SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 1-6594
Commercial Credit Company
(Exact name of registrant as specified in its charter)
Delaware 52-0883351
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 St. Paul Place, Baltimore, Maryland 21202
(Address of principal executive offices) (Zip Code)
(410) 332-3000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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8% Notes due September 1, 1996 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction J (1)
(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the
reduced disclosure format.
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 [ ]
Because the registrant is an indirect wholly owned subsidiary of The
Travelers Inc., none of the registrant's outstanding voting stock is held
by nonaffiliates of the registrant. As of the date hereof, one share of
the registrant's Common Stock, $.01 par value, was issued and outstanding.
<PAGE>
COMMERCIAL CREDIT COMPANY
Annual Report on Form 10-K
For Fiscal Year Ended December 31, 1993
______________________________
TABLE OF CONTENTS
Form 10-K
Item Number Page
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Part I
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1. Business . . . . . . . . . . . . . . . . . . . . . . .
2. Properties . . . . . . . . . . . . . . . . . . . . . . .
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . .
4. Omitted Pursuant to General Instruction J
Part II
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5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . .
6. Selected Financial Data . . . . . . . . . . . . . . . . .
7. Management's Discussion and Analysis of Financial . . . .
Condition and Results of Operations . . . . . . . . . .
8. Financial Statements and Supplementary Data . . . . . . .
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . .
Part III
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10-13. Omitted Pursuant to General Instruction J
Part IV
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14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . .
Exhibit Index . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . .
Index to Consolidated Financial Statements and
Schedules . . . . . . . . . . . . . . . . . . . . . .
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PART I
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Item 1. BUSINESS.
THE COMPANY
Commercial Credit Company (the "Company") is a financial
services holding company engaged, through its subsidiaries,
principally in two business segments: (i) Consumer Finance; and
(ii) Insurance Services. The Company is a wholly owned
subsidiary of The Travelers Inc. ("The Travelers"), formerly
known as Primerica Corporation. The Travelers is a financial
services holding company engaged, through its subsidiaries,
principally in four business segments: (i) Investment Services;
(ii) Consumer Services (through the Company); (iii) Life
Insurance Services; and (iv) Property & Casualty Insurance
Services. The periodic reports of The Travelers provide
additional business and financial information concerning that
company and its consolidated subsidiaries.
In December 1992, The Travelers acquired approximately
27% of the common stock of The Travelers Corporation ("old
Travelers"), a Connecticut corporation that was one of the
largest multiline financial services companies in the United
States. As a part of the transaction, the Company sold to old
Travelers 50% of the Company's equity in Commercial Insurance
Resources, Inc. (the parent of Gulf Insurance Company, the
Company's property and casualty insurance subsidiary) in exchange
for approximately 5.5% of old Travelers' common stock, and one of
the Company's subsidiaries purchased additional shares directly
from old Travelers. This acquisition was accounted for as a
purchase with an effective accounting date of December 31, 1992.
On December 31, 1993, old Travelers was merged into The Travelers
and each outstanding share of common stock of old Travelers owned
by the Company was converted into 0.80423 of a share of common
stock of The Travelers. See "Insurance Services" and Note 4 of
Notes to Consolidated Financial Statements.
The principal executive offices of the Company are
located at 300 St. Paul Place, Baltimore, Maryland 21202;
telephone number 410-332-3000.
CONSUMER FINANCE SERVICES
The Company's Consumer Finance Services segment includes
consumer lending services conducted primarily under the name
"Commercial Credit," as well as credit-related insurance and
credit card services.
Consumer Finance
As of December 31, 1993, the Company maintained 768 loan
offices in 42 states, and it plans to open approximately 60
additional loan offices in 1994. The Company owns two state-
chartered banks headquartered in Newark, Delaware, which
generally limit their activities to offering credit card services
nationwide. Total consumer finance receivables of this segment
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at December 31, 1993, 1992 and 1991 were approximately $6.3
billion, $5.8 billion and $5.8 billion, respectively. For an
analysis of consumer finance receivables, net of unearned finance
charges ("Consumer Finance Receivables"), see Note 5 of Notes to
Consolidated Financial Statements.
Loans to consumers by the Consumer Finance Services unit
include secured and unsecured personal loans, real estate-secured
loans and consumer goods financing. Credit card loans are
discussed below. The Company's loan offices are located
throughout the United States. They are generally located in
small to medium-sized communities in suburban or rural areas, and
are managed by individuals who generally have considerable
consumer lending experience. The primary market for the
Company's consumer loans consists of households with an annual
income of $15,000 to $54,000. The number of loan customers
(excluding credit card customers) was approximately 1,142,000 at
December 31, 1993, as compared to approximately 1,058,000 at
December 31, 1992 and approximately 1,078,000 at December 31,
1991. A loan program of the Company solicits applications for
second mortgage loans through the sales force of the Primerica
Financial Services group of companies, which are subsidiaries of
The Travelers.
The average amount of cash advanced per personal loan
made was approximately $3,800 in each of 1993, 1992 and 1991.
The average amount of cash advanced per real estate-secured loan
made was approximately $28,800 in 1993 and approximately $26,000
in each of 1992 and 1991. The average annual yield for loans in
1993 was 15.83%, as compared to 16.31% in 1992 and 16.69% in
1991. The average annual yield for personal loans in 1993 was
20.11%, as compared to 19.99% in 1992 and 19.97% in 1991, and for
real estate-secured loans it was 13.14% in 1993, as compared to
14.05% in 1992 and 14.48% in 1991. The 1993 average yield for
real estate-secured loans was affected by the successful
introduction of a variable rate product. The Company's average
net interest margin for loans was 8.44% in 1993, 8.66% in 1992
and 8.63% in 1991.
Prior to 1992, both delinquencies and charge-offs had
increased, reflecting the recessionary economic environment. The
Company took steps to combat this trend, by tightening the credit
criteria used for making new loans and placing a greater emphasis
on collection policies and practices. As a result of these
measures and recent economic trends, delinquency rates generally
have continued to improve throughout 1993. See "Delinquent
Receivables and Loss Experience," below. In addition, aggregate
quarterly loss charge-off rates have generally declined since the
first quarter of 1992.
Delinquent Receivables and Loss Experience
The management of the consumer finance business attempts
to prevent customer delinquency through careful evaluation of
each borrower's application and credit history at the time the
loan is made or acquired, and attempts to control losses through
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appropriate collection activity. An account is considered
delinquent for financial reporting purposes when a payment is
more than 60 days past due, based on the original or extended
terms of the contract. Due to the nature of the finance business,
some customer delinquency and loss is unavoidable. The
delinquency and loss experience on real estate-secured loans is
generally more favorable than on personal loans.
The following table shows the ratio of receivables
delinquent for 60 days or more on a contractual basis (i.e., more
than 60 days past due) to gross receivables outstanding:
Ratio of Receivables Delinquent 60 Days or More to Gross
Receivables Outstanding (1)
Real
Estate-
Personal Secured Credit Sales Total
Loans Loans Cards Finance Consumer
----- ----- ------ ------- --------
As of December 31,
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1993 2.62% 2.15% 1.03% 1.54% 2.21%(2)
1992 3.02% 2.31% 1.87% 1.48% 2.55%
1991 3.51% 2.19% 2.57% 2.00% 2.80%
__________________________
(1) The receivable balance used for these ratios is before
the deduction of unearned finance charges and excludes
accrued interest receivable. Receivables delinquent 60
days or more include, for all periods presented, accounts
in the process of foreclosure.
(2) Includes the reacquisition in the fourth quarter of 1993
of the remainder of a portfolio of loans collateralized
by manufactured housing units.
The following table shows the ratio of net charge-offs to
average Consumer Finance Receivables. For all periods presented,
the ratios shown below give effect to all deferred origination
costs.
Ratio of Net Charge-Offs to Average Consumer Finance Receivables
Real
Estate-
Personal Secured Credit Sales Total
Loans Loans Cards Finance Consumer
----- ----- ------ ------- --------
Year Ending
December 31,
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1993 4.08% 0.84% 2.56% 1.78% 2.36%(1)
1992 5.09% 0.74% 4.01% 2.05% 2.84%
1991 5.03% 0.69% 3.05% 2.52% 2.72%
______________________________
(1) Includes the reacquisition in the fourth quarter of 1993
of the remainder of a portfolio of loans collateralized by
manufactured housing units.
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The following table sets forth information regarding the
ratio of allowance for losses to Consumer Finance Receivables.
Ratio of Allowance For Losses to Consumer Finance Receivables
As of December 31,
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1993 2.64%
1992 2.91%
1991 2.86%
Credit-Related Insurance
American Health and Life Insurance Company ("AHL"), a
subsidiary of the Company, underwrites or arranges for credit-
related insurance, which is offered to customers of the consumer
finance business. AHL has an A+ (superior) rating from the A.M.
Best Company, whose ratings may be revised or withdrawn at any
time. Credit life insurance covers the declining balance of
unpaid indebtedness. Credit disability insurance provides
monthly benefits during periods of covered disability. Credit
property insurance covers the loss of property given as security
for loans. Other insurance products offered or arranged for by
AHL include accidental death and dismemberment, auto single
interest, nonfiling, involuntary unemployment insurance and
mortgage impairment insurance. Most of AHL's products are single
premium, which premiums are earned over the related contract
period.
The following table sets forth gross written insurance
premiums, net of refunds, by AHL for consumer finance customers:
Consumer Finance Insurance Premiums Written
(in millions)
Year Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
Credit life . . . . . . . . $ 33.5 $ 33.1 $ 40.7
Credit disability . . . . . 47.1 44.7 49.9
------ ------ -------
Total . . . . . . . . . . $ 80.6 $ 77.8 $ 90.6
====== ======= =======
See Note 7 of Notes to Consolidated Financial Statement
for information regarding reinsurance activities.
Credit Card Services
Primerica Bank, a subsidiary of the Company, is a state-
chartered bank located in Newark, Delaware, which provides credit
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card services, including upper market gold credit card services,
to individuals and to affinity groups (such as nationwide
professional associations and fraternal organizations).
Primerica Bank USA, another state-chartered bank subsidiary of
the Company, was formed in September 1989. Primerica Bank USA is
not subject to certain regulatory restrictions relating to growth
and cross-marketing activities to which Primerica Bank is
subject. See "Regulation" below. These banks generally limit
their activities to credit card operations.
The following table sets forth aggregate information
regarding credit cards issued by Primerica Bank and Primerica
Bank USA:
Credit Cardholders and Total Outstandings
(outstandings in millions of dollars)
As of and for the year ended December 31,
-----------------------------------------
1993 1992 1991
---- ---- ----
Approximate total credit cardholders 534,000 423,000 370,000
Approximate gold credit cardholders 478,000 371,000 305,000
Total outstandings $697.1 $538.2 $472.9
Average annual yield 11.66% 12.12% 13.50%
The primary market for the banks' credit cards consists
of households with annual incomes of $40,000 and above.
The Delaware credit card banks offer deposit-taking
services (which as to Primerica Bank USA are limited to deposits
of at least $100,000 per account). At December 31, 1993,
deposits at the Delaware offices were $51.7 million, as compared
to $22.4 million at December 31, 1992 and $23.8 million at
December 31, 1991. At December 31, 1993, all of such deposits
were federally insured. The increase in deposits resulted from a
balance transfer promotion conducted by Primerica Bank during
1993.
Competition
The consumer finance business competes with banks,
savings and loan associations, credit unions, credit card issuers
and other consumer finance companies. Additionally, substantial
national financial services networks have been formed by major
brokerage firms, insurance companies, retailers and bank holding
companies. Some competitors have substantial local market
positions; others are part of large, diversified organizations.
Deregulation of banking institutions has greatly expanded the
consumer lending products permitted to be offered by these
institutions, and because of their long-standing insured deposit
base, many of them are able to offer financial services on very
competitive terms. The Company believes that it is able to
compete effectively with such institutions. In particular, the
Company believes that the diversity and features of the products
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it offers, personal service and cultivation of repeat and
referral business support and strengthen its competitive position
in its Consumer Finance Services businesses.
Regulation
Most consumer finance activities are subject to extensive
federal and state regulation. Personal loan, real estate-secured
loan and sales finance laws generally require licensing of the
lender, limitations on the amount, duration and charges for
various categories of loans, adequate disclosure of certain
contract terms and limitations on certain collection practices
and creditor remedies. Federal consumer credit statutes
primarily require disclosure of credit terms in consumer finance
transactions. The Company's banking operations, which must
undergo periodic examination, are subject to additional
regulations relating to capitalization, leverage, reporting,
dividends and permitted asset and liability products. The
Company's credit card banks are also covered by the Competitive
Equality Banking Act of 1987 (the "Banking Act"), which, among
other things, prevents the Company from acquiring or forming most
types of new banks or savings and loan institutions and, with
respect to Primerica Bank, restricts cross-marketing of products
by or of certain affiliates. The Company's banks are also
subject to the Community Reinvestment Act, which requires a bank
to provide equal credit opportunity to all persons in such bank's
delineated community. The Company believes that it complies in
all material respects with applicable regulations.
The Real Estate Settlement Procedures Act of 1974
("RESPA") has been extended to cover real estate-secured loans
that are subordinated to other mortgage loans. Generally, RESPA
requires disclosure of certain information to customers and
regulates the receipt or payment of fees or charges for services
performed.
INSURANCE SERVICES
The Company's Insurance Services business includes
property and casualty insurance and specialty lines of insurance.
The Company's insurance activities relating to its consumer
finance business are discussed above under "Consumer Finance
Services."
The Company's property and casualty insurance operations
are conducted principally through Gulf Insurance Company and its
subsidiaries ("Gulf"). Gulf operates through regional offices
for traditional lines of property and casualty insurance and
specialty lines of business. Gulf has an A+ (superior) rating
from the A.M. Best Company, whose ratings may be revised or
withdrawn at any time.
In connection with The Travelers' 1992 acquisition of old
Travelers' common stock, the Company sold to old Travelers 1,000
newly issued shares of Commercial Insurance Resource, Inc.
("CIRI"), the parent of Gulf, in exchange for approximately 5.5%
of old Travelers' then outstanding common stock. As a result,
during 1993 CIRI and its subsidiaries were 50%-owned by each of
the Company and a subsidiary of old Travelers. In 1993, CIRI was
treated as a consolidated subsidiary of the Company, and the 50%
ownership interest of old Travelers was reflected as minority
interest.
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Regional and Specialty Lines
Gulf obtains its regional property and casualty insurance
business primarily through independent insurance agencies that
represent it on a non-exclusive basis. During 1993,
approximately 19% of Gulf's regional business represented
personal lines of insurance, approximately 29% represented
workers' compensation insurance and approximately 52% represented
other commercial lines of business, including commercial
automobile liability and physical damage and commercial multiple
peril insurance. At the end of 1993, Gulf discontinued writing
personal lines of insurance and transferred a major part of that
business to a subsidiary of The Travelers, although Gulf does
retain some run-off business. Approximately 73% of Gulf's
regional business, as represented by direct written premiums
during 1993, is in Texas, Georgia, Florida and Missouri.
Product offerings in Gulf's specialty lines include
directors' and officers' liability and various forms of
nonprofessional errors and omissions, fidelity bonds, commercial
umbrella coverages and contingent liability coverages; coverages
relating to the entertainment industry; and standard commercial
property and casualty products for specific niche markets. These
specialty lines are produced mainly through commercial insurance
brokers and several wholesale brokers, and underwriting managers
for specific industry programs. In the aggregate these specialty
lines comprised approximately 53%, 47% and 42% of Gulf's earned
premiums in 1993, 1992 and 1991, respectively.
Reserves are subject to ongoing review as additional
experience and other data become available. Increases or
decreases to reserves for loss and loss adjustment expenses may
be made, which would be reflected in operating results for the
period in which such adjustments, if any, are made.
Gulf attempts to limit its risks through careful
underwriting and the reinsurance of portions of certain policies
with unaffiliated reinsurers. Reinsurance is subject to
collectibility in all cases and to aggregate loss limits in
certain cases. In Gulf's regional business, losses on any single
claim are limited by reinsurance to $500,000 per occurrence and
reinsurance arrangements limit Gulf's maximum loss from any
single property catastrophic occurrence to $4.0 million, and it
participates for 5% of any excess, up to a maximum excess
participation of $36 million. For its specialty lines coverages,
Gulf's maximum risk is limited through reinsurance to
approximately $2.73 million per policy or, under certain
policies, per occurrence. See Note 7 of Notes to Consolidated
Financial Statements.
Also included in this area is account insurance provided
by Gulf to Smith Barney Shearson Inc., a subsidiary of The
Travelers, in excess of that provided by the Securities Investor
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Protection Corporation ("SIPC"). This insurance provides certain
excess coverage for losses due to forced liquidation of broker-
dealers, which losses would be recoverable by securities
customers from SIPC but for SIPC's $500,000 limitation on
liability per customer.
The following table sets forth information concerning
property and casualty operations of Gulf and its subsidiaries:
Gulf Insurance Company and Subsidiaries
(in millions of dollars)
Year Ended December 31,
-----------------------------
1993 1992 1991
---- ---- ----
Net premiums written . . $ 264.9 $ 250.1 $ 232.2
Premiums earned:
Regional business . . . $ 121.9 $ 128.4 $ 128.7
Specialty business . . 135.4 112.1 93.0
------- ------- -------
Total premiums earned $ 257.3 $ 240.5 $ 221.7
Total Loss and Expense Reserve $ 244.7 $ 223.1 $ 216.8
Loss ratio (1) . . . . . 72.1% 70.3% 75.1%
Expense ratio (2) . . . . 23.8% 27.3% 26.8%
Combined ratio (3) . . . 95.9% 97.6% 101.9%
____________________________
(1) Ratio of losses and loss expenses incurred to premiums
earned, determined in accordance with statutory insurance
accounting principles.
(2) Ratio of underwriting expenses incurred to net premiums
written, determined in accordance with statutory
insurance accounting principles.
(3) Total of loss ratio and expense ratio.
Investments
The investment holdings of the insurance companies at
December 31, 1993 were composed primarily of fixed income
securities. At December 31, 1993, approximately 97% in total
dollar amount of the fixed income securities portfolios of the
Company's insurance subsidiaries had investment grade ratings.
The remaining investments are principally issues of utilities and
private placement securities that are not subject to investment
rating. The weighted average maturity of the fixed income
holdings at December 31, 1993 was approximately 9.6 years. State
insurance laws prescribe the types, quality and diversity of
permissible investments for insurance companies.
