco to complete the Amalgamation,
such commitment to be on terms and conditions satisfactory to T&W,
acting reasonably, and
(b) upon satisfaction or waiver of all conditions precedent to the
Amalgamation, take all necessary steps to cause, authorize and permit
Holdco to complete the Amalgamation on the terms and conditions set out
in this Agreement.
23. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of
the Province of Alberta and the laws of Canada applicable therein.
24. COUNTERPARTS
This Agreement may be signed in counterparts and each such counterpart shall
constitute an original document and such counterparts, taken together, shall
constitute one and the same instrument.
25. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement among the parties to this
Agreement relating to the Amalgamation and supersedes all prior agreements and
understandings, oral and written, between such parties with respect to the
subject matter hereof.
<PAGE> 9
- 9 -
IN WITNESS WHEREOF the parties have executed this Agreement.
ACCEL FINANCIAL GROUP LTD.
By: BJ Buan
------------------------------
Name
802685 ALBERTA LTD.
By: Paul B. Luke
------------------------------
Name
T&W FINANCIAL SERVICES COMPANY, L.L.C.
By: Kenneth W. McCarthy, Jr.
------------------------------
Name
<PAGE> 10
SCHEDULE A
RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS
OF
AMALCO SHARE CAPITAL
The rights, privileges, restrictions and conditions attaching to the shares of
Amalco shall be as follows:
A. The Class A Amalco redeemable preferred shares (the "Class A Preferred
Shares") shall have attached thereto the following rights, privileges,
restrictions and conditions:
ISSUE
1. Class A Preferred Shares will only be issuable in exchange for common
shares in the capital of Accel Financial Group Ltd. in the course of the
amalgamation forming Amalco or pursuant to the exercise of rights (collectively,
the "Share Purchase Rights") to acquire common shares in the capital of Accel
Capital Group Inc. which are outstanding and unexercised immediately before the
Amalgamation.
DIVIDENDS
2. The holders of the Class A Preferred Shares shall not be entitled to
receive any dividends thereon.
VOTING RIGHTS
3. Except as otherwise provided in the Business Corporations Act, (Alberta)
Statutes of Alberta S.A. 1981, c.B-15, as amended (the "Act"), the holders of
the Class A Preferred Shares shall not as such be entitled to receive notice of,
to attend or to vote at any meeting of the shareholders of Amalco.
REDEMPTION
4. Amalco shall, subject to the requirements of the Act, in respect of
Class A Preferred Shares issued in the course of the amalgamation forming
Amalco, as of 4:30 p.m. (Vancouver time) on the second Business Day following
the date that the amalgamation forming Amalco becomes effective and, in respect
of Class A Preferred Shares issued pursuant to the exercise of any Share
Purchase Rights, as of 4:30 p.m. (Vancouver time) on the Second Business Day
following the date of issue of such shares (each such date being a "Time of
Redemption") redeem all of the Class A Preferred Shares in accordance with the
following provisions of this Section 4. Except as hereinafter provided, no
notice of redemption or other act or formality on the part of Amalco shall be
required to call the Class A Preferred Shares for redemption.
At or before the Time of Redemption, Amalco shall deliver or cause to be
delivered to Montreal Trust Company of Canada (the "Depository") at its
principal office in the City of Vancouver the amount of $2.50 in respect of each
Class A Preferred Share to be redeemed (in each case, the "Redemption
Consideration"). Delivery of the Redemption Consideration in such a manner shall
be a full and complete discharge of Amalco's obligation to deliver the
Redemption Consideration to the holders of Class A Preferred Shares.
From and after the Time of Redemption (i) the Depository shall pay or cause to
be paid to the order of each holder of Class A Preferred Shares, by way of
cheque, on presentation and surrender at the principal office of the Depository
in the City of Vancouver of the certificates representing the Common Shares of
Amalco's predecessor, Accel Financial Group Ltd., which were converted into
Class A Preferred Shares upon the amalgamation or were issued
<PAGE> 11
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upon exercise of a Share Purchase Right, the Redemption Consideration payable to
such holder, and (ii) the holders of Class A Preferred Shares shall not be
entitled to exercise any of the rights of shareholders in respect thereof except
to receive the Redemption Consideration therefor, provided that if satisfaction
of the Redemption Consideration for any Class A Preferred Shares is not duly
made by or on behalf of Amalco in accordance with the provisions hereof, then
the rights of such holders shall remain unaffected.