Competition
The property and casualty insurance industry includes
many insurance companies of varying size. Companies may be small
local firms, large regional firms or large national firms, as
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well as self-insurance programs or captive insurers. Market
competition, regulated by state insurance departments, works to
set the price charged for insurance products and the level of
service provided. Growth is driven by a company's ability to
provide insurance and services at a price that is reasonable and
acceptable to the customer. In addition, the marketplace is
affected by available capacity of the insurance industry as
measured by policyholders' surplus. Surplus expands and
contracts primarily in conjunction with profit levels generated
by the industry, which is generally referred to as the
underwriting cycle. Growth in premium and service business is
also measured by a company's ability to retain existing customers
and to attract new customers.
Local or regional companies are effective competitors in
personal lines business because of their expense structure or
because they specialize in providing coverage to particular risk
groups. Personal automobile and homeowners insurance is marketed
mainly through one of two distribution systems: independent
agents or direct writing. Direct writing companies operate
either by mail or through exclusive agents or sales
representatives. Due in part to the expense advantage that
direct writers typically have relative to agency companies, the
direct writers have been able to gradually expand their market
share. Gulf's insurance sales force is primarily composed of
independent commissioned agents and brokers.
Regulation
The Company's insurance subsidiaries are subject to
considerable regulation and supervision by insurance departments
or other authorities in each state or other jurisdiction in which
they transact business. The laws of the various jurisdictions
establish supervisory and regulatory agencies with broad
administrative powers. The purpose of such regulation and
supervision is primarily to provide safeguards for policyholders,
rather than to protect the interests of the insurers'
stockholders. Typically, state regulation extends to such
matters as licensing companies, regulating the type, amount and
quality of permitted investments, licensing agents, regulating
aspects of a company's relationship with its agents, requiring
triennial financial examinations, market conduct surveys and the
filing of reports on financial condition, recording complaints,
restricting expenses, commissions and new business issued,
restricting use of some underwriting criteria, regulating rates,
forms and advertising, specifying what might constitute unfair
practices, fixing maximum interest rates on policy loans and
establishing minimum reserve requirements and minimum policy
surrender values. Such powers also extend to premium rate
regulation, which varies from open competition to limited review
upon implementation, to requirements for prior approval for rate
changes. State regulation may also cover regulating capital and
surplus and actuarial reserve maintenance, setting solvency
standards, mandating loss ratios for certain kinds of insurance,
limiting the grounds for cancellation or nonrenewal of policies
and regulating solicitation and replacement practices. State
laws also regulate transactions and dividends between an
insurance company and its parent or affiliates, and require prior
approval or notification of any change in control of an insurance
subsidiary. In addition, under insurance holding company
legislation, most states regulate affiliated groups with respect
to intercorporate transfers of assets, service arrangements and
dividend payments from insurance subsidiaries.
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The insurance industry generally is exempt from federal
antitrust laws because of the application of the McCarran-
Ferguson Act. In recent years, legislation has been introduced
to modify or repeal the McCarran-Ferguson Act. The effect of any
such modification or repeal cannot currently be determined.
Virtually all states mandate participation in insurance
guaranty associations and/or insolvency funds, which assess
insurance companies in order to fund claims of policyholders of
insolvent insurance companies. Under these arrangements,
insurers are assessed their proportionate share (based on
premiums written for the relevant lines of insurance in that
state each year) of the estimated loss and loss expense of
insolvent insurers. Similarly, as a condition to writing a line
of property and casualty business, many states mandate
participation in "fair plans" and/or "assigned risk pools" that
underwrite insurance for individuals and businesses that are
otherwise unable to obtain insurance. Participation is based on
the amount of premiums written in past years by the participating
company in an individual state for the classes of insurance
involved. These plans or pools traditionally have been
unprofitable, although the effect of their performance has been
partially mitigated in certain lines of insurance by the states'
allowance of increases in rates for business voluntarily written
by plan or pool participants in such states. For workers'
compensation plans or pools the effect may be further mitigated
by the method of participation selected by insurance companies.
In addition to state insurance laws, the Company's
insurance subsidiaries are also subject to general business and
corporation laws, state securities laws, consumer protection
laws, fair credit reporting acts and other laws.
Many jurisdictions require prior regulatory approval of
rate and rating plan changes and some impose restrictions on the
cancellation or nonrenewal of risks and the termination of agency
contracts, or have regulations that preclude immediate withdrawal
from certain lines of business. Certain lines of business, such
as commercial automobile and workers' compensation, experience
rate inadequacies in many jurisdictions. Automobile insurance is
also subject to varying regulatory requirements as to mandated
coverages and availability, such as no-fault benefits, assigned
risk pools, reinsurance facilities and joint underwriting
associations. The added expense associated with involuntary
pools in this and other areas has adversely affected
profitability.
In December 1992, the Florida legislature created the
Residential Property and Casualty Joint Underwriting Association
("RPCJUA") to provide residential property and casualty insurance
to individuals who cannot obtain coverage in the voluntary
market. Property-casualty insurance companies in Florida,
including Gulf, will be required to share the risk in the RPCJUA.
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In November 1993, the Florida legislature created a
Florida Hurricane Catastrophe Fund to provide reimbursement to
insurers for a portion of their future catastrophic hurricane
losses. This Hurricane Catastrophe Fund will be funded in part
by assessments on insurance companies.
The National Association of Insurance Commissioners (the
"NAIC") adopted risk-based capital ("RBC") requirements for
property-casualty companies in December 1993, effective with
reporting for 1994. The RBC requirements are to be used as early
warning tools by the NAIC and states to identify companies that
merit further regulatory action.
CORPORATE AND OTHER OPERATIONS
The Corporate and Other segment consists of corporate
staff and treasury operations, a hotel mortgage investment and
certain corporate income and expenses that have not been
allocated to the operating subsidiaries. During 1993, this
segment also included the Company's share of equity income of old
Travelers. See Notes 3 and 4 of Notes to Consolidated Financial
Statements.
Investment in The Travelers
In December 1988, in connection with an acquisition by
The Travelers, the Company's parent company, the Company made an
investment of approximately $500 million in an entire issue of
preferred stock of Primerica Holdings, Inc. ("Primerica
Holdings"), then a wholly owned subsidiary of The Travelers.
Since then $400 million of such preferred stock has been
repurchased from the Company. In December 1992 Primerica
Holdings was merged into The Travelers and the Company's
investment in the preferred stock was converted into preferred
stock of The Travelers, with the same terms. The preferred stock
is entitled to a cumulative quarterly dividend at an annual rate
of 85% of the daily average of the 30-day commercial paper rate
multiplied by the stock's $45,000 per share liquidation value.
Additionally, the preferred stock has customary provisions
regarding preferences upon liquidation, is redeemable without
premium at the issuer's option at any time, and is subject to
repurchase at the holder's request at its liquidation value plus
accrued dividends if not redeemed on or prior to September 15,
1998. See Note 13 of Notes to Consolidated Financial Statements.
GENERAL BUSINESS FACTORS
In the judgment of the Company, no material part of the
business of the Company and its subsidiaries is dependent upon a
single customer or group of customers, the loss of any one of
which would have a materially adverse effect on the Company, and
no one customer or group of affiliated customers accounts for as
much as 10% of the Company's consolidated revenues.
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At December 31, 1993, the Company had approximately 5,000
full-time employees. The Company also employs part-time
employees.
OTHER INFORMATION
Source of Funds
For a discussion of the Company's sources of funds and
maturities of the long-term debt of the Company's subsidiaries,
see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital
Resources," and Note 6 of Notes to Consolidated Financial
Statements.
The following table sets forth information concerning
annual weighted average interest rates on the Company's borrowed
funds:
Annual Weighted Average Interest Rates
Years ended December 31,
------------------------
1993 1992 1991
---- ---- ----
Savings accounts, certificates
and deposits................ 4.4% 5.4% 6.8%
Short-term borrowings (1)..... 3.2% 3.8% 6.1%
Long-term borrowings (2)...... 8.0% 8.4% 8.9%
Total borrowings.............. 6.3% 6.6% 7.6%
Bank prime rate .............. 6.0% 6.3% 8.5%
____________________
(1) Includes all commercial paper and short-term bank loans;
does not include cost of maintaining bank credit lines.
(2) Includes current maturities of long-term debt and
amortization of long-term debt expenses.
Taxation
For a discussion of tax matters affecting the Company and
its operations, see Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and Notes 1
and 8 of Notes to Consolidated Financial Statements.
Financial Information about Industry Segments
For financial information regarding industry segments of
the Company, see Note 3 of Notes to Consolidated Financial
Statements.
12
<PAGE>
Item 2. PROPERTIES.
The Company is engaged in the business of providing
services that are generally not dependent upon their physical
plant. In 1989, a subsidiary of the Company completed the sale
of the Company's headquarters office building in Baltimore,
Maryland, and the lease back of a portion of the space therein,
which is used by the Company as its executive offices. Offices
and other properties used by the Company's subsidiaries are
located throughout the United States. One subsidiary owns and
uses office space in Tel Aviv, Israel. Most office locations and
other properties are leased on terms and for durations that are
reflective of commercial standards in the communities where such
offices and other properties are located. A few offices are
owned, none of which is material to the Company's financial
condition or operations.
The Company believes its properties are adequate and
suitable for its business as presently conducted and are
adequately maintained. For further information concerning
leases, see Note 12 of Notes to Consolidated Financial
Statements.
Item 3. LEGAL PROCEEDINGS.
For information concerning Gallagher, et. al. v. American
Health and Life Insurance Company, et. al., a purported class
action relating to annuity policies that were transferred by the
defendants to an insurance company that is now insolvent, see the
description that appears in the second paragraph of page 2 of the
Company's filing on Form 8-K dated July 28, 1992, which
description is incorporated by reference herein. A copy of the
pertinent paragraph of such filing is included as an exhibit to
this Form 10-K.
Because the nature of the businesses of the Company and
its subsidiaries involves the collection of numerous accounts,
the validity of liens, accident and other damage or loss claims
under many types of insurance, and the construction and
interpretation of contracts, the Company and its subsidiaries are
plaintiffs and defendants in numerous legal proceedings. Neither
the Company nor any of its subsidiaries is a party to, nor is its
property the subject of, any legal proceeding that departs from
litigation normally incident to the kinds of business conducted
by the Company or its subsidiaries which, in the opinion of the
Company's management, would be expected to have a material
adverse impact on the consolidated financial condition of the
Company and its subsidiaries.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Pursuant to General Instruction J of Form 10-K, the
information required by Item 4 is omitted.
13
<PAGE>
PART II
-------
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
All of the outstanding common stock of the Company is
owned by CCC Holdings, Inc., which is a wholly owned subsidiary
of The Travelers.
Item 6. SELECTED FINANCIAL DATA.
COMMERCIAL CREDIT COMPANY and SUBSIDIARIES
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
(In millions of dollars)
<TABLE><CAPTION>
Year Ended December 31, 1993 1992 1991 1990 1989
----------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total revenues $1,580.3 $1,523.5 $1,459.1 $1,270.7 $1,011.0
Income before cumulative
effect of changes in
accounting principles (1) $291.8 $281.2 $203.2 $165.2 $126.1
Net income (1,2) $286.0 $263.1 $203.2 $165.2 $126.1
December 31,
-------------
Total assets (3) $8,893.7 $8,039.0 $7,726.7 $7,138.4 $5,198.3
Total debt $6,232.6 $5,750.9 $5,835.5 $5,382.1 $3,717.7
</TABLE>
--------------------------------------------
(1) Included in 1992 results are after-tax gains of $7.1 from
the sale of stock of subsidiaries and affiliates and $22.7
from the sale of the common stock investment in Musicland
Stores Corporation.
(2) See Note 1 of Notes to Consolidated Financial Statement for
information regarding changes in accounting principles in
1992 and 1993.
(3) Assets and liabilities for 1992 have been reclassified to
conform with the 1993 presentation for the adoption,
effective January 1, 1993, of Statement of Financial
Accounting Standards No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts."
14
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Consolidated Results of Operations
Year Ended December 31,
---------------------------
($ in millions) 1993 1992 1991
-----------------------------------------------------------------------
Revenues $1,580.3 $1,523.5 $1,459.1
======== ======== ========
Income before cumulative effect of
changes in accounting principles $ 291.8 $ 281.2 $ 203.2
======== ======== ========
Net income $ 286.0 $ 263.1 $ 203.2
======== ======== ========
Results of Operations
Commercial Credit Company's (the Company) earnings in 1993 reflect a
substantial increase in the contribution of Consumer Finance Services,
which continued to post record results.
Income before the cumulative effect of changes in accounting principles
for 1993 includes:
- Reported investment portfolio gains of $33.3 million;
Income before the cumulative effect of changes in accounting principles
for 1992 includes:
- Reported investment portfolio gains of $10.3 million;
- a gain of $22.7 million from the sale of the common stock investment
in Musicland Stores Corporation (Musicland);
- a gain of $11.1 million from the exchange of 50% of Commercial
Insurance Resources, Inc. (CIRI), the parent of Gulf Insurance Company
(Gulf), for The Travelers Corporation (old Travelers) common stock;
- a net loss of $4.0 million from the divestment of securities of the
Company's affiliate, Inter-Regional Financial Group, Inc. (IFG)
Included in net income for 1993 is an after-tax charge of $3.4 million
resulting from the adoption of Statement of Financial Accounting
Standards No. 112 (FAS 112), "Employers' Accounting for Postemployment
Benefits," and an after-tax charge of $2.4 million resulting from the
adoption of Statement of Financial Accounting Standards No. 106 (FAS
106), "Employers' Accounting for Postretirement Benefits Other Than
Pensions." Included in net income for 1992 is an after-tax charge of
$18.1 million resulting from the adoption of Statement of Financial
Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes."
Excluding these items, earnings for 1993 increased by $17.4 million or
7% over the 1992 period reflecting improved performance at Consumer
Finance Services and the 1993 contribution to earnings of an equity
investment in old Travelers, partially offset by the 1993 minority
interest in Gulf and higher corporate expenses.
The most significant factor in 1992's and 1991's earnings growth over
1991 and 1990, respectively, were increases in the contributions of
Consumer Finance Services.
The following discussion presents in more detail each segment's
performance.
15
<PAGE>
Consumer Finance Services
Year Ended December 31,
-------------------------------------------------------
1993 1992 1991
-------------------------------------------------------
Net Net Net
($ in millions) Revenues income Revenues income Revenues income
-------------------------------------------------------------------------
Consumer Finance
Services (1) $1,190.6 $230.8 $1,154.8 $196.6 $1,147.1 $173.8
=========================================================================
(1) Net income includes $22.7 and $4.3 of reported investment portfolio
gains in 1993 and 1992, respectively.
Consumer Finance earnings before reported investment portfolio gains
increased 8% in 1993 over the prior year. The increase primarily
reflects a significant decline in loan losses and a 3% increase in
average receivables outstanding. The increase in net income and
revenues in 1992 compared to 1991 reflects an increase in average
receivables outstanding (offset by slightly lower yields), improved
operating efficiencies and some benefit from lower funding costs.
Year-end receivables increased in 1993 by $554 million to end the year
at $6.342 billion. The 1993 increase occurred across-the-board in real
estate loans, personal loans and credit cards and also reflects the
reacquisition of the remainder of a portfolio of loans collateralized
by manufactured housing units amounting to $135 million at year end.
While average receivables increased in 1992, year-end receivables
declined reflecting an increase in early payoffs of real estate loans
outstandings. This was partially offset by an increase in credit card
outstandings. Seventy-three branch offices were added during 1993,
bringing the total to 768 at year end.
Consumer Finance borrows from the Company's corporate treasury
operation which raises funds externally. For fixed rate loan products
Consumer Finance is charged agreed-upon rates that have generally been
set within a narrow range and have approximated 8% over the last three
years. For variable rate loan products Consumer Finance is charged
prime-based rates. The Company's actual cost of funds may be higher or
lower than rates charged to Consumer Finance, with the difference
reflected in Corporate and Other.
The average yield on receivables outstanding decreased to 15.83% in
1993 from 16.31% in the prior year and 16.69% in 1991, due to lower
yields on fixed rate second mortgages and the adjustable rate real
estate-secured loan product introduced at the end of 1992. Lower
yields on loans outstanding, partially offset by decreased cost of
funds to Consumer Finance on variable rate loans, have resulted in a
decline in net interest margins to 8.44% in 1993 from 8.66% in 1992.
The allowance for losses as a percentage of net receivables was reduced
to 2.64% at year-end 1993 from 2.91% at year-end 1992 due to the
improved credit quality of the loan portfolio. The increase in the
allowance in 1992 from 2.86% at year-end 1991 reflected the impact of
the recessionary economic environment.
16
<PAGE>
As of, and for, the
Year Ended December 31,
-----------------------
1993 1992 1991
-----------------------
Allowance for losses as % of net
consumer finance 2.64% 2.91% 2.86%
receivables at year end
Charge-off rate for the year 2.36% 2.84% 2.72%
60 + days past due on a contractual
basis as % of gross consumer finance 2.21% 2.55% 2.80%
receivables at year end
Accounts 60+ days past due include accounts in the process of
foreclosure for all periods presented.
The Company's wholly owned subsidiary, American Health and Life
Insurance Company (AHL), provides credit life and health insurance to
Consumer Finance customers. Premiums earned were $84.8 million in
1993, $86.1 million in 1992 and $82.5 million in 1991.
Outlook - Consumer Finance is affected by the interest rate environment
and general economic conditions. In a rising interest rate
environment, real estate loan liquidations may decline compared to the
last two years, when potential customers refinanced their first
mortgages instead of turning to the second mortgage-market or proceeds
from the refinancing of first mortgages were used to pay off existing
second mortgages. Lower loan liquidations would benefit the level of
receivables outstanding. In addition, a rising interest rate
environment could also reduce the downward pressure experienced during
the last several years on the interest rates charged on new real
estate-secured receivables, as well as credit cards, which are
substantially based on the prime rate. However, significantly higher
rates could result in an increase in the interest rates charged to
Consumer Finance on the funds it borrows from the Company to reflect
the Company's overall higher cost of funds. These impacts could be at
least partially offset by the benefits of a strengthening U.S. economy,
which typically would include an increase in consumer borrowing demand.
Asset Quality - Consumer Finance assets totaled approximately $7
billion at December 31, 1993, of which $6 billion, or 86%, represented
the net consumer finance receivables (after accrued interest and the
allowance for credit losses). These receivables were predominantly
residential real estate-secured loans and personal loans. Receivable
quality depends on the likelihood of repayment. The Company seeks to
reduce its risks by focusing on individual lending, making a greater
number of smaller-sized loans than would be practical in commercial
markets, and maintaining disciplined control over the underwriting
process. The Company has a geographically diverse portfolio as
described in Note 5 of Notes to Consolidated Financial Statements. The
Company believes that its loss reserves on the consumer finance
receivables are appropriate given current circumstances.