From the Time of Redemption, the Class A Preferred Shares in respect of which
delivery by Amalco to the Depository of the Redemption Consideration is made
shall be deemed to be redeemed and cancelled, Amalco shall be fully and
completely discharged from its obligations with respect to the payment of the
Redemption Consideration to such holders of Class A Preferred Shares, and the
rights of such holders shall be limited to receiving Redemption Consideration
payable to them on presentation and surrender of the said certificates held by
them respectively as specified above. Subject to the requirements of applicable
law with respect to unclaimed property, if the Redemption Consideration has not
been fully satisfied in accordance with the provisions hereof within six years
after the Time of Redemption, the Redemption Consideration shall be forfeited to
Amalco.
LIQUIDATION
5. In the event of the liquidation or winding-up of Amalco or any other
distribution of the property or assets of Amalco among its shareholders for the
purpose of winding-up its affairs, and subject to the extinguishment of the
rights of holders of Class A Preferred Shares or Class B Amalco Redeemable
Preferred Shares (the "Class B Preferred Shares") upon delivery of the
Redemption Consideration as contemplated herein, the holders of Class A
Preferred Shares shall be entitled to receive, on a pari passu basis with the
holders of Class B Preferred Shares, and Amalco shall pay to such holders,
before any amount shall be paid or any property or assets of Amalco shall be
distributed to the holders of common shares or any other class of shares ranking
junior to the Class A Preferred Shares as to such entitlement, an amount equal
to the Redemption Consideration for each Class A Preferred Share held by them
respectively and no more. After payment to the holders of the Class A Preferred
Shares of the amounts so payable to them as hereinbefore provided, they shall
not be entitled to share in any further distribution of the property or assets
of Amalco.
PRIORITY
6. The common shares shall rank junior to the Class A Preferred Shares and
shall be subject in all respects to the rights, privileges, restrictions and
conditions attaching to the Class A Preferred Shares.
CANCELLATION
7. Each Class A Preferred Share shall, upon redemption thereof in
accordance with these Articles, be cancelled and shall not be issuable
thereafter.
B. The Class B Amalco redeemable preferred shares (the "Class B Preferred
Shares") shall have attached thereto the following rights, privileges,
restrictions and conditions:
<PAGE> 12
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ISSUE
1. Class B Preferred Shares shall only be issuable in exchange for common
shares in the capital of Accel Financial Group Ltd. in the course of the
amalgamation forming Amalco.
DIVIDENDS
2. Dividends will accumulate from day to day on each Class B Preferred
Share from time to time outstanding at a rate equivalent to 8% per year on $2.50
and will be paid at the end of each of Amalco's fiscal quarters if and when
declared by the Board of Directors of Amalco out of profits or surplus of Amalco
lawfully available therefor.
VOTING RIGHTS
3. Except as otherwise provided in the Business Corporations Act, (Alberta)
Statutes of Alberta S.A. 1981, c.B-15, as amended (the "Act"), the holders of
the Class B Preferred Shares shall not be entitled to receive notice of, to
attend or to vote at any meeting of the shareholders of Amalco.
REDEMPTION
4. Amalco shall, subject to the requirements of the Act, as of 4:30 p.m.
(Vancouver time) on each of the 10 immediately succeeding anniversaries of the
Amalgamation Date (each, a "Time of Redemption") redeem 10% of the Total Class B
Preferred Shares Initially Issued.
The "Amalgamation Date" means the date on which the amalgamation forming Amalco
becomes effective.
The "Total Class B Preferred Shares Initially Issued" means the number of Class
B Preferred Shares issued on the amalgamation forming Amalco.
If a redemption date is not a Business Day the redemption will occur on the next
day that is a Business Day.
Notwithstanding any other provision hereof, Amalco will redeem all, but not less
than all, of the outstanding Class B Preferred Shares
(a) the earlier of the date of delivery by Amalco to all of the
holders of Class B Preferred Shares of a notice in writing confirming
its intention to redeem all outstanding Class B Preferred Shares on such
date, and
(b) the date on which the management contract with Amalco through
which the services of Rodney J. Hamilton are provided dated as of the
Amalgamation Date, as such contract may be amended from time to time, is
terminated, regardless of the reason for such termination.
Except as hereinafter provided, no notice of redemption or other act or
formality on the part of Amalco shall be required to call the Class B Preferred
Shares for redemption.
At or before a Time of Redemption, Amalco shall deliver or cause to be delivered
to Montreal Trust Company of Canada (the "Depository") at its principal office
in the City of Vancouver an amount equal to the Redemption Consideration in
respect of each Class B Preferred Share to be redeemed at such Time of
Redemption. The
<PAGE> 13
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"Redemption Consideration" for each Class B Redeemable Preferred Share is the
total of $2.50 and all unpaid dividends accumulated thereon to the time of
Redemption, whether or not declared. Delivery of the Redemption Consideration in
such a manner shall be a full and complete discharge of Amalco's obligation to
deliver the Redemption Consideration to the holders of the Class B Preferred
Shares being redeemed.
From and after each Time of Redemption (i) the Depository shall pay or cause to
be paid to the order of each holder of Class B Preferred Shares redeemed at that
Time of Redemption, by way of cheque, on presentation and surrender at the
principal office of the Depository in the City of Vancouver of the certificates
representing the Class B Preferred Shares so redeemed, the Redemption
Consideration payable to such holders, and (ii) the holders of such Class B
Preferred Shares shall not be entitled to exercise any of the rights of
shareholders in respect thereof except to receive the Redemption Consideration
therefor, provided that if satisfaction of the Redemption Consideration for any
Class B Preferred Shares is not duly made by or on behalf of Amalco in
accordance with the provisions hereof, then the rights of such holders shall
remain unaffected.
From each Time of Redemption, the Class B Preferred Shares in respect of which
delivery by Amalco to the Depository of the Redemption Consideration is made
shall be deemed to be redeemed and cancelled, Amalco shall be fully and
completely discharged from its obligations with respect to the payment of the
Redemption Consideration to such holders of Class B Preferred Shares, and the
rights of such holders shall be limited to receiving Redemption Consideration
payable to them on presentation and surrender of the said certificates held by
them respectively as specified above. Subject to the requirements of applicable
law with respect to unclaimed property, if the Redemption Consideration has not
been fully satisfied in accordance with the provisions hereof within six years
if the of the Time of Redemption, the Redemption Consideration shall be
forfeited to Amalco.
RESTRICTION ON PAYMENTS
5. While any Class B Preferred Share is outstanding, and except with the
written consent of every holder of a Class B Preferred Share, Amalco
(a) will not declare a dividend on any common share or on any other
share not ranking in priority to the Class B Preferred Shares as to
payment of dividends unless there has been paid, or has been or is
concurrently declared, a dividend on the Class B Preferred Shares that
satisfies, or if paid when due would satisfy, the requirements of
Section (b) as to the payment when due of such dividend on the common
share or other share,
(b) will not
(i) pay any dividend on any common share or on any other
share not ranking in priority to the Class B Preferred Shares as
to payment of dividends, or
(ii) redeem or reacquire any common share or, for
consideration exceeding the stated capital thereof, any other
share not ranking in priority to the Class B Preferred Shares as
to payment of dividends and return of capital, except for the
redemption of Class A Preferred Shares as contemplated by these
Articles,
unless there has been, or is concurrently, paid on the Class B Preferred
Shares all dividends accumulated thereon to the end of the most recently
completed calendar quarter before
<PAGE> 14
- 5 -
(iii) the day of payment of the dividend on the common shares
or other shares, or
(iv) the day of such redemption or reacquisition, and
(c) will not
(i) declare or pay any dividend on any share other than a
Class B Preferred Share, except a stock dividend comprising
common shares,
(ii) redeem or reacquire any share in the capital of Amalco
other than a Class B Preferred Share or a Class A Preferred
Share, or
(iii) reduce its capital other than with respect to a share
ranking in priority to the Class B Preferred Shares as to return
of capital,
unless the board determines that if, immediately after the payment of
such dividend, such redemption or reacquisition, or such reduction of
capital, the assets of Amalco were realized at their net realizable
values, the net assets of Amalco would be sufficient to permit the
redemption of every Class B Preferred Share then outstanding.