Of the remaining Consumer Finance assets, approximately $631 million
were investments of AHL and its affiliates, including $352 million of
fixed-income securities and $204 million of short-term investments.
17
<PAGE>
Insurance Services
Year Ended December 31,
-----------------------------------------------------
1993 1992 1991
-----------------------------------------------------
Net Net Net
($ in millions) Revenues income Revenues income Revenues income
- ------------------------------------------------------------------------------
Gulf property and
casualty (1) $314.5 $ 44.9 $322.2 $57.9 $257.0 $21.6
Minority Interest -
Gulf -- (22.5) -- -- -- --
Other 5.6 (0.2) 5.0 (0.5) 9.7 1.4
- ------------------------------------------------------------------------------
Total Insurance
Services $320.1 $ 22.2 $327.2 $57.4 $266.7 $23.0
==============================================================================
(1) Net income includes $15.2 and $6.0 of reported investment
portfolio gains in 1993 and 1992, respectively and $22.7 from the sale
of Musicland common stock in 1992.
Earnings from Gulf increased slightly compared to 1992, before old
Travelers' 50% minority interest, reported net investment portfolio
gains of $15.2 million and $6.0 million in 1993 and 1992, respectively,
and a $22.7 million gain in 1992 from the sale of Musicland. Gulf's
results reflect ongoing growth in its high-margin specialty businesses
offset by relatively high local storm losses in the regional business
in 1993. Notwithstanding a $2 million after-tax provision for losses
from Hurricane Andrew in the third quarter of 1992, Gulf's 1992
earnings improved over 1991, also as a result of the growth of the
specialty business. Gulf's 1993 combined ratio improved to 95.9%, from
97.6% in 1992 and 101.9% in 1991. However, for the fourth quarter of
1993 the combined ratio increased to 97.8%, principally as a result of
higher storm-related claims.
Gulf writes both traditional and specialty insurance lines. Gulf's
traditional lines - largely written in Texas, Georgia, Florida and
Missouri - include automobile liability and physical damage, workers'
compensation, other liability, fire and related homeowners' insurance
and multiple peril insurance. Gulf's specialty lines include
directors' and officers', errors and omissions, fidelity bonds and
contingent liability coverages, as well as coverages relating to the
entertainment industry and other specialty markets.
Outlook
Changes in the general interest rate environment affect the return
received by the insurance subsidiaries on newly invested and reinvested
funds. While a rising interest rate environment enhances the returns
available, it reduces the market value of existing fixed maturity
investments and the availability of gains on disposition.
As required by various state laws and regulations, the Company's
insurance subsidiaries are required to participate in state-
administered guarantee associations established for the benefit of the
policyholders of insolvent insurance companies. Management believes
that payments to such associations will not have a material impact on
financial condition or results of operations.
Asset Quality - The investment portfolio of the Insurance Services
segment totaled approximately $519 million, representing 57% of total
Insurance Services' assets of approximately $907 million. Because the
primary purpose of the portfolio is to fund future policyholder
benefits and claims payments, and in order to provide for economies of
scale and tight control, it is managed centrally, employing a
conservative investment philosophy. Approximately $433 million of the
portfolio is invested in long-term fixed-income securities, of which
97.0% had investment grade ratings. At December 31, 1993, the weighted
average maturity of these fixed-income holdings was approximately 9.6
years.
18
<PAGE>
Corporate and Other
Year Ended December 31,
---------------------------------------------------------
1993 1992 1991
---------------------------------------------------------
Net Net Net
($ in millions) Revenues income Revenues income Revenues income
----------------------------------------------------------------------------
Corporate and
Other $ 3.9 $20.1 $6.4
Equity in income
of old Travelers
in 1993 34.9 -- --
Net gain on sales
of stock of
subsidiary and
affiliate -- 7.1 --
----------------------------------------------------------------------------
Total Corporate
and Other $69.6 $38.8 $41.5 $27.2 $45.3 $6.4
============================================================================
Corporate and Other reflects lower income from miscellaneous
investments, somewhat higher corporate expenses and lower net interest
income reflecting an increase in the proportion of variable rate loans
in the Consumer Finance receivables portfolio. These factors were
partially offset by lower interest rates on debt in 1993. Lower
interest rates in 1992 contributed to the improvement over 1991.
The equity in income of old Travelers includes $3.0 million from the
Company's share of old Travelers' realized portfolio gains. The 1992
net gain on sale of stock of an affiliate represents a gain of $11.1
million from the exchange of 50% of CIRI, the parent of Gulf, for old
Travelers common stock and an after-tax loss of $4.0 million relating
to the sale of Inter-Regional Financial Group, Inc. common stock.
On December 31, 1993, The Travelers Inc. (the Parent), the parent of
Commercial Credit Company, acquired the approximately 73% it did not
already own of The Travelers Corporation (old Travelers), by means of a
merger of old Travelers into the Parent. As a result of the merger, the
Company's investment in the common stock of old Travelers, which through
that date had been carried on the equity basis of accounting, was
exchanged for 7.2 million shares of common stock of the Parent at a ratio
of 0.80423 of a share of the Parent common stock for each share of old
Travelers common stock. At December 31, 1993 the investment was
reflected at a carrying amount of $211.3 million. On March 31, 1994,
6.3 million of the Company's shares of the Parent's common stock will
be exchanged for a variable rate preferred stock of the Parent, which
is redeemable at the option of the holder at certain times and callable
by the Parent at certain times. The preferred stock will have a value
equal to the market value of the common shares at the time the exchange
was agreed upon. The balance of such shares, which are held by an
insurance subsidiary, will be exchanged upon receipt of regulatory
approval.
Liquidity and Capital Resources
The Company issues commercial paper directly to investors and maintains
unused credit availability under committed revolving credit agreements
at least equal to the amount of commercial paper outstanding. As of
December 31, 1993, the Company has unused credit availability of $2.295
billion. The Company may borrow under its revolving credit facilities
at various interest rate options and compensates the banks for the
facilities through commitment fees.
During 1993, the Company completed the following debt offerings and, as
of February 28, 1994, had $850 million available for debt offerings
under its shelf registration statement:
- 5.70% Notes due March 1, 1998 ...... $100 million
19
<PAGE>
- 6 1/8 Notes due March 1, 2000 ...... $100 million
- 6.00% Notes due April 15, 2000 ..... $150 million
- 5 1/2% Notes due May 15, 1998 ...... $100 million
- 6.00% Notes due June 15, 2000 ...... $100 million
- 5 3/4% Notes due July 15, 2000 ..... $200 million
- 5.9% Notes due September 1, 2003 ... $200 million
The Company is limited by covenants in its revolving credit agreements
as to the amount of dividends and advances that may be made to the
Parent or its affiliated companies. At December 31, 1993, the Company
would have been able to remit $149.8 million to the Parent under its
most restrictive covenants or regulatory requirements.
Recent Accounting Standards
FAS 114
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan," describes how impaired loans
should be measured when determining the amount of a loan loss accrual.
The Statement also amends existing guidance on the measurement of
restructured loans in a troubled debt restructuring involving a
modification of terms. The Company has not yet determined the impact,
if any, this statement will have on its financial statements. The
Statement has an effective date of January 1, 1995.
FAS 115
Effective January 1, 1994, the Company will adopt Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which addresses accounting
and reporting for investments in equity securities that have a readily
determinable fair value and for all debt securities. Those investments
are to be classified in one of three categories. Debt securities that
the Company has the positive intent and ability to hold to maturity are
to be classified as "held for investment" and are to be reported at
amortized cost. Securities that are bought and held principally for
the purpose of selling them in the near term are classified as "trading
securities" and are to be reported at fair value, with unrealized gains
and losses included in earnings. Securities that are neither to be
held to maturity nor to be sold in the near term are classified as
"available for sale" and are to be reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a
net amount in a separate component of stockholders' equity. At
December 31, 1993 the market value of fixed maturities exceeded the
cost by $32.9 million.
20
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Consolidated Financial Statements and
Schedules on page F-1 hereof. There is also incorporated by
reference herein in response to this Item the Company's
Consolidated Financial Statements and the notes thereto and the
material under the caption "Quarterly Financial Data (Unaudited)"
set forth in the Consolidated Financial Statements.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to General Instruction J of Form 10-K, the
information required by Item 10 is omitted.
Item 11. EXECUTIVE COMPENSATION.
Pursuant to General Instruction J of Form 10-K, the
information required by Item 11 is omitted.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Pursuant to General Instruction J of Form 10-K, the
information required by Item 12 is omitted.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to General Instruction J of Form 10-K, the
information required by Item 13 is omitted.
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a) Documents filed as a part of the report:
(1) Financial Statements. See Index to Consolidated
Financial Statements and Schedules on page F-1
hereof.
(2) Financial Statement Schedules. See Index to
Consolidated Financial Statements and Schedules
on page F-1 hereof.
(3) Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K:
On October 21, 1993, the Company filed a Current
Report on Form 8-K dated October 18, 1993, reporting
under Item 5 thereof the results of its operations for
the three months and nine months ended September 30,
1993, and certain other selected financial data.
No other reports on Form 8-K have been filed by the
Company during the last quarter of the period covered
by this report.
21
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Filing
Number Description of Exhibit Method
------- ---------------------- ------
3.01 Restated Certificate of Incorporation of
Commercial Credit Company (the "Company"),
included in Certificate of Merger of CCC
Merger Company into the Company;
Certificate of Ownership and Merger merging
CCCH Acquisition Corporation into the
Company; and Certificate of Ownership and
Merger merging RDI Service Corporation into
the Company, incorporated by reference to
Exhibit 3.01 to the Company's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1992 (File No. 1-6594).
3.02 By-laws of the Company, as amended May 14,
1990, incorporated by reference to Exhibit
3.02.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended
December 31, 1990 (File No. 1-6594).
4.01.1 Indenture, dated as of December 1, 1986
(the "Indenture"), between the Company and
Citibank, N.A., relating to the Company's
debt securities, incorporated by reference
to Exhibit 4.01 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1988 (File No. 1-6594).
4.01.2 First Supplemental Indenture, dated as of
June 13, 1990, to the Indenture,
incorporated by reference to Exhibit 1 to
the Company's Current Report on Form 8-K
dated June 13, 1990 (File No. 1-6594).
The total amount of securities
authorized pursuant to any other
instrument defining rights of
holders of long-term debt of the
Company does not exceed 10% of
the total assets of the Company
and its consolidated
subsidiaries. The Company will
furnish copies of any such
instrument to the Commission upon
request.
22
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------- ---------------------- ------
10.01 $1,500,000,000 Three Year Credit Agreement Electronic
dated as of February 24, 1994 among the
Company, the Banks party thereto and Morgan
Guaranty Trust Company of New York, as
Agent.
12.01 Computation of Ratio of Earnings to Fixed Electronic
Charges.
21.01 Pursuant to General Instruction J of Form
10-K, the list of subsidiaries of the
Company is omitted.
23.01 Consent of KPMG Peat Marwick, Independent Electronic
Certified Public Accountants.
99.01 The second paragraph of page 2 of the Electronic
Company's Current Report on Form 8-K dated
July 28, 1992 (File No. 1-6594).
Copies of any of the exhibits referred to above will be
furnished at a cost of $.25 per page to security holders
who make written request therefor to Patricia A. Rouzer,
Corporate Communications and Investor Relations,
Commercial Credit Company, 300 St. Paul Place, Baltimore,
Maryland 21202.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 30th day of March, 1994.
COMMERCIAL CREDIT COMPANY
(Registrant)
By: /s/ Robert S. Willumstad
. . . . . . . . . . . . . .
Robert B. Willumstad,
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities indicated on the 30th
day of March, 1994.
Signature Title
--------- -----
/s/ Robert B. Willumstad
. . . . . . . . . . . . . . Chairman of the Board, Chief
Robert B. Willumstad Executive Officer
(Principal Executive Officer)
and Director
/s/ William R. Hofmann
. . . . . . . . . . . . . . Vice President and Chief
William R. Hofmann Financial Officer
(Principal Financial Officer)
/s/ Irwin R. Ettinger
. . . . . . . . . . . . . . Senior Vice President, Chief
Irwin R. Ettinger Accounting Officer (Principal
Accounting Officer) and Director
/s/ James Dimon
. . . . . . . . . . . . . . Director
James Dimon
/s/ Jerome T. Fadden
. . . . . . . . . . . . . . Director
Jerome T. Fadden
/s/ Robert I. Lipp
. . . . . . . . . . . . . . Director
Robert I. Lipp
24
<PAGE>
COMMERCIAL CREDIT COMPANY and SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES*
Page
Herein
------
Independent Auditors' Report F-2
Consolidated Statement of Income for the year ended
December 31, 1993, 1992 and 1991 F-3
Consolidated Statement of Financial Position at
December 31, 1993 and 1992 F-4
Consolidated Statement of Changes in Stockholder's
Equity for the year ended December 31, 1993, 1992
and 1991 F-5
Consolidated Statement of Cash Flows for the year
ended December 31, 1993, 1992 and 1991 F-6
Notes to Consolidated Financial Statements F-7 - F-23
Schedules:
Schedule I - Marketable Securities - Other
Investments F-24
Schedule III - Condensed Financial Information
of Registrant (Parent Company only) F-25 - F-27
Schedule IX - Short-Term Borrowings F-28
Schedule X - Supplementary Income Statement
Information F-29
*Schedules not listed are omitted as not applicable or not
required by Regulation S-X.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Commercial Credit Company:
We have audited the consolidated financial statements of
Commercial Credit Company and subsidiaries as listed in the
accompanying index. In connection with our audits of the
consolidated financial statements, we also have audited the
financial statement schedules as listed in the accompanying
index. These consolidated financial statements and financial
statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Commercial Credit Company and subsidiaries as of
December 31, 1993 and 1992, and the results of their operations
and their cash flows for each of the years in the three year
period ended December 31, 1993 in conformity with generally
accepted accounting principles. Also in our opinion, the related
financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth
therein.
As discussed in Note 1 to the consolidated financial statements,
the Company changed its methods of accounting for postretirement
benefits other than pensions and accounting for postemployment
benefits in 1993, and its method of accounting for income taxes
in 1992.
/s/ KPMG Peat Marwick
Baltimore, Maryland
January 24, 1994
F-2
<PAGE>
COMMERCIAL CREDIT COMPANY and SUBSIDIARIES
Consolidated Statement of Income
(In millions of dollars)
Year Ended December 31, 1993 1992 1991
-------------------------------------------------------------------
Revenues
Finance related interest and other
charges $ 953.5 $ 952.7 $ 958.3
Insurance premiums 342.1 326.7 304.2
Interest and dividends 69.2 79.5 85.9
Equity in income of old Travelers 38.0 - -
Other income 177.5 164.6 110.7
-------------------------------------------------------------------
Total revenues 1,580.3 1,523.5 1,459.1
-------------------------------------------------------------------
Expenses
Interest 363.7 369.7 434.9
Policyholder benefits and claims 216.2 210.4 200.9
Insurance underwriting, acquisition
and operating 87.0 85.2 77.0
Non-insurance compensation and benefits 164.1 153.5 152.5
Provision for credit losses 133.9 165.3 165.1
Other operating 147.5 122.6 125.8
-------------------------------------------------------------------
Total expenses 1,112.4 1,106.7 1,156.2
-------------------------------------------------------------------
Gain on sale of stock of subsidiary
and affiliate -- 12.0 --
-------------------------------------------------------------------
Income before income taxes, minority
interest and cumulative effect of
changes in accounting principles 467.9 428.8 302.9
Provision for income taxes 153.6 147.6 99.7
-------------------------------------------------------------------
Income before minority interest and
cumulative effect of changes in
accounting principles 314.3 281.2 203.2
Minority interest, net of income taxes (22.5) -- --
Cumulative effect of changes in
accounting principles, net of
income taxes (5.8) (18.1) --
-------------------------------------------------------------------
Net income $ 286.0 $ 263.1 $ 203.2
===================================================================
See Notes to Consolidated Financial Statements
F-3
<PAGE>
COMMERCIAL CREDIT COMPANY and SUBSIDIARIES
Consolidated Statement of Financial Position
(In millions of dollars, except per share amounts)
December 31, 1993 1992
-------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 25.6 $22.0
Investments:
Fixed maturities:
Available for sale (market $784.1 and $765.1) 752.5 727.8
Held for investment (market $35.0 and $36.7) 33.7 35.0
Equity securities (market $368.5 and $82.8) 300.0 82.8
Mortgage loans 205.1 188.9
Short-term and other 246.7 115.3
--------------------------------------------------------------------------
Total investments 1,538.0 1,149.8
--------------------------------------------------------------------------
Consumer finance receivables 6,383.1 5,823.5
Allowance for losses (167.5) (168.6)
--------------------------------------------------------------------------
Net consumer finance receivables 6,215.6 5,654.9
Other receivables 560.9 363.6
Deferred policy acquisition costs 26.7 26.7
Cost of acquired businesses in excess of net assets 105.8 106.5
Investment in old Travelers - 170.0
Other assets 421.1 545.5
--------------------------------------------------------------------------
Total assets $8,893.7 $8,039.0
==========================================================================
Liabilities
Certificates of deposit $ 56.7 $ 22.4
Short-term borrowings 2,206.1 2,486.6
Long-term debt 3,969.8 3,241.9
--------------------------------------------------------------------------
Total debt 6,232.6 5,750.9
Insurance policy and claims reserves 894.7 765.6
Accounts payable and other liabilities 655.7 487.2
--------------------------------------------------------------------------
Total liabilities 7,783.0 7,003.7
--------------------------------------------------------------------------
Stockholder's equity
Common stock ($.01 par value; authorized shares:
1,000; share issued: 1) - -
Additional paid-in-capital 94.7 105.9
Retained earnings 1,002.6 926.6
Other 13.4 2.8
--------------------------------------------------------------------------
Total stockholder's equity 1,110.7 1,035.3
--------------------------------------------------------------------------
Total liabilities and stockholder's equity $8,893.7 $8,039.0
==========================================================================
See Notes to Consolidated Financial Statements
F-4
<PAGE>
COMMERCIAL CREDIT COMPANY and SUBSIDIARIES
Consolidated Statement of Changes in Stockholder's Equity
(In millions of dollars, except per share amounts)
Year ended December 31, 1993 1992 1991
---------------------------------------------------------------------
Common stock-$.01 par value, 1,000 shares
with 1 share issued
Balance, beginning of year - - -
Balance, end of year - - -
---------------------------------------------------------------------
Additional Paid-In Capital
Balance, beginning of year $ 105.9 $ 105.9 $ 105.4
Capital contribution 1.2 - 0.5
Adjustments relating to exchange of
investment in old Travelers, net (12.4) - -
---------------------------------------------------------------------
Balance, end of year 94.7 105.9 105.9
---------------------------------------------------------------------
Retained Earnings
Balance, beginning of year 926.6 943.5 845.1
Net income 286.0 263.1 203.2
Dividends (210.0) (280.0) (104.8)
---------------------------------------------------------------------
Balance, end of year 1,002.6 926.6 943.5
---------------------------------------------------------------------
Other
Balance, beginning of year 2.8 0.7 1.3
Net appreciation (depreciation) of equity 10.8 2.3 (0.5)
securities
Translation adjustments (0.2) (0.2) (0.1)
---------------------------------------------------------------------
Balance, end of year 13.4 2.8 0.7
---------------------------------------------------------------------
Total stockholder's equity $1,110.7 $1,035.3 $1,050.1
=====================================================================
See Notes to Consolidated Financial Statements
F-5
<PAGE>
COMMERCIAL CREDIT COMPANY and SUBSIDIARIES
Consolidated Statement of Cash Flows
(In millions of dollars)
<TABLE><CAPTION>
Year ended December 31, 1993 1992 1991
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
------------------------------------
Income before income taxes, minority interest and cumulative effect of change in
accounting principles $ 467.9 $ 428.8 $ 302.9
Adjustments to reconcile income before income taxes, minority interest
and cumulative effect of changes in accounting principles to net cash
provided by (used in) operating activities:
Amortization of deferred policy acquisition costs and value of insurance in force 54.7 54.8 58.9
Additions to deferred policy acquisition costs (54.3) (55.2) (55.1)
Provision for credit losses 133.9 165.3 165.1
Undistributed equity earnings (26.8) (3.0) (4.6)
Changes in insurance policy and claims reserves 51.2 11.6 9.0
Changes in other assets and liabilities, net 60.8 16.5 12.0
Other, net (73.4) (78.1) (5.8)
-----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operations 614.0 540.7 482.4
Income taxes paid (136.7) (119.1) (69.4)
-----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 477.3 421.6 413.0
-----------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
------------------------------------
Net change in credit card receivables (174.9) (85.9) (74.2)
Loans originated or purchased (2,672.8) (2,067.3)(2,570.1)
Loans repaid or sold 2,108.0 2,020.4 1,783.4
Purchases of investments (1,066.8) (800.7) (256.0)
Proceeds from sales of investments 992.1 716.2 175.5
Proceeds from maturities of investments 34.0 13.9 85.3
Business divestments (acquisitions) (11.3) 10.4 (7.8)
Redemption of the Parent's redeemable preferred stock 100.0 100.0 100.0
Other, net (53.7) 22.7 9.2
-----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (745.4) (70.3) (754.7)
-----------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
------------------------------------
Dividends paid (210.0) (280.0) (104.8)
Issuance of long-term debt 950.0 550.0 1,205.8
Payments and redemptions of long-term debt (222.1) (732.1) (341.2)
Net change in short-term borrowings (280.5) 193.2 (364.5)
Net change in savings accounts, certificates and deposits 34.3 (95.7) (46.6)
------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 271.7 (364.6) 348.7
------------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents 3.6 (13.3) 7.0
Cash and cash equivalents at beginning of period 22.0 35.3 28.3
-----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 25.6 $ 22.0 $ 35.3
-----------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
-------------------------------------------------
Cash paid during the period for interest $ 346.9 $ 362.1 $ 413.3
Value of assets exchanged for shares of old Travelers $ - $ 150.0 $ -
=================================================================================================================
See Notes to Consolidated Financial Statements
F-6
<PAGE>
COMMERCIAL CREDIT COMPANY and SUBSIDIARIES
Notes to Consolidated Financial Statements
(In millions of dollars)
1. Summary of Significant Accounting Policies
------------------------------------------
Basis of Presentation
Commercial Credit Company (the Company) is a wholly owned
subsidiary of CCC Holdings, Inc. which is a wholly owned
subsidiary of The Travelers Inc. (formerly Primerica
Corporation) which is hereinafter referred to as the Parent.