LIQUIDATION
6. In the event of the liquidation or winding-up of Amalco or any other
distribution of the property or assets of Amalco among its shareholders for the
purpose of winding-up its affairs, and subject to the extinguishment of the
rights of holders of Class A Preferred Shares or Class B Redeemable Preferred
Shares upon delivery of the Redemption Consideration as contemplated herein, the
holders of Class B Preferred Shares shall be entitled to receive, on a pari
passu basis with the holders of Class A Preferred Shares, and Amalco shall pay
to such holders, before any amount shall be paid or any property or assets of
Amalco shall be distributed to the holders of common shares or any other class
of shares ranking junior to the Class B Preferred Shares as to such entitlement,
an amount equal to the Redemption Consideration for each Class B Preferred Share
held by them respectively and no more. After payment to the holders of the Class
B Preferred Shares of the amounts so payable to them as hereinbefore provided,
they shall not be entitled to share in any further distribution of the property
or assets of Amalco.
CANCELLATION
7. Each Class B Preferred Share shall, upon redemption in accordance with
these Articles, be cancelled and shall not be issuable thereafter.
C. The common shares shall have attached thereto the following rights,
privileges, restrictions and conditions:
DIVIDENDS
<PAGE> 15
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1. Subject to the rights of the holders of any class of shares of Amalco
entitled to receive dividends in priority to or rateably with the holders of the
common shares, the holders of the common shares shall be entitled to receive
dividends if, as and when declared by the Board of Directors of Amalco out of
the assets of Amalco properly available for the payment of dividends of such
amounts and payable in such manner as the Board of Directors may from time to
time determine.
VOTING
2. The holders of the common shares shall be entitled to receive notice of
and to attend any meeting of the shareholders of Amalco and shall be entitled to
one vote in respect of each common share held at such meetings, except a meeting
of holders of a particular class or series of shares other than the common
shares who are entitled to vote separately as a class or series at such meeting.
LIQUIDATION
3. In the event of the liquidation, dissolution or winding-up of Amalco or
any other distribution of the property or assets of Amalco among its
shareholders for the purpose of winding-up its affairs, the holders of the
common shares shall, subject to the rights of the holders of any other class of
shares of Amalco entitled to receive the property or assets of Amalco upon such
distribution in priority to or rateably with the holders of the common shares,
be entitled to receive the remaining property and assets of Amalco.
D. All shares shall have attached to them the following restriction:
TRANSFER
1. No share in the capital of Amalco may be transferred without the prior
approval of the Board of Directors of Amalco.
<PAGE> 16
- 7 -
SCHEDULE B
TERMS OF MANAGEMENT AGREEMENTS
Management and employment agreements will be entered into with management (being
Rodney J. Hamilton and Ben Buan) and key employees (being David Snow and such
other employees of the Corporation as the parties may agree upon) of the
Corporation containing the following features:
1. Base compensation for management between $125,000 and $150,000 per annum
plus benefits including participation in the T&W stock option plan which are
consistent with comparable levels for existing T&W management (adjusted for
taxation variances between U.S. and Canada).
2. Initial three year appointment with successive three, two and two year
renewals.
3. Non-competition agreements consistent with the T&W structure and within
Canadian industry standards for comparable level of management.
4. Base compensation and employee incentive program for key employees of
the Corporation plus benefits (including participation in T&W stock option plan)
consistent with comparable level of existing T&W personnel.