Changes in Accounting Principles
FAS 106. Effective January 1, 1993, the Company implemented
Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions" (FAS 106). As required by FAS 106, the Company
changed its method of accounting for retiree benefit plans
effective January 1, 1993, to accrue the Company's share of the
costs of postretirement benefits over the service period
rendered by employees. Previously these benefits were charged
to expense when paid. The Company elected to recognize
immediately the liability for postretirement benefits as the
cumulative effect of a change in accounting principle. This
resulted in a noncash after-tax charge to net income of $2.4
($3.7 pre-tax). See Note 12 for additional information
relating to FAS 106.
FAS 112. In the fourth quarter of 1993, the Company
implemented Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits" (FAS
112), with retroactive application to January 1, 1993. FAS 112
establishes accounting standards for employers who provide
benefits to former or inactive employees after employment, but
before retirement. These benefits include, but are not limited
to, salary continuation, supplemental unemployment, severance,
disability-related (including workers' compensation), job
training and counseling, and continuation of benefits such as
health care and life insurance coverage. The statement
requires employers to recognize the cost of the obligation to
provide these benefits on an accrual basis, and employers must
implement FAS 112 by recognizing a cumulative effect of a
change in accounting principle. This resulted in a noncash
after-tax charge to net income of $3.4 ($5.3 pre-tax). See
Note 12 for additional information relating to FAS 112.
FAS 113. In the first quarter of 1993, the Company implemented
Statement of Financial Accounting Standards No. 113,
"Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts" (FAS 113). FAS 113 requires the
reporting of reinsurance receivables and prepaid reinsurance
premiums as assets and precludes the immediate recognition of
gains for all reinsurance contracts unless the liability to the
policyholder has been extinguished. Implementation of FAS 113
did not have an impact on the Company's earnings; however,
assets and liabilities increased by like amounts. Assets and
liabilities within the Consolidated Statement of Financial
Position were increased by $219.6 as of December 31, 1992. See
Note 7 for additional reinsurance disclosures.
F-7
<PAGE>
Notes to Consolidated Financial Statements (continued)
Accounting Policies
Principles of Consolidation - The consolidated financial
statements include the accounts of the Company and its
subsidiaries. Unconsolidated entities in which the Company has
at least a 20% interest are accounted for on the equity method.
The minority interest in 1993 represents the old Travelers'
interest in Gulf Insurance Company (Gulf). Significant
intercompany transactions and balances have been eliminated.
Certain reclassification have been made to prior years'
financial statements to conform to current year's presentation.
Cash and cash equivalents include cash on hand, cash and
securities segregated under federal and brokerage regulations
and short-term highly liquid investments with original
maturities of three months or less, other than those held for
sale in the ordinary course of business. These short-term
investments are carried at cost plus accrued interest, which
approximates market value.
Investments are owned principally by the insurance
subsidiaries. Fixed maturities include bonds, notes and
redeemable preferred stocks. In recognition of the Company's
growing need to maintain flexibility to respond to such matters
as changes in interest rates, prepayment risks or the yield
curve fixed maturities have been classified as follows: "Held
for investment" which consist of securities that the Company
has both the ability and the intent to hold until maturity are
carried at amortized cost; securities not classified as held
for investment have been classified as "Available for sale" and
consist principally of U.S. government obligations and are
carried at the lower of aggregate cost or market value. Equity
securities include common and non-redeemable preferred stocks
and are carried at market values that are based on quoted
market prices. Changes in market values of equity securities
are reflected as unrealized appreciation (depreciation) in
stockholder's equity, net of applicable income taxes. Mortgage
loans on real estate and are carried at unpaid balances.
Short-term investments are carried at cost, which approximates
market. Realized gains and losses on sales of investments are
included in other income on a specific identification basis.
Non insurance entities carry investments at the lower of
aggregate cost or quoted market value.
The cost of acquired businesses in excess of net assets is
being amortized on a straight-line basis principally over a 40-
year period.
Income taxes - The Company and its wholly owned domestic non-
life insurance subsidiaries file a consolidated federal income
tax return with the Parent. Certain insurance subsidiaries
either file their own consolidated or separate federal income
tax returns. Deferred income taxes result from temporary
differences between the tax basis of assets and liabilities
and their recorded amounts for financial reporting purposes.
Income taxes are not provided for on the Company's life
insurance subsidiaries' retained earnings designated as
"policyholders' surplus" because such taxes will become payable
only to the extent such retained earnings are distributed as a
dividend or exceed limits prescribed by federal law.
Distributions are not contemplated from this portion of the
life insurance companies' retained earnings, which aggregated
$39.5 (with a tax effect of $13.8) at December 31, 1993.
F-8
<PAGE>
Notes to Consolidated Financial Statements (continued)
Income taxes for 1993 and 1992 have been provided for in
accordance with the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"
(FAS 109), which has been adopted effective January 1, 1992.
Prior years' financial statements have not been restated to
apply the provisions of FAS 109. Taxes for years prior to
January 1, 1992 have been provided in accordance with
Accounting Principles Board Opinion No. 11, "Accounting for
Income Taxes."
Financial Instruments - Disclosures About Fair Value - Included
in the Notes to Consolidated Financial Statements are various
disclosures relating to the methods and assumptions used to
estimate fair value of each material type of financial
instrument. The carrying value of short-term financial
instruments approximates fair value because of the relatively
short period of time between the origination of the instruments
and their expected realization. The carrying value of
receivables and payables arising in the ordinary course of
business approximates fair market value. The fair value
assumptions were based upon subjective estimates of market
conditions and perceived risks of the financial instruments at
a certain point in time. Disclosed fair values for financial
instruments do not reflect any premium or discount that could
result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Potential taxes
and other expenses that would be incurred in an actual sale or
settlement are not reflected in amounts disclosed.
Accounting Standards not yet Adopted
FAS 114. Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan," describes
how impaired loans should be measured when determining the
amount of a loan loss accrual. The statement also amends
existing guidance on the measurement of restructured loans in a
troubled debt restructuring involving a modification of terms.
The Company has not yet determined the impact, if any, this
statement will have on its financial statements. The statement
has an effective date of January 1, 1995.
FAS 115. Effective January 1, 1994, the Company will adopt
Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities" which addresses accounting and reporting for
investments in equity securities that have a readily
determinable fair value and for all debt securities. Those
investments are to be classified in one of three categories.
Debt securities that the Company has the positive intent and
ability to hold to maturity are to be classified as "held to
maturity" and are to be reported at amortized cost. Securities
that are bought and held principally for the purpose of selling
them in the near term are classified as "trading securities"
and are to be reported at fair value, with unrealized gains and
losses included in earnings. Securities that are neither to be
held to maturity nor to be sold in the near term are classified
as "available for sale" and are to be reported at fair value,
with unrealized gains and losses excluded from earnings and
reported as a net amount in a separate component of
stockholders' equity. At December 31, 1993 the market value of
fixed maturities exceeded the cost by $32.9.
F-9
<PAGE>
Notes to Consolidated Financial Statements (continued)
CONSUMER FINANCE SERVICES
Finance related interest and other charges are recognized as
income using the constant yield method. Allowances for losses
are established by direct charges to income in amounts
sufficient to maintain the allowance at a level management
determines to be adequate to cover losses in the portfolio.
The allowance fluctuates based upon continual review of the
loan portfolio and current economic conditions. For financial
reporting purposes, finance receivables are considered
delinquent when they are more than 60 days contractually past
due. Income stops accruing on finance receivables when they
are 90 days contractually past due. If payments are made on a
finance receivable that is not accruing income, and the
receivable is no longer 90 days contractually past due, the
accrual of income resumes. Finance receivables are charged
against the allowance for losses when considered
uncollectible. Personal loans are considered uncollectible
when payments are six months contractually past due and six
months past due on a recency of payment basis. Loans that are
twelve months contractually past due regardless of recency of
payment are charged off. Recoveries on losses previously
charged to the allowance are credited to the allowance at the
time of recovery. Consideration of whether to proceed with
foreclosure on loans secured by real estate begins when a loan
is 60 days past due on a contractual basis. Real estate credit
losses are recognized when the title to the property is
obtained.
Fees received and direct costs incurred for the origination of
loans are deferred and amortized over the contractual lives of
the loans as part of interest income. The remaining
unamortized balances are reflected in interest income at the
time that the loans are paid in full, renewed or charged off.
INSURANCE SERVICES
Premiums from short-duration insurance contracts are earned
over the related contract period. Short-duration contracts
include primarily property and casualty, credit life and
accident and health credit policies. Benefits and expenses are
associated with premiums by means of the provision for future
policy benefits, unearned premiums and the deferral and
amortization of policy acquisition costs.
Deferred policy acquisition costs represent the costs of
acquiring new business, principally commissions, certain
underwriting and agency expenses and the cost of issuing
policies. Acquisition costs of the life insurance subsidiary
are amortized over the premium-paying periods of the related
policies, in proportion to the ratio of the annual premium
revenue to the total anticipated premium revenue. For certain
property and casualty lines, acquisition costs such as
commissions, premium taxes and certain other underwriting and
agency expenses have been deferred to the extent recoverable
from future earned premiums and anticipated investment income
and are amortized ratably over the terms of the related
policies. Deferred policy acquisition costs are reviewed to
determine if they are recoverable from future income, including
investment income, and if not recoverable are charged to
expense.
Insurance policy and claims reserves represent liabilities for
future insurance policy benefits. Reserves for losses of the
life insurance company are based on claims experience, actual
claims reported and estimates of claims incurred but not
reported. Assumptions are based on historical company
experience, adjusted to provide for possible adverse deviation.
These estimates are periodically reviewed and compared with
actual experience and industry standards, and may be revised if
F-10
<PAGE>
Notes to Consolidated Financial Statements (continued)
it is determined that future experience will differ
substantially from that previously assumed. Policy and
contract claims include provisions for reported and unreported
losses. Reserves for property and casualty insurance losses
represent the estimated ultimate unpaid cost of all incurred
property and casualty claims. Since the reserves are based on
estimates, the ultimate liability may be more or less than such
reserves. The effects of changes in such estimated reserves
are included in the results of operations in the period in
which the estimates are changed.
2. Sales of Stock or Subsidiaries and Affiliates
---------------------------------------------
During 1992, the Company sold all of its ownership interest in
Inter-Regional Financial Group, Inc., resulting in an after-tax
loss of $4.0 ($5.0 pre-tax). Proceeds to the Company were
approximately $30.4 after expenses.
In 1992 as a result of the exchange of stock of subsidiaries in
the Travelers transaction, discussed in Note 6, the Company
recorded an after-tax gain of $11.1 ($17.0 pre-tax), which is
reflected in the 1992 Consolidated Statement of Income.
3. Business Segment Information
----------------------------
The Company, through its subsidiaries, is primarily engaged in
the following businesses: Consumer Finance Services and
Insurance Services.
Revenues 1993 1992 1991
-------- ------- -------
Consumer Finance Services $1,190.6 $1,154.8 $1,147.1
Insurance Services 320.1 327.2 266.7
Corporate and Other 69.6 41.5 45.3
------- ------- -------
$1,580.3 $1,523.5 $1,459.1
======= ======= =======
Income before income taxes,
minority interest and
cumulative effect of
changes in accounting
principles
Consumer Finance Services $ 358.3 $ 303.4 $ 268.8
Insurance Services 63.1 83.2 31.3
Corporate and Other 46.5 42.2 2.8
------ ------ ------
$ 467.9 $ 428.8 $ 302.9
====== ====== ======
Income before cumulative
effect of changes in
accounting principles
Consumer Finance Services $ 230.8 $ 196.6 $ 173.8
Insurance Services (after
minority interest of $22.5
in 1993) 22.2 57.4 23.0
Corporate and Other 38.8 27.2 6.4
------ ------ ------
$ 291.8 $ 281.2 $ 203.2
====== ====== ======
F-11
<PAGE>
Identifiable assets
Consumer Finance Services $7,171.7 $6,406.8 $6,470.3
Insurance Services 906.9 884.7 543.6
Corporate and Other 815.1 747.5 712.8
------- ------- -------
$8,893.7 $8,039.0 $7,726.7
======= ======= =======
The Consumer Finance Services segment includes consumer
lending (including secured and unsecured personal loans,
real estate-secured loans and consumer financing) and credit
cards. Also included in this segment are credit-related
insurance services provided through American Health and Life
Insurance Company (AHL).
Insurance Services includes the operations of the property &
casualty insurance (automobile liability and physical
damage, workers' compensation, other liability, fire and
related homeowners' insurance and commercial multiple peril
insurance) as well as directors' and officers' and errors
and omissions policies and reinsurance treaty agreements of
Gulf Insurance Company. Also included is the non-affiliated
insurance business of AHL.
Corporate and Other consists of corporate staff and treasury
operations, a hotel mortgage investment acquired in 1990
from the Parent and included in mortgage loans, the
Company's investment in the Parent's securities and certain
corporate income and expenses that have not been allocated
to the operating subsidiaries, including gains and losses
from the sale of subsidiary and affiliate. During 1993 this
segment also included the Company's share of equity income
of old Travelers.
Capital expenditures for property, plant and equipment and
related depreciation expense are not material to any of the
business segments.
Intersegment sales and international operations are not
significant.
For gains and special charges included in each segment see,
Management's Discussion and Analysis of Financial Condition
and Results of Operations.
4. Investments
-----------
Fair values of investments in fixed maturities are based on
quoted market prices or dealer quotes or, if quoted market
prices are not available, discounted expected cash flows
using market rates commensurate with the credit quality and
maturity of the investment.
F-12
<PAGE>
</TABLE>
<TABLE><CAPTION>
Notes to Consolidated Financial Statements (continued)
The amortized cost and estimated market values of investments in fixed maturities were as follows:
----------------------------------------
Amortized Gross Unrealized Market
----------------
December 31, 1993 Cost Gains Losses Value
----------------- ----------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities-principally obligations
of U.S. Government agencies $232.9 $ 0.7 $(1.4) $232.2
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies 270.3 13.2 (0.3) 283.2
Obligations of states and political subdivisions 170.2 11.5 - 181.7
Debt securities issued by foreign governments 0.3 - - 0.3
Corporate securities 78.8 8.0 (0.1) 86.7
Held for investment 33.7 1.3 - 35.0
------------------------------------------
Total $786.2 $34.7 $(1.8) $819.1
==========================================
</TABLE>
<TABLE><CAPTION>
----------------------------------------
Amortized Gross Unrealized Market
----------------
December 31, 1992 Cost Gains Losses Value
----------------- ----------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities-principally obligations
of U.S. Government agencies $145.7 $ 8.4 $ - $154.1
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies 406.2 20.6 (0.3) 426.5
Obligations of states and political subdivisions 95.7 3.8 (0.2) 99.3
Debt securities issued by foreign governments 0.7 - - 0.7
Corporate securities 79.5 5.2 (0.2) 84.5
Held for investment 35.0 1.7 - 36.7
-----------------------------------------
Total $762.8 $39.7 $(0.7) $801.8
=========================================
</TABLE>
F-13
<PAGE>
Notes to Consolidated Financial Statements (continued)
The amortized cost and estimated market value at December
31, 1993 by contractual maturity are shown below. Actual
maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations
with or without call or pre-payment penalties.