<PAGE> 17
SCHEDULE C
TERMS OF MANAGEMENT INCENTIVE PROGRAM
An incentive program for management containing the following features:
1. Starting equity ("Base Equity") used to determine management incentive
will be T&W's Net Cash Outlay to complete the Transaction.
2. Base Equity going forward will be adjusted by pre-tax returns in excess
of the Base Equity, after bonus distribution, and by any pre-tax equity
generated from other operating units for which management has responsibility.
3. A targeted pre-tax Return on Equity (ROE) of 30% will be set for each
fiscal year.
4. ROE will be calculated at the end of each fiscal quarter, and management
will receive 20% of any excess return above the targeted threshold, paid within
45 days of the end of the fiscal quarter.
5. 20% of any increase over Base Equity or from the Adjusted Base Equity
going forward, will be allocated and reserved for management, and paid out to
management either upon termination or upon completion of a public offering with
respect to the business unit or units contributing to the Adjusted Base Equity.
<PAGE> 18
SCHEDULE D
SHARE PURCHASE RIGHTS
<TABLE>
<CAPTION>
Number Strike Price Proceeds *
------- ------------ ----------
<S> <C> <C> <C>
1. Warrants issued to January 1998 Private Placees 293,500 $2.00 $ 587,000
2. Series B Debenture Conversions 934,668 $2.20 $2,056,269
3. Series C Debenture Conversions 500,000 $2.00 $1,000,000
4. Stock Options - 1st and 2nd Issue 547,600 $1.10 $ 602,360
5. Stock Options - 3rd Issue 320,000 $1.80 $ 576,000
</TABLE>
* assumes full exercise
<PAGE> 1
EXHIBIT 10.3 AMENDMENT AGREEMENT
THIS AGREEMENT is dated for reference the 7th day of December, 1998
AMONG:
ACCEL FINANCIAL GROUP LTD., a corporation incorporated under the
laws of Alberta
(the "Corporation")
AND:
802685 ALBERTA LTD., a corporation incorporated under the laws
of Alberta
("Holdco")
AND:
T&W FINANCIAL SERVICES COMPANY L.L.C., a limited liability
company incorporated under the laws of the State of Washington
("T&W")
WHEREAS:
(A) The parties hereto are parties to an amalgamation agreement (the
"Amalgamation Agreement") dated the 6th day of November, 1998; and
(B) The parties wish to enter into this Agreement to amend the Amalgamation
Agreement in order to make effective certain amendments that they have agreed
to.
THEREFORE THIS AGREEMENT WITNESSES that the parties agree as follows:
1. The Amalgamation Agreement is hereby amended by deleting the existing
definition of "Effective Date" in Section 1 and replacing it with the following
provision:
""Effective Date" means the date shown on the certificate of
amalgamation to be issued in respect of the Amalgamation which will be
February 15, 1999 or such earlier date on which all conditions precedent
to the Amalgamation have been satisfied or waived;"
2. The Amalgamation Agreement is hereby amended by deleting Section 18(g)
and replacing it
<PAGE> 2
- 2 -
with the following provision:
"(g) on or before January 31, 1999, Holdco secures a firm financing
commitment sufficient to permit it to complete the Amalgamation, such
commitment to be on terms and conditions satisfactory to Holdco, acting
reasonably;"
3. The Amalgamation Agreement is hereby amended by deleting Section 18(h)
and replacing it with the following provision:
"(h) on or before January 31, 1999 Holdco will provide the
Corporation with evidence satisfactory to the Corporation, acting
reasonably, of Holdco's ability to meet the condition described in
Section (i); and"
4. The amendments described in Section 1,Section 2 and Section 3 above,
will have the same force and effect as if originally contained in the
Amalgamation Agreement.
5. In all other respects the terms and conditions of the Amalgamation
Agreement are hereby confirmed as being in full force and effect.
IN WITNESS WHEREOF the parties have caused this agreement to be executed as of
the date first above written.
ACCEL FINANCIAL GROUP LTD.
By: BJ Buan
---------------------------------
Name
802685 ALBERTA LTD.
By: Paul B. Luke
---------------------------------
Name
<PAGE> 3
- 3 -
T&W FINANCIAL SERVICES COMPANY, L.L.C.
By: Paul B. Luke
---------------------------------
Name
<PAGE> 1
EXHIBIT 10.4 SECOND AMENDMENT AGREEMENT
THIS AGREEMENT is dated for reference the 29th day of January, 1999
AMONG:
ACCEL FINANCIAL GROUP LTD., a corporation incorporated under the
laws of Alberta
(the "Corporation")
AND:
802685 ALBERTA LTD., a corporation incorporated under the laws
of Alberta
("Holdco")
AND:
T&W FINANCIAL SERVICES COMPANY L.L.C., a limited liability
company incorporated under the laws of the State of Washington
("T&W")
WHEREAS:
(A) The parties hereto are parties to an amalgamation agreement (the
"Amalgamation Agreement") dated the 6th day of November, 1998;
(B) Pursuant to the terms and conditions of an amendment agreement dated
December 7, 1998, (the "First Amendment Agreement") the parties agreed, amongst
other things, to amend the Amalgamation Agreement; and
(C) The parties wish to enter into this Agreement to amend the Amalgamation
Agreement as originally amended by the First Amendment Agreement in order to
make effective certain amendments that they have agreed to.
THEREFORE THIS AGREEMENT WITNESSES that the parties agree as follows:
1. The Amalgamation Agreement is hereby amended by deleting the existing
definition of "Effective Date" in Section 1 and replacing it with the following
provision:
"Effective Date" means the date shown on the certificate of amalgamation
to be issued in respect
<PAGE> 2
- 2 -
of the Amalgamation which will be March 1, 1999 or such earlier date on
which all conditions precedent to the Amalgamation have been satisfied
or waived;"
2. The Amalgamation Agreement is hereby amended by deleting Section 18(g)
and replacing it with the following provision:
"(g) on or before February 12, 1999, Holdco secures a firm financing
commitment sufficient to permit it to complete the Amalgamation, such
commitment to be on terms and conditions satisfactory to Holdco, acting
reasonably;"
3. The Amalgamation Agreement is hereby amended by deleting Section 18(h)
and replacing it with the following provision:
"(h) on or before February 12, 1999 Holdco will provide the
Corporation with evidence satisfactory to the Corporation, acting
reasonably, of Holdco's ability to meet the condition described in
Section (i); and"
4. The amendments described in Section 1,Section 2 and Section 3 above,
will have the same force and effect as if originally contained in the
Amalgamation Agreement.
5. In all other respects the terms and conditions of the Amalgamation
Agreement are hereby confirmed as being in full force and effect.
IN WITNESS WHEREOF the parties have caused this agreement to be executed as of
the date first above written.
ACCEL FINANCIAL GROUP LTD.
By: BJ Buan
----------------------------------
Name
802685 ALBERTA LTD.
By: Paul B. Luke
----------------------------------
Name
<PAGE> 3
- 3 -
T&W FINANCIAL SERVICES COMPANY, L.L.C.
By: Paul B. Luke
----------------------------------
Name
<PAGE> 1
EXHIBIT 10.5 THIRD AMENDMENT AGREEMENT
THIS AGREEMENT is dated for reference the 12th day of February, 1999
AMONG:
ACCEL FINANCIAL GROUP LTD., a corporation incorporated under the
laws of Alberta
(the "Corporation")
AND:
802685 ALBERTA LTD., a corporation incorporated under the laws
of Alberta
("Holdco")
AND:
T&W FINANCIAL SERVICES COMPANY L.L.C., a limited liability
company incorporated under the laws of the State of Washington
("T&W")
WHEREAS:
(A) The parties hereto are parties to an amalgamation agreement dated
November 6, 1998, as amended by an amendment agreement dated December 7, 1998,
and a second amendment agreement dated January 29, 1999 (collectively, the
Amalgamation Agreement); and
(B) The parties wish to enter into this Agreement to amend the Amalgamation
Agreement in order to make effective certain amendments that they have agreed
to.