Estimated
Amortized Market
Cost Value
-------- ---------
Due in one year or less $ 30.3 $ 32.3
Due after one year through five years 83.9 86.9
Due after five years through ten years 132.2 170.3
Due after ten years 306.9 297.4
----- -----
553.3 586.9
Mortgage-backed securities 232.9 232.2
----- -----
$786.2 $819.1
===== =====
Realized gains and losses on fixed maturities for the year
ended December 31 were as follows:
1993 1992 1991
---- ---- ----
Realized gains
Pre-tax $67.3 $22.2 $5.2
---- ---- ---
After-tax 43.7 14.7 3.4
---- ---- ---
Realized losses
Pre-tax $0.2 $0.2 $0.7
--- --- ---
After-tax 0.1 0.1 0.5
--- --- ---
On December 31, 1993, the Parent acquired the approximately
73% it did not already own of old Travelers, by means of a
merger of old Travelers into the Parent. As a result of the
merger, the Company's investment in the common stock of old
Travelers, which through that date had been carried on the
equity basis of accounting, was exchanged for 7.2 million
shares of common stock of the Parent at a ratio of 0.80423
of a share of the Parent common stock for each share of old
Travelers common stock. At December 31, 1993 the investment
was reflected at a carrying amount of $211.3. On March 31,
1994, 6.3 million of the Company's shares of the Parent's
common stock will be exchanged for a variable rate preferred
stock of the Parent, which is redeemable at the option of
the holder at certain times and callable by the Parent at
certain times. The preferred stock will have a value equal
to the market value of the common shares at the time the
exchange was agreed upon. The balance of such shares, which
are held by an insurance subsidiary, will be exchanged upon
receipt of regulatory approval.
F-14
<PAGE>
Notes to Consolidated Financial Statements (continued)
5. Consumer Finance Receivables
----------------------------
Consumer finance receivables, net of unearned finance charges
of $613.0 and $535.3 at December 31, 1993 and 1992,
respectively, consisted of the following:
1993 1992
-------- --------
Real estate-secured loans $2,705.8 $2,607.7
Personal loans 2,495.2 2,378.8
Credit cards 697.1 538.2
Sales finance and other 443.7 263.0
-------- --------
Consumer finance receivables 6,341.8 5,787.7
Accrued interest receivable 41.3 35.8
Allowance for credit losses (167.5) (168.6)
-------- --------
Net consumer finance receivables $6,215.6 $5,654.9
======== ========
An analysis of the allowance for credit losses on consumer
finance receivables at December 31, was as follows:
1993 1992 1991
-------- -------- ---------
Balance, January 1 $ 168.6 $ 166.8 $ 135.5
Provision for credit losses 133.9 165.3 165.1
Amounts written off (163.1) (184.8) (174.8)
Recovery of amounts previously
written off 22.7 21.3 20.6
Allowance on receivables purchased 5.4 - 20.4
------- -------- --------
Balance, December 31 $ 167.5 $ 168.6 $ 166.8
======= ======== ========
Net outstandings $6,341.8 $5,787.7 $5,825.1
======= ======== ========
Ratio of allowance for credit
losses to net outstandings 2.64% 2.91% 2.86%
======= ======= ========
Contractual maturities of receivables before deducting
unearned finance charges and excluding accrued interest were
as follows:
Receivables
Outstanding Due
December 31, Due Due Due Due After
1993 1994 1995 1996 1997 1997
----------- ------- -------- ------ ------ -------
Real estate-secured loans $2,769.9 $ 175.6 $ 180.9 $193.1 $198.0 $2,022.3
Personal loans 2,952.5 954.1 822.1 608.1 331.0 237.2
Credit cards 695.0 114.4 95.6 79.8 66.7 338.5
Sales finance and other 537.4 217.9 121.0 63.6 37.0 97.9
-------- -------- -------- ------ ------ --------
Total $6,954.8 $1,462.0 $1,219.6 $944.6 $632.7 $2,695.9
======== ======== ======== ====== ====== ========
Percentage 100% 21% 18% 14% 9% 38%
===== ===== ===== ===== ===== =====
Contractual terms average 12 years on real estate-secured
loans and 4 years on other personal loans. Experience has
shown that a substantial amount of the receivables will be
renewed or repaid prior to contractual maturity dates.
Accordingly, the foregoing tabulation should not be regarded
as a forecast of future cash collections.
F-15
<PAGE>
Notes to Consolidated Financial Statements (continued)
The Company has a geographically diverse consumer finance loan
portfolio. At December 31, the distribution by state was as
follows:
1993 1992
-------- ------
Ohio 13% 14%
North Carolina 10% 9%
South Carolina 7% 6%
Maryland 6% 7%
Pennsylvania 6% 6%
California 5% 6%
Texas 5% 5%
All other states* 48% 47%
---- ----
Total 100% 100%
==== ====
* None of the remaining states individually accounts for more
than 4% of total consumer finance receivables.
The estimated fair value of the consumer finance receivables
portfolio depends on the methodology selected to value such
portfolio (i.e., entry value versus exit value). Entry value
is determined by comparing the portfolio yields to the yield
at which new loans are being originated. Under the entry
value methodology, the estimated fair value of the receivables
portfolio at December 31, 1993 is approximately $40 to $55
above the recorded carrying values. Exit value represents a
valuation of the portfolio based upon sales of comparable
portfolios which takes into account the value of customer
relationships and the current level of funding costs. Under
the exit value methodology, the estimated fair value of the
receivables portfolio at December 31, 1993 is approximately
$550 to $650 above the recorded carrying value.
6. Debt
----
Short-term borrowings consisted of the following at December
31:
1993 1992
---- ----
Commercial paper $2,206.1 $2,386.6
Medium-term floating rate notes -. 100.0
-------- --------
$2,206.1 $2,486.6
======== ========
The Company issues commercial paper directly to investors and
maintains unused credit availability under its bank lines of
credit at least equal to the amount of its outstanding
commercial paper. The Company may borrow under its revolving
credit facilities at various interest rate options and
compensates the banks for the facilities through commitment
fees. The Company and its Parent have agreements with certain
banks whereby the Parent, with the consent of the Company, may
assign certain revolving credit amounts (swing facilities) to
the Company for specific periods of time.
At December 31, 1993, the Company had committed and available
revolving credit facilities of $2,295.0, which was increased to
$2,495.0 in January 1994 through additional amounts assigned
under the swing facilities. Also in February 1994, a $1,825.0
revolving credit facility, which, would have matured in August
1994, was replaced with two new facilities totaling $2,000.0.
With these new facilities, the Company has revolving credit
facilities totaling $2,670.0, of which $250.0 expires in 1994,
$920.0 expires in 1995 and $1,500.0 expires in 1997.
F-16
<PAGE>
Notes to Consolidated Financial Statements (continued)
The carrying value of short-term borrowings approximates fair
value.
Long-term debt, including its current portion, and final
maturity dates were as follows at December 31:
1993 1992
---- ----
8.29% to 12.85% Medium-Term Notes due
1994-1995 $ 54.8 $ 76.9
9 1/8% Notes due 1993 - 100.0
9.15% Notes due 1993 - 100.0
8% Notes due 1994 100.0 100.0
12.7% Notes due 1994 15.0 15.0
6.95% Notes due 1994 200.0 200.0
8.45% Notes due 1994 100.0 100.0
9 7/8% Notes due 1995 150.0 150.0
9.2% Notes due 1995 100.0 100.0
6.25% Notes due 1995 100.0 100.0
7.7% Notes due 1995 150.0 150.0
8.1% Notes due 1995 150.0 150.0
8 3/8% Notes due 1995 150.0 150.0
6.375% Notes due 1996 200.0 200.0
7.375% Notes due 1996 150.0 150.0
8% Notes due 1996 100.0 100.0
6.75% Notes due 1997 200.0 200.0
8 1/8% Notes due 1997 150.0 150.0
5.70% Notes due 1998 100.0 -
5 1/2% Notes due 1998 100.0 -
8 1/2% Notes due 1998 100.0 100.0
6.70% Notes due 1999 150.0 150.0
10% Notes due 1999 100.0 100.0
9.6% Notes due 1999 100.0 100.0
6.00% Notes due 2000 100.0 -
5 3/4% Notes due 2000 200.0 -
6 1/8% Notes due 2000 100.0 -
6.00% Notes due 2000 150.0 -
5.9% Notes due 2003 200.0 -
10% Notes due 2008 150.0 150.0
10% Debentures due 2009 100.0 100.0
8.7% Debentures due 2009 150.0 150.0
8.7% Debentures due 2010 100.0 100.0
------- -------
$3,969.8 $3,241.9
======= =======
F-17
<PAGE>
Notes to Consolidated Financial Statements (continued)
Payments due on debt, excluding amortization of the net
discount to fair values, are as follows:
1994 $459.8
1995 $810.0
1996 $450.0
1997 $350.0
1998 $300.0
The fair value of the Company's long-term debt is estimated
based on the quoted market price for the same or similar
issues or on current rates offered to the Company for debt of
the same remaining maturities. At December 31, 1993 these
fair values were approximately $4,234.
7. Reinsurance
-----------
The Company's insurance subsidiaries cede portions of certain
insurance business in order to limit losses, to reduce
exposure on large risks and to provide additional capacity for
future growth. This is accomplished through various plans of
reinsurance, primarily coinsurance, modified coinsurance and
yearly renewable term. Reinsurance ceded arrangements do not
discharge the insurance subsidiaries or the Company as the
primary insurer. Reinsurance amounts included in the
Condensed Consolidated Statement of Income were as follows:
Ceded to
Gross Other Net
Amount Companies Amount
------ --------- ------
Year ended December 31, 1993
----------------------------
Premiums
Credit life insurance $ 53.0 $ (12.9) $ 40.1
Credit accident and health
insurance 86.9 (42.2) 44.7
Property and casualty
insurance 433.8 (176.5) 257.3
------ ------- ------
$573.7 $(231.6) $342.1
====== ======= ======
Claims $318.0 $(101.8) $216.2
====== ======= ======
Year ended December 31, 1992
----------------------------
Premiums
Credit life insurance $ 52.2 $ (10.8) $ 41.4
Credit accident and health
insurance 75.0 (30.2) 44.8
Property and casualty
insurance 390.2 (149.7) 240.5
------ ------- -----
$517.4 $(190.7) $326.7
====== ======== ======
Claims $284.8 $ (74.4) $210.4
====== ======== ======
Year ended December 31, 1991
----------------------------
Premiums
Credit life insurance $ 58.5 $ (18.1) $ 40.4
Credit accident and health
insurance 69.8 (27.6) 42.2
Property and casualty
insurance 376.3 (154.7) 221.6
------ -------- -----
$504.6 $(200.4) $304.2
====== ======== ======
Claims $290.0 $ (89.1) $200.9
====== ======== ======
F-18
<PAGE>
Notes to Consolidated Financial Statements (continued)
8. Income Taxes
------------
For the years ended December 31, 1993 and 1992, income taxes
have been provided in accordance with the provisions of FAS
109, which has been adopted effective January 1, 1992.
The provision for income taxes (before minority interest) for
the year ended December 31 was as follows:
1993 1992 1991
----- ------ ------
Current:
Federal $128.7 $113.6 $62.6
Foreign 2.5 2.0 1.6
State 7.1 6.0 5.1
----- ----- ----
138.3 121.6 69.3
----- ----- ----
Deferred:
Federal 18.0 27.2 31.8
Foreign (2.2) (1.8) (1.4)
State (0.5) 0.6 -.
----- ----- ----
15.3 26.0 30.4
----- ----- ----
Total $153.6 $147.6 $99.7
===== ===== ====
Deferred income taxes at December 31 related to the following:
1993 1992
-------- --------
Deferred tax assets:
Bad debt reserves $ 62.8 $ 68.5
Policy reserves 24.0 23.9
Basis difference on old
Travelers stock - 17.8
Other deferred tax assets 24.7 24.7
----- -----
111.5 134.9
----- -----
Deferred tax liabilities:
Deferred gains - (26.9)
Israeli leasing transactions (9.3) (13.9)
Fixed asset depreciation (11.7) (9.3)
Deferred policy acquisition costs (7.8) (6.2)
Other deferred tax liabilities (28.1) (36.4)
------ ------
(56.9) (92.7)
------ ------
Total $54.6 $42.2
==== ====
The Company and its wholly owned domestic non-life insurance
subsidiaries join with the Parent in filing a consolidated
federal income tax return. Under a tax sharing agreement with
the Parent, the Company is entitled to a current tax benefit
if it incurs losses which are utilized in the Parent's
consolidated return. The Parent's consolidated tax return
group has reported large amounts of taxable income in recent
years and can, more likely than not, expect to have
significant taxable income in the future thereby enabling
utilization of the Company's deferred tax asset.
F-19
<PAGE>
Notes to Consolidated Financial Statements (continued)
The provision for deferred income taxes for the year ended
December 31, 1991 related to the following:
Bad debt reserves $ 4.2
Divested businesses and assets 19.9
Israeli leasing transactions (1.4)
Net costs to originate loans 4.6
Other, net 3.1
----
Total $30.4
====
The reconciliation of the federal statutory income tax rate to
the Company's effective income tax rate for the year ended
December 31 was as follows:
1993 1992 1991
---- ---- ----
Federal statutory rate 35.0% 34.0% 34.0%
Dividends from affiliate -
The Travelers Inc. (0.3) (0.6) (2.0)
Equity in income of old
Travelers (1.6) -- --
Other, net (0.3) 1.0 0.9
----- ---- ----
Effective income tax rate 32.8% 34.4% 32.9%
==== ==== ====
9. Stockholder's Equity
--------------------
Certain long-term loan credit agreements restrict the payment
of dividends with such restrictions based on cumulative net
earnings, as defined. Additionally, a minimum net worth
restriction, as defined, contained in such agreements, imposes
an additional constraint on dividends. At December 31, 1993
the Company would be able to remit $149.8 in dividends to its
parent under the most restrictive debt covenants.
The Company's share of the combined insurance subsidiaries'
statutory stockholder's equity at December 31, 1993 and 1992
was $231.5 and $318.3, respectively, and is subject to certain
restrictions imposed by state insurance departments as to the
transfer of funds and payment of dividends. The combined
insurance subsidiaries' net income determined in accordance
with statutory accounting practices and after minority
interest in 1993, for the years ended December 31, 1993, 1992
and 1991 was $64.4, $107.4 and $52.7, respectively.
10. Employee Benefit Plans
----------------------
The Company along with affiliated companies, participates in a
noncontributory defined benefit pension plan sponsored by the
Parent (the Plan) covering the majority of U.S. employees.
F-20
<PAGE>
Notes to Consolidated Financial Statements (continued)
Benefits are based on an account balance formula. Under this
formula, each employee's accrued benefit can be expressed as
an account that is credited with amounts based upon the
employee's pay, length of service and a specified interest
rate, all subject to a minimum benefit level. The Plan is
funded in accordance with the Employee Retirement Income
Security Act of 1974 and the Internal Revenue Code. Pension
cost allocated to the Company from the Plan was $2.1, $1.3 and
$0.2 in 1993, 1992 and 1991, respectively.
Certain non-U.S. employees of the Company are covered by
noncontributory defined benefit plans. These plans are funded
based upon local laws. Pension cost related to these plans
was not material.
The Company also has an unfunded noncontributory supplemental
retirement plan that covers certain executives and key
employees. Pension cost related to the plan was $1.2, $0.8
and $0.6 in 1993, 1992 and 1991, respectively.
11. Postretirement and Postemployment Benefits
------------------------------------------
The Company provides postretirement life insurance benefits to
certain eligible retirees. As required by FAS 106, the
Company changed its method of accounting for these benefits
effective January 1, 1993, to accrue the Company's share of
the costs of the benefits over the service period rendered by
an employee. Previously these benefits were charged to
expense when paid.
The Company elected to recognize immediately the liability for
postretirement benefits as the cumulative effect of a change
in accounting principle. This change resulted in a noncash
after-tax charge to net income of $2.4 in 1993. The Company
generally funds the postretirement benefits when due.
Payments and ongoing net periodic postretirement benefit cost
were not material in 1993.
In accordance with the Company's early adoption of FAS 112,
the Company changed its method of accounting for
postemployment benefits effective January 1, 1993, to accrue
the cost of postemployment benefits over the service period
rendered by an employee. Previously these benefits were
charged to expense when paid. For the Company these benefits
are principally disability-related benefits and severance.
Adoption of FAS 112 resulted in the recognition of a noncash
after-tax charge to net income of $3.4 in 1993 for the
cumulative effect of a change in accounting principle. The
Company continues to fund benefits on a "pay-as-you-go" basis.
Payments and annual expense for providing postemployment
benefits in 1993 were not material.
12. Lease Commitments and Other Financial Instruments
-------------------------------------------------
Rentals
Rental expense (principally for offices and computer
equipment) was $33.7, $35.0 and $34.4 for the years ended
December 31, 1993, 1992 and 1991, respectively.
F-21
<PAGE>
Notes to Consolidated Financial Statements (continued)
At December 31, 1993, future minimum annual rentals under
noncancellable operating leases were as follows:
1994 $18.1
1995 14.5
1996 12.2
1997 7.1
1998 4.1
Thereafter 5.7
-----
$61.7
====
Credit Cards
The Company provides credit card services through its
subsidiaries, Primerica Bank and Primerica Bank USA. These
services are provided to individuals and to affinity groups
nationwide. At December 31, 1993 and 1992 total credit lines
available to credit cardholders were $3,916.1 and $3,056.2, of
which $697.1 and $538.2 were utilized, respectively.
13. Related Party Transactions
--------------------------
Included in other assets is an investment in redeemable
preferred stock of the Parent amounting to $100 and $200 at
December 31, 1993 and 1992, respectively. The Company recorded
$4.0, $8.0 and $17.8 for the years ended December 31, 1993,
1992 and 1991, respectively, of dividend income from the Parent
on this investment of which $100.0 and $100.0 was repurchased in
1993 and 1992, respectively.
To facilitate cash management the Company has entered into an
agreement with the Parent under which the Company or the
Parent may borrow from the other party at any time an amount
up to the greater of $50.0 or 1% of the Company's consolidated
assets. The agreement may be terminated by either party at
any time. The interest rate to be charged on borrowings
outstanding will be equivalent to an appropriate market rate.
14. Contingencies
-------------
In the ordinary course of business the Company and/or its
subsidiaries are defendants or co-defendants in various
litigation matters. Although there can be no assurances, the
Company believes, based on information currently available,
that the ultimate resolution of these legal proceedings would
not be likely to have, but may have, a material adverse effect
on the results of operations.
F-22
<PAGE>
Notes to Consolidated Financial Statements (continued)
15. Quarterly Financial Data (unaudited)
<TABLE><CAPTION>
1993 1992
------------------------------------------------- ----------------------------------------------------
First Second Third Fourth Total First Second Third Fourth Total
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $389.7 $378.8 $423.8 $388.0 $1,580.3 $404.0 $366.7 $381.3 $371.5 $1,523.5
Total expenses 275.8 278.2 272.3 286.1 1,112.4 287.6 271.9 270.4 276.8 1,106.7
Gain (loss) on sales of
stock of subsidiary and
affiliate - - - - - (5.4) - - 17.4 12.0
------ ------ ------- ------ ------ ------ ------ ------ ------ -------
Income before income
taxes, and minority
interest and cumulative
effect of changes
in accounting principles 113.9 100.6 151.5 101.9 467.9 111.0 94.8 110.9 112.1 428.8
Provision or income taxes 38.6 33.9 53.6 27.5 153.6 38.6 32.8 38.5 37.7 147.6
Minority interest, net of
income taxes (8.2) (4.0) (6.7) (3.6) (22.5) - - - - -
------ ------ ------- ----- ------ ------ ------ ------ ------ -------
Net income 67.1 62.7 91.2 70.8 291.8 72.4 62.0 72.4 74.4 281.2
Cumulative effect of
changes in accounting
principle (5.8) - - - (5.8) (18.1) - - - (18.1)
------ ------ ------ ----- ------- ------ ------ ------ ------ -------
Net income restated (1) $ 61.3 $ 62.7 $ 91.2 $ 70.8 $ 286.0 $ 54.3 $ 62.0 $ 72.4 $ 74.4 $ 263.1
====== ====== ====== ===== ======= ====== ====== ====== ====== =======
</TABLE>
(1) Previously reported quarterly results for the first quarter of 1993 have
been restated to reflect the Statement of Financial Accounting Standards
(FAS 112) "Accounting For Postemployment Benefits," with retroactive
application to January 1, 1993. This had the effect of reducing first
quarter 1993 net income by $3.4.
F-23
<PAGE>
SCHEDULE I
COMMERCIAL CREDIT COMPANY and SUBSIDIARIES
Marketable Securities - Other Investments
December 31, 1993
(In millions of dollars)
Column A Column B Column C Column D
-------- -------- -------- --------
Amount at
Which Shown
Market in the
Type of Investment Cost Value Balance Sheet
------------------ ---- ----- -------------
Fixed maturities
Bonds
United States
Government and government
agencies and authorities (1) $ 507.4 $519.4 $ 507.4
States, municipalities and
political sub-divisions 177.8 190.3 177.8
Foreign governments 0.3 0.3 0.3
Public utilities 13.1 14.5 13.1
All other corporate bonds 76.1 82.9 76.1
Redeemable preferred stock 11.5 11.7 11.5
------- ----- -------
Total fixed maturities $ 786.2 $819.1 $ 786.2
------- ----- -------
Equity securities
Common stocks $ 237.2 $324.4 $ 255.9
Non-redeemable preferred stocks 40.1 44.1 44.1
------- ----- -------
Total equity securities 277.3 $368.5 300.0
------- ------ -------
Mortgage loans on real estate 205.1 205.1
Short-term investments 233.0 233.0
Other investments 13.8 13.7
------- -------
Total investments $1,515.4 $1,538.0
======= =======
(1) includes mortgage-backed security obligations of U.S.
Government agencies.
F-24
<PAGE>
SCHEDULE III
COMMERCIAL CREDIT COMPANY
(Parent Company Only)
Condensed Financial Information of Registrant
(In millions of dollars)
Condensed Statement of Income
Year Ended December 31, 1993 1992 1991
-----------------------------------------------------------------
Income
Equity in income of old Travelers $ 38.0 $ - $ -
Gain on sales of stock of subsidiary
and affiliate - 12.0 -
Other income 383.2 423.5 451.5
-----------------------------------------------------------------
Total 421.2 435.5 451.5
-----------------------------------------------------------------
Expenses
Interest 364.2 368.9 427.8
Other 22.2 13.0 11.7
-----------------------------------------------------------------
Total 386.4 381.9 439.5
-----------------------------------------------------------------
Pre-tax income 34.8 53.6 12.0
Income tax benefit (expense) (3.3) (18.5) 0.2
-----------------------------------------------------------------
Net income before equity in net income
of subsidiaries 31.5 35.1 12.2
Equity in net income of subsidiaries 260.3 246.1 191.0
Cumulative effect of changes in
accounting principles (including
$5.8 and $18.1, respectively,
applicable to subsidiaries) (5.8) (18.1) -
-----------------------------------------------------------------
Net income $286.0 $263.1 $203.2
================================================================
The condensed financial statements should be read in conjunction with
the consolidated financial statements and notes thereto.
F-25
<PAGE>
SCHEDULE III
COMMERCIAL CREDIT COMPANY
(Parent Company Only)
Condensed Financial Information of Registrant
(In millions of dollars except per share amounts)
Condensed Statement of Financial Position
December 31, 1993 1992
--------------------------------------------------------------------------
Assets
Equity securities $ 178.4 $ -
Investment in old Travelers - 150.0
Investment in mortgage loans 194.4 178.8
Notes and accounts receivable from subsidiaries-
eliminated in consolidation 6,035.6 5,304.7
Investment in subsidiaries at cost plus equity in net
earnings-eliminated in consolidation 832.0 954.6
Investment in redeemable preferred stock of the Parent 100.0 200.0
Other 128.1 118.4
--------------------------------------------------------------------------
Total assets $7,468.5 $6,906.5
==========================================================================
Liabilities
Short-term borrowings $2,206.1 $2,486.5
Long-term debt 3,969.8 3,241.9
Accrued expenses and other liabilities 181.9 142.8
--------------------------------------------------------------------------
Total liabilities 6,357.8 5,871.2
--------------------------------------------------------------------------
Stockholder's equity
Common stock ($.01 par value; authorized shares:
1,000; share issued: 1) - -
Additional paid-in capital 94.7 105.9
Retained earnings 1,002.6 926.6
Other 13.4 2.8
--------------------------------------------------------------------------
Total stockholder's equity 1,110.7 1,035.3
--------------------------------------------------------------------------
Total liabilities and stockholder's equity $7,468.5 $6,906.5
==========================================================================
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto.
F-26
<PAGE>
SCHEDULE III
COMMERCIAL CREDIT COMPANY
(Parent Company Only)
Condensed Financial Information of Registrant
(In millions of dollars)
Condensed Statement of Cash Flows
<TABLE><CAPTION>
Year ended December 31, 1993 1992 1991
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
------------------------------------
Income from operation before income tax benefit and equity in
earnings of subsidiaries $ 34.8 $ 53.6 $ 12.0
Adjustment to reconcile income from operations before income
tax benefit and equity in earnings of subsidiaries to net
cash provided by (used in) operating activities:
Undistributed equity earnings (26.8) (3.0) (4.6)
Dividends received from subsidiaries 167.5 176.2 100.0
Net advances to subsidiaries (411.5) (1.7) (564.3)
Other 5.0 8.9 5.9
------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) continuing activities (231.0) 234.0 (451.0)
Income taxes paid (80.6) (94.9) (45.0)
------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (311.6) 139.1 (496.0)
------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
------------------------------------
Redemption of the Parent's redeemable preferred stock 100.0 100.0 100.0
Sale of stock of affiliate - 30.7 -
Sale (purchase) of investment 3.2 (1.3) (2.5)
Other (28.6) (0.2) 2.1
-----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 74.6 129.2 99.6
-----------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
------------------------------------
Net change in short-term borrowings (280.5) 193.2 (364.5)
Issuance of long-term debt 950.0 550.0 1,205.8
Payments and redemptions of long-term debt (222.1) (732.1) (338.9)
Dividends paid (210.0) (280.0) (104.8)
-----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 237.4 (268.9) 397.6
-----------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents 0.4 (0.6) 1.2
Cash and cash equivalents at beginning of period 1.9 2.5 1.3
-----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2.3 $ 1.9 $ 2.5
=================================================================================================================
Supplemental disclosure of cash flow information:
-------------------------------------------------
Cash paid during the period for interest $ 345.3 $ 360.2 $ 402.4
Value of assets exchanged for shares of old Travelers $ - $ 150.0 $ -
=================================================================================================================
</TABLE>
The condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto.
F-27
<PAGE>
Schedule IX
<TABLE>
COMMERCIAL CREDIT COMPANY and SUBSIDIARIES
Short-term Borrowings
Year Ended December 31,
(In millions of dollars)
<CAPTION>
Column A Column B Column C Column D Column E Column F
---------------- --------------- ----------------- -------------------- ----------------- --------------
Category of Weighted Maximum Average Weighted Average
Aggregate Short- Balance at Average Amount Outstanding Amount Outstanding Interest Rate
Term Borrowings End of Year Interest Rate During the Year During the Year During the Year
---------------- --------------- ----------------- -------------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
1993
----
Commercial paper $2,206.1 3.34% $2,386.6 $2,026.8 3.18%
1992
----
Commercial paper $2,386.6 3.55% $2,432.3 $2,092.0 3.76%
1991
----
Amounts payable to banks
for borrowings - - $ 10.0 $ 0.1 9.50%
Commercial paper $2,293.4 4.83% $3,001.5 $2,564.3 6.12%
<FN>
(1) Weighted average interest rates are computed by dividing the interest during the period by
the weighted average daily borrowings.
</TABLE>
F-28
<PAGE>
SCHEDULE X
COMMERCIAL CREDIT COMPANY and SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In millions of dollars)
Column A Column B
------------------------------ ----------------------
Charged to costs
and expenses
Year ended December 31,
-----------------------
Item 1993 1992 1991
---- ---- ---- ----
Taxes, other than payroll and $22.7 $20.9 $19.1
income taxes ===== ===== =====
Advertising costs $26.2 $19.7 $22.0
===== ===== =====
F-29
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Filing
Number Description of Exhibit Method
------- ---------------------- ------
3.01 Restated Certificate of Incorporation of
Commercial Credit Company (the "Company"),
included in Certificate of Merger of CCC
Merger Company into the Company;
Certificate of Ownership and Merger merging
CCCH Acquisition Corporation into the
Company; and Certificate of Ownership and
Merger merging RDI Service Corporation into
the Company, incorporated by reference to
Exhibit 3.01 to the Company's Annual Report
on Form 10-K for the fiscal year ended
December 31, 1992 (File No. 1-6594).
3.02 By-laws of the Company, as amended May 14,
1990, incorporated by reference to Exhibit
3.02.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended
December 31, 1990 (File No. 1-6594).
4.01.1 Indenture, dated as of December 1, 1986
(the "Indenture"), between the Company and
Citibank, N.A., relating to the Company's
debt securities, incorporated by reference
to Exhibit 4.01 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1988 (File No. 1-6594).
4.01.2 First Supplemental Indenture, dated as of
June 13, 1990, to the Indenture,
incorporated by reference to Exhibit 1 to
the Company's Current Report on Form 8-K
dated June 13, 1990 (File No. 1-6594).
The total amount of securities
authorized pursuant to any other
instrument defining rights of
holders of long-term debt of the
Company does not exceed 10% of
the total assets of the Company
and its consolidated
subsidiaries. The Company will
furnish copies of any such
instrument to the Commission upon
request.
<PAGE>
Exhibit Filing
Number Description of Exhibit Method
------- ---------------------- ------
10.01 $1,500,000,000 Three Year Credit Agreement Electronic
dated as of February 24, 1994 among the
Company, the Banks party thereto and Morgan
Guaranty Trust Company of New York, as
Agent.
12.01 Computation of Ratio of Earnings to Fixed Electronic
Charges.
21.01 Pursuant to General Instruction J of Form
10-K, the list of subsidiaries of the
Company is omitted.
23.01 Consent of KPMG Peat Marwick, Independent Electronic
Certified Public Accountants.
99.01 The second paragraph of page 2 of the Electronic
Company's Current Report on Form 8-K dated
July 28, 1992 (File No. 1-6594).
Copies of any of the exhibits referred to above will be
furnished at a cost of $.25 per page to security holders
who make written request therefor to Patricia A. Rouzer,
Corporate Communications and Investor Relations,
Commercial Credit Company, 300 St. Paul Place, Baltimore,
Maryland 21202.
EXHIBIT 10.01
CONFORMED COPY
$1,500,000,000
THREE YEAR
CREDIT AGREEMENT
dated as of
February 24, 1994
among
Commercial Credit Company
The Banks Parties Hereto
and
Morgan Guaranty Trust Company of New York,
as Agent
<PAGE>
TABLE OF CONTENTS*
Page
----
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions . . . . . . . . . . . . . . . . 1
1.02 Accounting Terms and Determinations . . . 13
1.03 Types of Borrowings . . . . . . . . . . . 13
1.04 Basis for Ratings . . . . . . . . . . . . 14
ARTICLE II
THE CREDITS
SECTION 2.01 Commitments to Lend . . . . . . . . . . . . 14
2.02 Notice of Committed Borrowings . . . . . . 14
2.03 Money Market Borrowings . . . . . . . . . . 15
2.04 Notice to Banks; Funding of Loans . . . . . 19
2.05 Notes . . . . . . . . . . . . . . . . . . . 20
2.06 Maturity of Loans . . . . . . . . . . . . . 21
2.07 Interest Rates . . . . . . . . . . . . . . 21
2.08 Fees . . . . . . . . . . . . . . . . . . . 25
2.09 Optional Termination or Reduction
of Commitments . . . . . . . . . . . . . . 25
2.10 Scheduled Termination of Commitments . . . 26
2.11 Optional Prepayments . . . . . . . . . . . 26
2.12 General Provisions as to Payments . . . . . 26
2.13 Funding Losses . . . . . . . . . . . . . . 27
2.14 Computation of Interest and Fees . . . . . 28
2.15 Regulation D Compensation . . . . . . . . . 28
2.16 Change of Control . . . . . . . . . . . . . 28
ARTICLE III
CONDITIONS
SECTION 3.01 Effectiveness . . . . . . . . . . . . . . . 29
3.02 Borrowings . . . . . . . . . . . . . . . . 31
- --------------------
*The Table of Contents is not a part of this Agreement.
i
<PAGE>
Page
----
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 Corporate Existence and Power . . . . . . 31
4.02 Corporate and Governmental
Authorization; Contravention . . . . . . 32
4.03 Binding Effect . . . . . . . . . . . . . . 32
4.04 Financial Information . . . . . . . . . . 32
4.05 Litigation . . . . . . . . . . . . . . . . 33
4.06 Compliance with ERISA . . . . . . . . . . 33
4.07 Taxes . . . . . . . . . . . . . . . . . . 33
4.08 Subsidiaries . . . . . . . . . . . . . . . 33
4.09 Not an Investment Company . . . . . . . . 34
ARTICLE V
COVENANTS
SECTION 5.01 Information . . . . . . . . . . . . . . . 34
5.02 Payment of Obligations . . . . . . . . . . 36
5.03 Maintenance of Property; Insurance . . . . 36
5.04 Conduct of Business; Maintenance of
Existence . . . . . . . . . . . . . . . . 37
5.05 Compliance with Laws . . . . . . . . . . . 37
5.06 Books and Records . . . . . . . . . . . . 37
5.07 Financial Covenants . . . . . . . . . . . 37
5.08 Transactions with Affiliates . . . . . . . 39
5.09 Liens . . . . . . . . . . . . . . . . . . 40
5.10 Consolidations, Mergers and
Sales of Assets . . . . . . . . . . . . . 42
5.11 Use of Proceeds . . . . . . . . . . . . . 42
ARTICLE VI
DEFAULTS
SECTION 6.01 Events of Default . . . . . . . . . . . . 42
6.02 Notice of Default . . . . . . . . . . . . 45
ARTICLE VII
THE AGENT
SECTION 7.01 Appointment and Authorization . . . . . . 45
7.02 Agent and Affiliates . . . . . . . . . . . 45
ii
<PAGE>
Page
----
7.03 Action by Agent . . . . . . . . . . . . . 45
7.04 Consultation with Experts . . . . . . . . 45
7.05 Liability of Agent . . . . . . . . . . . . 46
7.06 Indemnification . . . . . . . . . . . . . 46
7.07 Credit Decision . . . . . . . . . . . . . 46
7.08 Successor Agent . . . . . . . . . . . . . 46
7.09 Agent's Fees . . . . . . . . . . . . . . . 47
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01 Basis for Determining Interest
Rate Inadequate or Unfair . . . . . . . . 47
8.02 Illegality . . . . . . . . . . . . . . . . 48
8.03 Increased Cost and Reduced Return . . . . 48
8.04 Base Rate Loans Substituted for
Affected Fixed Rate Loans . . . . . . . . 50
8.05 Taxes on Payments . . . . . . . . . . . . 51
8.06 Substitution of Bank . . . . . . . . . . . 52
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Notices . . . . . . . . . . . . . . . . . 52
9.02 No Waivers . . . . . . . . . . . . . . . . 53
9.03 Expenses; Documentary Taxes;
Indemnification . . . . . . . . . . . . . 53
9.04 Sharing of Set-Offs . . . . . . . . . . . 54
9.05 Amendments and Waivers . . . . . . . . . . 54
9.06 Successors and Assigns . . . . . . . . . . 55
9.07 Collateral . . . . . . . . . . . . . . . . 56
9.08 New York Law . . . . . . . . . . . . . . . 56
9.09 Counterparts; Integration . . . . . . . . 57
9.10 Borrower's Reliance . . . . . . . . . . . 57
9.11 Waiver of Jury Trial . . . . . . . . . . . 57
iii
<PAGE>
Exhibit A - Note
Exhibit B - Money Market Quote Request
Exhibit C - Invitation for Money Market Quotes
Exhibit D - Money Market Quote
Exhibit E - Opinion of Counsel for the Borrower
Exhibit F - Opinion of Special Counsel for the
Agent
Exhibit G - Assignment and Assumption Agreement
iv
<PAGE>
THREE-YEAR
CREDIT AGREEMENT
AGREEMENT dated as of February 24, 1994 among
COMMERCIAL CREDIT COMPANY, the BANKS parties hereto and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms,
-----------
as used herein, have the following meanings:
"'A' Status" exists at any date if, at such date,
the Borrower's long-term debt is rated A- or higher by S&P
and A3 or higher by Moody's.