THEREFORE THIS AGREEMENT WITNESSES that the parties agree as follows:
1. The Amalgamation Amendment Agreement is hereby amended by deleting
Section 18(g) and replacing it with the following provision:
"(g) not later than the second Business Day immediately before the
Effective Date, Holdco secures a firm financing commitment sufficient to
permit it to complete the Amalgamation, such commitment to be on terms
and conditions satisfactory to Holdco, acting reasonably;"
<PAGE> 2
- 2 -
2. The Amalgamation Agreement is hereby amended by deleting Section 18(h)
and replacing it with the following provision:
"(h) not later than the second Business Day immediately before the
Effective Date, Holdco will provide the Corporation with evidence
satisfactory to the Corporation, acting reasonably, of Holdco's ability
to meet the condition described in Section (i); and"
3. The amendments described in Section 1 and Section 2 above, will have the
same force and effect as if originally contained in the Amalgamation Agreement.
4. In all other respects the terms and conditions of the Amalgamation
Agreement are hereby confirmed as being in full force and effect.
IN WITNESS WHEREOF the parties have caused this agreement to be executed as of
the date first above written.
ACCEL FINANCIAL GROUP LTD.
By: BJ Buan
----------------------------------
Name
802685 ALBERTA LTD.
By: Paul B. Luke
----------------------------------
Name
T&W FINANCIAL SERVICES COMPANY, L.L.C.
By: Paul B. Luke
----------------------------------
Name
<PAGE> 1
EXHIBIT 10.6 FOURTH AMENDMENT AGREEMENT
THIS AGREEMENT is dated for reference the 1st day of March, 1999
AMONG:
ACCEL FINANCIAL GROUP LTD., a corporation incorporated under the
laws of Alberta
(the "Corporation")
AND:
802685 ALBERTA LTD., a corporation incorporated under the laws
of Alberta
("Holdco")
AND:
T&W FINANCIAL SERVICES COMPANY L.L.C., a limited liability
company incorporated under the laws of the State of Washington
("T&W")
WHEREAS:
(A) The parties hereto are parties to an amalgamation agreement dated
November 6, 1998, as amended by an amendment agreement dated December 7, 1998, a
second amendment agreement dated January 19, 1999 and third amendment agreement
dated February 12, 1999 (collectively, the "Amalgamation Agreement");
(B) The parties wish to enter into this Agreement to amend the Amalgamation
Agreement in order to make effective certain amendments that they have agreed
to.
THEREFORE THIS AGREEMENT WITNESSES that the parties agree as follows:
1. The Amalgamation Agreement is hereby amended by deleting the existing
definition of "Effective Date" in Section 1 and replacing it with the following
provision:
"Effective Date" means the date shown on the certificate of amalgamation
to be issued in respect of the Amalgamation which will be March 15, 1999
or such earlier date on which all conditions precedent to the
Amalgamation have been satisfied or waived;"
<PAGE> 2
- 2 -
2. The amendments described in Section 1 above, will have the same force
and effect as if originally contained in the Amalgamation Agreement.
3. In all other respects the terms and conditions of the Amalgamation
Agreement are hereby confirmed as being in full force and effect.
IN WITNESS WHEREOF the parties have caused this agreement to be executed as of
the _________ day of March, 1999.
ACCEL FINANCIAL GROUP LTD.
By: BJ Buan
----------------------------------
Name
802685 ALBERTA LTD.
By: Paul B. Luke
----------------------------------
Name
T&W FINANCIAL SERVICES COMPANY, L.L.C.
By: Paul B. Luke
----------------------------------
Name
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 8,455
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 346,924
<CURRENT-LIABILITIES> 44,597
<BONDS> 229,984
4,342
0
<COMMON> 28,402
<OTHER-SE> 29,071
<TOTAL-LIABILITY-AND-EQUITY> 346,924
<SALES> 0
<TOTAL-REVENUES> 27,920
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14,488
<LOSS-PROVISION> 5,173
<INTEREST-EXPENSE> 8,345
<INCOME-PRETAX> (73)
<INCOME-TAX> (138)
<INCOME-CONTINUING> (211)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (299)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