- ---
"Absolute Rate Auction" means a solicitation of
Money Market Quotes setting forth Money Market Absolute
Rates pursuant to Section 2.03.
"Adjusted CD Rate" has the meaning set forth in
Section 2.07(b).
"Administrative Questionnaire" means, with respect
to each Bank, an administrative questionnaire in the form
prepared by the Agent and submitted to the Agent (with a
copy to the Borrower) duly completed by such Bank.
"Affiliate" means (i) any Person that directly, or
indirectly through one or more intermediaries, controls the
Borrower (a "Controlling Person") or (ii) any Person (other
than the Borrower or a Subsidiary) which is controlled by or
is under common control with a Controlling Person. As used
herein, the term "control" means possession, directly or
indirectly, of the power to direct or cause the direction of
the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agent" means Morgan Guaranty Trust Company of New
York in its capacity as agent for the Banks hereunder and
its successors in such capacity. References to the Agent in
Sections 7.05, 7.06, 7.07 and 9.03 shall include its
affiliates.
<PAGE>
"Applicable Lending Office" means, with respect to
any Bank, (i) in the case of its Domestic Loans, its
Domestic Lending Office, (ii) in the case of its Euro-Dollar
Loans, its Euro-Dollar Lending Office and (iii) in the case
of its Money Market Loans, its Money Market Lending Office.
"Applicable Margin" has the meaning set forth in
Section 2.07(h).
"Assessment Rate" has the meaning set forth in
Section 2.07(b).
"Assignee" has the meaning set forth in Section
9.06(c).
"Bank" means each bank listed on the signature
pages hereof as having a Commitment, each Person which
becomes a Bank pursuant to Section 8.06, each Assignee which
becomes a Bank pursuant to Section 9.06(c) and their
respective successors.
"Base Rate" means, for any day, a rate per annum
equal to the higher of (i) the Prime Rate for such day and
(ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such
day.
"Base Rate Borrowing" means a Borrowing comprised
of Base Rate Loans.
"Base Rate Loan" means a Committed Loan made or to
be made by a Bank as a Base Rate Loan in accordance with the
applicable Notice of Committed Borrowing or pursuant to
Article VIII.
"Benefit Arrangement" means at any time an
employee benefit plan within the meaning of Section 3(3) of
ERISA which is not a Plan or a Multiemployer Plan and which
is maintained or otherwise contributed to by any member of
the ERISA Group.
"Borrower" means Commercial Credit Company, a
Delaware corporation, and its successors.
"Borrower's 1992 Form 10-K" means the Borrower's
annual report on Form 10-K for 1992, as filed with the
Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended.
"Borrowing" has the meaning set forth in Section
1.03.
2
<PAGE>
"CD Base Rate" has the meaning set forth in
Section 2.07(b).
"CD Borrowing" means a Borrowing comprised of CD
Loans.
"CD Loan" means a Committed Loan made or to be
made as a CD Loan in accordance with the applicable Notice
of Committed Borrowing.
"CD Reference Banks" means Bank of America
National Trust and Savings Association, The First National
Bank of Chicago and Morgan Guaranty Trust Company of New
York.
"Change of Control" has the meaning set forth in
Section 2.16.
"Commitment" means, with respect to each Bank, the
amount set forth opposite the name of such Bank on the
signature pages hereof, and with respect to any Bank which
becomes a party to this Agreement pursuant to Section 8.06
or 9.06(c), the amount of the Commitment thereby assumed by
it, in each case as such amount may from time to time be
reduced pursuant to Sections 2.09, 2.10 and 9.06(c) or
increased pursuant to Section 8.06 or 9.06(c).
"Committed Borrowing" means a Borrowing comprised
of Committed Loans.
"Committed Loan" means a loan made or to be made
by a Bank pursuant to Section 2.01.
"Consolidated Subsidiary" means at any date any
Subsidiary or other entity the accounts of which would, in
accordance with generally accepted accounting principles as
in effect from time to time, be consolidated with those of
the Borrower in its consolidated financial statements as of
such date.
"Consolidated Total Assets" means at any date the
aggregate amount of all assets of the Borrower and its
Consolidated Subsidiaries, determined on a consolidated
basis as of such date.
"Debt" of any Person means at any date, without
duplication, (i) all obligations of such Person for borrowed
money, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase
price of property or services, except trade accounts payable
3
<PAGE>
arising in the ordinary course of business, (iv) all
obligations of such Person as lessee under capital leases,
(v) all Debt of others secured by a Lien on any asset of
such Person, whether or not such Debt is assumed by such
Person, and (vi) all Debt of others Guaranteed by such
Person.
"Default" means any condition or event which
constitutes an Event of Default or which with the giving of
notice or lapse of time or both would, unless cured or
waived, become an Event of Default.
"Depositary Subsidiary" means a Subsidiary which
is a depositary institution and is subject to regulation as
such under the laws of the United States or of a foreign
country or of any political subdivision of either.
"Domestic Borrowing" means a Borrowing comprised
of Domestic Loans.
"Domestic Business Day" means any day except a
Saturday, Sunday or other day on which commercial banks in
New York City are authorized or required by law to close.
"Domestic Lending Office" means, as to each Bank,
its office located at its address set forth in its
Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office)
or such other office as such Bank may hereafter designate as
its Domestic Lending Office by notice to the Borrower and
the Agent; provided that any Bank may so designate separate
--------
Domestic Lending Offices for its Base Rate Loans, on the one
hand, and its CD Loans, on the other hand, in which case all
references herein to the Domestic Lending Office of such
Bank shall be deemed to refer to either or both of such
offices, as the context may require.
"Domestic Loans" means CD Loans or Base Rate Loans
or both.
"Domestic Reserve Percentage" has the meaning set
forth in Section 2.07(b).
"Effective Date" means the date this Agreement
becomes effective in accordance with Section 3.01.
"ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, or any successor statue.
"ERISA Group" means the Borrower, any Subsidiary
and all members of a controlled group of corporations and
4
<PAGE>
all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower or any
Subsidiary, are treated as a single employer under Section
414 of the Internal Revenue Code.
"Euro-Dollar Borrowing" means a Borrowing
comprised of Euro-Dollar Loans.
"Euro-Dollar Business Day" means any Domestic
Business Day on which commercial banks are open for
international business (including dealings in dollar
deposits) in London.
"Euro-Dollar Lending Office" means, as to each
Bank, its office, branch or affiliate located at its address
set forth in its Administrative Questionnaire (or identified
in its Administrative Questionnaire as its Euro-Dollar
Lending Office) or such other office, branch or affiliate of
such Bank as it may hereafter designate as its Euro-Dollar
Lending Office by notice to the Borrower and the Agent.
"Euro-Dollar Loan" means a Committed Loan made or
to be made by a Bank as a Euro-Dollar Loan in accordance
with the applicable Notice of Committed Borrowing.
"Euro-Dollar Reference Banks" means the principal
London offices of Credit Suisse, Chemical Bank and Morgan
Guaranty Trust Company of New York.
"Euro-Dollar Reserve Percentage" means for any day
that percentage (expressed as a decimal) which is in effect
on such day, as prescribed by the Board of Governors of the
Federal Reserve System (or any successor) for determining
the maximum reserve requirement for a member bank of the
Federal Reserve System in New York City with deposits
exceeding five billion dollars in respect of "Eurocurrency
liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which
the interest rate on Euro-Dollar Loans is determined or any
category of extensions of credit or other assets which
includes loans by a non-United States office of any Bank to
United States residents).
"Event of Default" has the meaning set forth in
Section 6.01.
"Federal Funds Rate" means, for any day, the rate
per annum (rounded upward, if necessary, to the nearest
1/100th of 1%) equal to the weighted average of the rates on
overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on
5
<PAGE>
such day, as published by the Federal Reserve Bank of New
York on the Domestic Business Day next succeeding such day,
provided that (i) if such day is not a Domestic Business
Day, the Federal Funds Rate for such day shall be such rate
on such transactions on the next preceding Domestic Business
Day as so published on the next succeeding Domestic Business
Day, and (ii) if no such rate is so published on such next
succeeding Domestic Business Day, the Federal Funds Rate for
such day shall be the average rate quoted to Morgan Guaranty
Trust Company of New York on such day on such transactions
as determined by the Agent.
"Fixed Rate Borrowing" means a Borrowing comprised
of Fixed Rate Loans.
"Fixed Rate Loans" means CD Loans or Euro-Dollar
Loans or Money Market Loans (excluding Money Market LIBOR
Loans bearing interest at the Base Rate pursuant to clause
(a) of Section 8.01) or any combination of the foregoing.
"Guarantee" by any Person means any obligation,
contingent or otherwise, of such Person directly or
indirectly guaranteeing any Debt of any other Person and,
without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Debt (whether
arising by virtue of partnership arrangements, by agreement
to keep-well, to purchase assets, goods, securities or
services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the holder of such
Debt of the payment thereof or to protect such holder
against loss in respect thereof (in whole or in part),
provided that the term Guarantee shall not include
- --------
endorsements for collection or deposit in the ordinary
course of business. The term "Guarantee" used as a verb has
a corresponding meaning.
"Indebtedness" means all obligations which in
accordance with generally accepted accounting principles as
in effect from time to time should be classified as
liabilities upon a balance sheet, and in any event shall
include all Debt.
"Interest Period" means: (1) with respect to each
Euro-Dollar Borrowing, the period commencing on the date of
such Borrowing and ending one, two, three or six months
thereafter, as the Borrower may elect in the applicable
Notice of Borrowing; provided that:
--------
6
<PAGE>
(a) any Interest Period which would otherwise end
on a day which is not a Euro-Dollar Business Day shall
be extended to the next succeeding Euro-Dollar Business
Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest
Period shall end on the next preceding Euro-Dollar
Business Day;
(b) any Interest Period which begins on the last
Euro-Dollar Business Day of a calendar month (or on a
day for which there is no numerically corresponding day
in the calendar month at the end of such Interest
Period) shall, subject to clause (c) below, end on the
last Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end
after the Termination Date shall end on the Termination
Date.
(2) with respect to each CD Borrowing, the period
commencing on the date of such Borrowing and ending 30, 60,
90 or 180 days thereafter, as the Borrower may elect in the
applicable Notice of Borrowing; provided that:
--------
(a) any Interest Period which would otherwise end
on a day which is not a Euro-Dollar Business Day shall
be extended to the next succeeding Euro-Dollar Business
Day; and
(b) any Interest Period which would otherwise end
after the Termination Date shall end on the Termination
Date.
(3) with respect to each Base Rate Borrowing, the period
commencing on the date of such Borrowing and ending 30 days
thereafter; provided that:
--------
(a) any Interest Period which would otherwise end
on a day which is not a Euro-Dollar Business Day shall
be extended to the next succeeding Euro-Dollar Business
Day; and
(b) any Interest Period which would otherwise end
after the Termination Date shall end on the Termination
Date.
(4) with respect to each Money Market LIBOR Borrowing, the
period commencing on the date of such Borrowing and ending
such number of months thereafter (but not less than one
month) as the Borrower may elect in accordance with Section
2.03; provided that:
--------
7
<PAGE>
(a) any Interest Period which would otherwise end
on a day which is not a Euro-Dollar Business Day shall
be extended to the next succeeding Euro-Dollar Business
Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest
Period shall end on the next preceding Euro-Dollar
Business Day;
(b) any Interest Period which begins on the last
Euro-Dollar Business Day of a calendar month (or on a
day for which there is no numerically corresponding day
in the calendar month at the end of such Interest
Period) shall, subject to clause (c) below, end on the
last Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end
after the Termination Date shall end on the Termination
Date.
(5) with respect to each Money Market Absolute Rate
Borrowing, the period commencing on the date of such
Borrowing and ending such number of days thereafter (but not
less than 30 days) as the Borrower may elect in accordance
with Section 2.03; provided that:
--------
(a) any Interest Period which would otherwise end
on a day which is not a Euro-Dollar Business Day shall
be extended to the next succeeding Euro-Dollar Business
Day; and
(b) any Interest Period which would otherwise end
after the Termination Date shall end on the Termination
Date.
"Internal Revenue Code" means the Internal Revenue
Code of 1986, as amended, or any successor statute.
"Investment" means any investment in any Person,
whether by means of purchase of shares of such Person,
capital contribution, loan, advance, Guarantee or otherwise.
"Level I Status" exists at any date if, at such
date, the Borrower's long-term debt is rated AA or higher by
S&P and Aa2 or higher by Moody's.
---
"Level II Status" exists at any date if, at such
date, (i) the Borrower's long-term debt is rated A+ or
higher by S&P and A1 or higher by Moody's and (ii) Level I
---
Status does not exist.
8
<PAGE>
"Level III Status" exists at any date if, at such
date, (i) the Borrower's long-term debt is rated A or higher
by S&P and A2 or higher by Moody's and (ii) neither Level I
---
Status nor Level II Status exists.
"Level IV Status" exists at any date if, at such
date, (i) the Borrower's long-term debt is rated A- or
higher by S&P and A3 or higher by Moody's and (ii) none of
---
Level I Status, Level II Status and Level III Status exists.
"Level V Status" exists at any date if, at such
date, (i) the Borrower's long-term debt is rated at least
BBB or higher by S&P and Baa2 or higher by Moody's and (ii)
---
none of Level I Status, Level II Status, Level III Status
and Level IV Status exists.
"Level VI Status" exists at any date if, at such
date, no other Status exists.
"LIBOR Auction" means a solicitation of Money
Market Quotes setting forth Money Market Margins based on
the London Interbank Offered Rate pursuant to Section 2.03.
"Lien" means, with respect to any asset, any
mortgage, lien, pledge, charge, security interest or
encumbrance of any kind in respect of such asset. For the
purposes of this Agreement, the Borrower or any Subsidiary
shall be deemed to own subject to a Lien any asset which it
has acquired or holds subject to the interest of a vendor or
lessor under any conditional sales agreement, capital lease
or other title retention agreement relating to such asset.
"Loan" means a Domestic Loan or a Euro-Dollar Loan
or a Money Market Loan and "Loans" means Domestic Loans or
Euro-Dollar Loans or Money Market Loans or any combination
of the foregoing.
"London Interbank Offered Rate" has the meaning
set forth in Section 2.07(c).
"Material Debt" means a single Debt of the
Borrower or one of its Subsidiaries (including the aggregate
unpaid principal amount of any Debt, or Guarantee of any
Debt, having multiple holders that matures on the same date
and is either governed by the same instrument or is
commercial paper issued on the same date) in an unpaid
principal amount exceeding $25,000,000.
"Material Plan" means at any time a Plan or Plans
having aggregate Unfunded Liabilities in excess of
$35,000,000.
9
<PAGE>
"Material Subsidiary" means at any time any
Subsidiary of the Borrower that as of such time meets the
definition of a "significant subsidiary" contained as of the
date hereof in Regulation S-X of the Securities and Exchange
Commission.
"Money Market Absolute Rate" has the meaning set
forth in Section 2.03(d).
"Money Market Absolute Rate Borrowing" means a
Borrowing comprised of Money Market Absolute Rate Loans.
"Money Market Absolute Rate Loan" means a loan
made or to be made by a Bank pursuant to an Absolute Rate
Auction.
"Money Market Borrowing" means a Borrowing
comprised of Money Market Loans.
"Money Market Lending Office" means, as to each
Bank, its Domestic Lending Office or such other office,
branch or affiliate of such Bank as it may hereafter
designate as its Money Market Lending Office by notice to
the Borrower and the Agent; provided that any Bank may from
--------
time to time by notice to the Borrower and the Agent
designate separate Money Market Lending Offices for its
Money Market LIBOR Loans, on the one hand, and its Money
Market Absolute Rate Loans, on the other hand, in which case
all references herein to the Money Market Lending Office of
such Bank shall be deemed to refer to either or both of such
offices, as the context may require.
"Money Market LIBOR Borrowing" means a Borrowing
comprised of Money Market LIBOR Loans.
"Money Market LIBOR Loan" means a loan made or to
be made by a Bank pursuant to a LIBOR Auction (including
such a Loan bearing interest at the Base Rate pursuant to
clause (a) of Section 8.01).
"Money Market Loan" means a Money Market LIBOR
Loan or a Money Market Absolute Rate Loan.
"Money Market Margin" has the meaning set forth in
Section 2.03(d).
"Money Market Quote" means an offer by a Bank to
make a Money Market Loan in accordance with Section 2.03.
"Moody's" means Moody's Investors Service, Inc.
10
<PAGE>
"Multiemployer Plan" means at any time an employee
pension benefit plan within the meaning of Section
4001(a)(3) of ERISA to which any member of the ERISA Group
is then making or accruing an obligation to make
contributions or has within the preceding five plan years
made contributions, including for these purposes any Person
which ceased to be a member of the ERISA Group during such
five year period.
"1989 Credit Agreement" means the $1,250,000,000
Credit Agreement, dated as of August 8, 1989, as amended,
among the Borrower, the banks listed therein and Morgan
Guaranty Trust Company of New York, as agent thereunder.
"Notes" means promissory notes of the Borrower,
substantially in the form of Exhibit A hereto, evidencing
the obligation of the Borrower to repay the Loans, and
"Note" means any of such promissory notes issued hereunder.
"Notice of Borrowing" means a Notice of Committed
Borrowing (as defined in Section 2.02) or a Notice of Money
Market Borrowing (as defined in Section 2.03(f)).
"Parent" means, with respect to any Bank, any
Person controlling such Bank.
"Participant" has the meaning set forth in Section
9.06(b).
"PBGC" means the Pension Benefit Guaranty
Corporation or any entity succeeding to any or all of its
functions under ERISA.
"Person" means an individual, a corporation, a
partnership, an association, a trust or any other entity or
organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension
benefit plan (other than a Multiemployer Plan) which is
covered by Title IV of ERISA or subject to the minimum
funding standards under Section 412 of the Internal Revenue
Code and either (i) is maintained, or contributed to, by any
member of the ERISA Group for employees of any member of the
ERISA Group or (ii) has at any time within the preceding
five years been maintained, or contributed to, by any Person
which was at such time a member of the ERISA Group for
employees of any Person which was at such time a member of
the ERISA Group.
11
<PAGE>
"Prime Rate" means the rate of interest publicly
announced by Morgan Guaranty Trust Company of New York in
New York City from time to time as its Prime Rate.
"Reference Banks" means the CD Reference Banks or
the Euro-Dollar Reference Banks, as the context may require,
and "Reference Bank" means any one of such Reference Banks.
"Refunding Borrowing" means a Committed Borrowing
made on a date if, because of the Borrower's payment on such
date of other Borrowings, the aggregate unpaid principal
amount of all Committed Loans to the Borrower at the close
of business on such date is not greater than it was prior to
the Borrowings made on such date.
"Regulation U" means Regulation U of the Board of
Governors of the Federal Reserve System, as in effect from
time to time.
"Required Banks" means at any time Banks having at
least 66 2/3% of the aggregate amount of the Commitments or,
if the Commitments shall have been terminated, holding Notes
evidencing at least 66 2/3% of the aggregate unpaid
principal amount of the Loans.
"Revolving Credit Period" means the period from
the Effective Date to but excluding the Termination Date.
"S&P" means Standard & Poor's Corporation.
"Status" refers to the determination which of
Level I Status, Level II Status, Level III Status, Level IV
Status, Level V Status or Level VI Status exists at any
date.
"Subsidiary" means any corporation or other entity
of which securities or other ownership interests having
ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are
at the time directly or indirectly owned by the Borrower.
"Termination Date" means February 24, 1997, or, if
such day is not a Euro-Dollar Business Day, the next
preceding Euro-Dollar Business Day.
"Travelers" means The Travelers Inc., a Delaware
corporation, and its successors.
"Travelers Common Stock" means the 7,195,740
shares of the common stock, par value $.01 per share, of
Travelers held on the Effective Date by the Borrower or any
12
<PAGE>
of its Consolidated Subsidiaries, or any investment
securities of Travelers or any of its subsidiaries that are
received as dividends on the Travelers Common Stock or into
which any shares of the Travelers Common Stock are converted
or for which any shares of the Travelers Common Stock are
exchanged.
"Travelers Preferred Stock" means the 2,222 shares
of $45,000 Cumulative Redeemable Preferred Stock, Series Z,
of Travelers owned by the Borrower.
"Unfunded Liabilities" means, with respect to any
Plan at any time, the amount (if any) by which (i) the value
of all benefit liabilities under such Plan, determined on a
plan termination basis using the assumptions prescribed by
the PBGC for purposes of Section 4044 of ERISA, exceeds (ii)
the fair market value of all Plan assets allocable to such
liabilities under Title IV of ERISA (excluding any accrued
but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the
extent that such excess represents a potential liability of
a member of the ERISA Group to the PBGC or any other Person
under Title IV of ERISA.
"Voting Stock" means capital stock of any class or
classes (however designated) of a Person having ordinary
voting power for the election of directors of such Person,
other than stock having such power only by reason of the
happening of a contingency.
SECTION 1.02. Accounting Terms and
--------------------
Determinations. Unless otherwise specified herein, all
- --------------
accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder
shall be prepared in accordance with generally accepted
accounting principles as in effect from time to time,
applied on a basis consistent (except for changes concurred
in by the Borrower's independent public accountants) with
the most recent audited consolidated financial statements of
the Borrower and its Consolidated Subsidiaries delivered to
the Banks.
SECTION 1.03. Types of Borrowings. The term
-------------------
"Borrowing" denotes the aggregation of Loans of one or more
Banks to be made to the Borrower pursuant to Article II on a
single date and for a single Interest Period. Borrowings
are classified for purposes of this Agreement either by
reference to the pricing of Loans comprising such Borrowing
(e.g., a "Euro-Dollar Borrowing" is a Borrowing comprised of
----
Euro-Dollar Loans) or by reference to the provisions of
13
<PAGE>
Article II under which participation therein is determined
(i.e., a "Committed Borrowing" is a Borrowing under Section
----
2.01 in which all Banks participate in proportion to their
Commitments, while a "Money Market Borrowing" is a Borrowing
under Section 2.03 in which the Bank participants are
determined in accordance therewith).
SECTION 1.04. Basis for Ratings. The credit
-----------------
ratings to be utilized for purposes of determining rates of
interest and fees hereunder are those assigned to the senior
unsecured long-term debt securities of the Borrower without
third-party credit enhancement, and any rating assigned to
any other debt security of the Borrower shall be
disregarded. The rating in effect at any date is that in
effect at the close of business on such date.
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Lend. During the
-------------------
Revolving Credit Period each Bank severally agrees, on the
terms and conditions set forth in this Agreement, to lend to
the Borrower pursuant to this Section from time to time
amounts such that the aggregate principal amount of
Committed Loans by such Bank at any one time outstanding
shall not exceed the amount of its Commitment. Each
Borrowing under this Section shall be in an aggregate
principal amount of $25,000,000 or any larger multiple of
$5,000,000 (except that any such Borrowing may be in the
aggregate amount available in accordance with Section
3.02(b)) and shall be made from the several Banks ratably in
proportion to their respective Commitments. Within the
foregoing limits, the Borrower may borrow under this
Section, repay, or to the extent permitted by Section 2.11,
prepay Loans and reborrow at any time during the Revolving
Credit Period under this Section.
SECTION 2.02. Notice of Committed Borrowings.
------------------------------
The Borrower shall give to the Agent a notice (a "Notice of
Committed Borrowing") not later than 12:30 P.M. (New York
City time) on (x) the date of each Base Rate Borrowing,
(y) the second Domestic Business Day before each CD
Borrowing and (z) the third Euro-Dollar Business Day before
each Euro-Dollar Borrowing, specifying:
(a) the date of such Borrowing, which shall be a
Domestic Business Day in the case of a Domestic
Borrowing or a Euro-Dollar Business Day in the case of
a Euro-Dollar Borrowing,
14
<PAGE>
(b) the aggregate amount of such Borrowing,
(c) whether the Loans comprising such Borrowing
are to be Base Rate Loans, CD Loans or Euro-Dollar
Loans, and
(d) in the case of a Fixed Rate Borrowing, the
duration of the Interest Period applicable thereto,
subject to the provisions of the definition of Interest
Period.
SECTION 2.03. Money Market Borrowings.
-----------------------
(a) The Money Market Option. In addition to
-----------------------
Committed Borrowings pursuant to Section 2.01, the Borrower
may, as set forth in this Section, request the Banks during
the Revolving Credit Period to make offers to make Money
Market Loans to the Borrower. The Banks may, but shall
have no obligation to, make such offers and the Borrower
may, but shall have no obligation to, accept any such offers
in the manner set forth in this Section.
(b) Money Market Quote Request. When the
--------------------------
Borrower wishes to request offers to make Money Market Loans
under this Section, it shall transmit to the Agent by telex
or telecopy a Money Market Quote Request substantially in
the form of Exhibit B hereto so as to be received no later
than 10:00 A.M. (New York City time) on (x) the fifth
Euro-Dollar Business Day prior to the date of Borrowing
proposed therein, in the case of a LIBOR Auction or (y) the
Domestic Business Day next preceding the date of Borrowing
proposed therein, in the case of an Absolute Rate Auction
(or, in either case, such other time or date as the Borrower
and the Agent shall have mutually agreed and shall have
given notice of to the Banks not later than the date of the
Money Market Quote Request for the first LIBOR Auction or
Absolute Rate Auction for which such change is to be
effective) specifying:
(i) the proposed date of Borrowing, which shall
be a Euro-Dollar Business Day in the case of a LIBOR
Auction or a Domestic Business Day in the case of an
Absolute Rate Auction,
(ii) the aggregate requested amount of such
Borrowing, which shall be $25,000,000 or a larger
multiple of $5,000,000,
(iii) the duration of the Interest Period
applicable thereto, subject to the provisions of the
definition of Interest Period, and
15
<PAGE>
(iv) whether the Money Market Quotes requested are
to set forth a Money Market Margin or a Money Market
Absolute Rate.
The Borrower may request offers to make Money Market Loans
for more than one Interest Period in a single Money Market
Quote Request. No Money Market Quote Request for a Money
Market LIBOR Loan shall be given within five Euro-Dollar
Business Days (or such other number of days as the Borrower
and the Agent may agree) of any other Money Market Quote
Request for a Money Market LIBOR Loan and no Money Market
Quote Request for a Money Market Absolute Rate Loan shall be
given within two Euro-Dollar Business Days (or such other
number of days as the Borrower and the Agent may agree) of
any other Money Market Quote Request for a Money Market
Absolute Rate Loan.
(c) Invitation for Money Market Quotes. Promptly
----------------------------------
upon receipt of a Money Market Quote Request, the Agent
shall send to the Banks by telex or telecopy an Invitation
for Money Market Quotes substantially in the form of Exhibit
C hereto, which shall constitute an invitation by the
Borrower to each Bank to submit Money Market Quotes offering
to make the Money Market Loans to which such Money Market
Quote Request relates in accordance with this Section.
(d) Submission and Contents of Money Market
---------------------------------------
Quotes. (i) Each Bank may submit a Money Market Quote
- ------
containing an offer or offers to make Money Market Loans in
response to any Invitation for Money Market Quotes. Each
Money Market Quote must comply with the requirements of this
subsection (d) and must be submitted to the Agent by telex
or telecopy at its office referred to in Section 9.01 not
later than (x) 2:00 P.M. (New York City time) on the fourth
Euro-Dollar Business Day prior to the proposed date of
Borrowing, in the case of a LIBOR Auction or (y) 9:15 A.M.
(New York City time) on the proposed date of Borrowing, in
the case of an Absolute Rate Auction (or, in either case,
such other time or date as the Borrower and the Agent shall
have mutually agreed and shall have given notice of to the
Banks not later than the date of the Money Market Quote
Request for the first LIBOR Auction or Absolute Rate Auction
for which such change is to be effective); provided that
--------
Money Market Quotes submitted by the Agent (or any affiliate
of the Agent) in the capacity of a Bank may be submitted,
and may only be submitted, if the Agent or such affiliate
notifies the Borrower of the terms of the offer or offers
contained therein not later than (x) 1:00 P.M. (New York
City time) on the fourth Euro-Dollar Business Day prior to
the proposed date of Borrowing, in the case of a LIBOR
Auction or (y) 9:00 A.M. (New York City time) on the
16
<PAGE>
proposed date of Borrowing, in the case of an Absolute Rate
Auction. Subject to Articles III and VI, any Money Market
Quote so made shall be irrevocable except with the written
consent of the Agent given on the instructions of the
Borrower.
(ii) Each Money Market Quote shall be in
substantially the form of Exhibit D hereto and shall in any
case specify:
(A) the proposed date of Borrowing,
(B) the principal amount of the Money Market Loan
for which each such offer is being made, which
principal amount (w) may be greater than or less than
the Commitment of the quoting Bank, (x) must be
$5,000,000 or a larger multiple of $1,000,000, (y) may
not exceed the principal amount of Money Market Loans
for which offers were requested and (z) may be subject
to an aggregate limitation as to the principal amount
of Money Market Loans for which offers being made by
such quoting Bank may be accepted,
(C) in the case of a LIBOR Auction, the margin
above or below the applicable London Interbank Offered
Rate (the "Money Market Margin") offered for each such
Money Market Loan, expressed as a percentage (specified
to the nearest 1/10,000th of 1%) to be added to or
subtracted from such base rate,
(D) in the case of an Absolute Rate Auction, the
rate of interest per annum (specified to the nearest
1/10,000th of 1%) (the "Money Market Absolute Rate")
offered for each such Money Market Loan, and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate
offers by the quoting Bank with respect to each Interest
Period specified in the related Invitation for Money Market
Quotes.
(iii) Any Money Market Quote shall be disregarded
if it:
(A) is not substantially in conformity with
Exhibit D hereto or does not specify all of the
information required by clause (d)(ii) of this Section;
17
<PAGE>
(B) contains qualifying, conditional or similar
language, except as such language is contemplated by
clause (d)(ii)(B)(z) of this Section;
(C) proposes terms other than or in addition to
those set forth in the applicable Invitation for Money
Market Quotes; or
(D) arrives after the time set forth in clause
(d)(i) of this Section.
(e) Notice to Borrower. The Agent shall promptly
------------------
(but in no event later than 9:45 A.M. (New York City time)
in the case of an Absolute Rate Auction) notify the Borrower
of the terms (x) of any Money Market Quote submitted by a
Bank that is in accordance with subsection (d) of this
Section and (y) of any Money Market Quote that amends,
modifies or is otherwise inconsistent with a previous Money
Market Quote submitted by such Bank with respect to the same
Money Market Quote Request. Any such subsequent Money
Market Quote shall be disregarded by the Agent unless such
subsequent Money Market Quote is submitted solely to correct
a manifest error in such former Money Market Quote. The
Agent's notice to the Borrower shall specify (A) the
aggregate principal amount of Money Market Loans for which
offers have been received for each Interest Period specified
in the related Money Market Quote Request, (B) the
respective principal amounts and Money Market Margins or
Money Market Absolute Rates, as the case may be, so offered
and (C) if applicable, limitations on the aggregate
principal amount of Money Market Loans for which offers in
any single Money Market Quote may be accepted.
(f) Acceptance and Notice by Borrower. Not later
---------------------------------
than 10:15 A.M. (New York City time) on (x) the third
Euro-Dollar Business Day prior to the proposed date of
Borrowing, in the case of a LIBOR Auction or (y) the
proposed date of Borrowing, in the case of an Absolute Rate
Auction (or, in either case, such other time or date as the
Borrower and the Agent shall have mutually agreed and shall
have given notice of to the Banks not later than the date of
the Money Market Quote Request for the first LIBOR Auction
or Absolute Rate Auction for which such change is to be
effective), the Borrower shall notify the Agent of its
acceptance or non-acceptance of the offers of which it has
been given notice pursuant to subsection (e) of this
Section. In the case of acceptance, such notice (a "Notice
of Money Market Borrowing") shall specify the aggregate
principal amount of offers for each Interest Period that are
accepted. The Borrower may accept any Money Market Quote in
whole or in part; provided that:
--------
18
<PAGE>
(i) the aggregate principal amount of each Money
Market Borrowing may not exceed the applicable amount
set forth in the related Money Market Quote Request,
(ii) the principal amount of each Money Market
Borrowing must be $5,000,000 or a larger multiple of
$1,000,000,
(iii) subject to the proviso contained in
subsection (g) of this Section, acceptance of offers,
with respect to any Interest Period, may only be made
on the basis of ascending Money Market Margins or Money
Market Absolute Rates, as the case may be, and
(iv) the Borrower may not accept any offer that is
described in clause (d)(iii) of this Section or that
otherwise fails to comply with the requirements of this
Agreement.
(g) Allocation by Agent. If offers are made by
-------------------
two or more Banks with the same Money Market Margins or
Money Market Absolute Rates, as the case may be, for a
greater aggregate principal amount than the amount in
respect of which offers are accepted for the related
Interest Period, the principal amount of Money Market Loans
in respect of which such offers are accepted shall be
allocated by the Agent (except as hereinafter provided)
among such Banks as nearly as possible (in multiples of
$1,000,000) in proportion to the aggregate principal amount
of such offers, provided, however, that in the event of
--------
simultaneous offers by a Bank with respect to two or more
Interest Periods the sum of which offers exceeds the amount
such Bank is willing to lend, the Borrower shall have the
right in its discretion to instruct the Agent how to
apportion its acceptances of such sum among the offers of
such Bank for such Interest Periods, so long as such
acceptances otherwise comply with subsection (f)(iii) of
this Section. Determinations by the Agent of the amounts
of Money Market Loans shall be conclusive in the absence of
manifest error.
SECTION 2.04. Notice to Banks; Funding of Loans.
---------------------------------
(a) Upon receipt of a Notice of Borrowing, the
Agent shall promptly notify each Bank of the contents
thereof and of such Bank's share (if any) of such Borrowing
and such Notice of Borrowing shall not thereafter be
revocable by the Borrower.
(b) Not later than 2:00 P.M. (New York City time)
on the date of each Borrowing, each Bank participating
19
<PAGE>
therein shall (except as provided in subsection (c) of this
Section) make available its share of such Borrowing, in
Federal or other funds immediately available in New York
City, to the Agent at its address referred to in Section
9.01. Unless the Agent determines that any applicable
condition specified in Article III has not been satisfied,
the Agent will make the funds so received from the Banks
available to the Borrower at the Agent's aforesaid address.
(c) If any Bank makes a new Loan hereunder on a
day on which the Borrower is to repay all or any part of an
outstanding Loan from such Bank, such Bank shall apply the
proceeds of its new Loan to make such repayment and only an
amount equal to the difference (if any) between the amount
being borrowed and the amount being repaid shall be made
available by such Bank to the Agent as provided in
subsection (b) of this Section, or remitted by the Borrower
to the Agent as provided in Section 2.12, as the case may
be.
(d) Unless the Agent shall have received notice
from a Bank prior to the date of any Borrowing that such
Bank will not make available to the Agent such Bank's share,
if any, of such Borrowing, the Agent may assume that such
Bank has made such share available to the Agent on the date
of such Borrowing in accordance with subsections (b) and (c)
of this Section and the Agent may, in reliance upon such
assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank
shall not have so made such share available to the Agent,
such Bank and the Borrower severally agree to repay to the
Agent forthwith on demand such corresponding amount (which,
to the extent repaid by the Borrower, shall not constitute a
Loan) together with interest thereon, for each day from the
date such amount is made available to the Borrower until the
date such amount is repaid to the Agent, at the Federal
Funds Rate. If such Bank shall repay to the Agent such
corresponding amount, such amount so repaid shall constitute
such Bank's Loan included in such Borrowing for purposes of
this Agreement.
SECTION 2.05. Notes. (a) The Loans of each Bank
-----
shall be evidenced by a single Note payable to the order of
such Bank for the account of its Applicable Lending Office
in an amount equal to the aggregate unpaid principal amount
of such Bank's Loans.
(b) Each Bank may, by notice to the Borrower and
the Agent (to be given not later than two Domestic Business
Days prior to the Effective Date) request that its Loans of
a particular type be evidenced by a separate Note in an
20
<PAGE>
amount equal to the aggregate unpaid principal amount of
such Loans. Each such Note shall be in substantially the
form of Exhibit A hereto with appropriate modifications to
reflect the fact that it evidences solely Loans of the
relevant type. Each reference in this Agreement to the
"Note" of such Bank shall be deemed to refer to and include
any and all of such Notes, as the context may require.
(c) Upon receipt of each Bank's Note pursuant to
clause (b) of Section 3.01, the Agent shall forward such
Note to such Bank. Each Bank shall record the date,
amount, type and maturity of each Loan made by it and the
date and amount of each payment of principal made by the
Borrower with respect thereto, and may, if such Bank so
elects in connection with any transfer or enforcement of its
Note, endorse on the schedule forming a part thereof
appropriate notations to evidence the foregoing information
with respect to each such Loan then outstanding; provided
--------
that the failure of any Bank to make any such recordation or
endorsement shall not affect the obligations of the Borrower
hereunder or under the Notes. Each Bank is hereby
irrevocably authorized by the Borrower so to endorse its
Note and to attach to and make a part of its Note a
continuation of any such schedule as and when required.
SECTION 2.06. Maturity of Loans. Each Loan
-----------------
included in any Borrowing shall mature, and the principal
amount thereof shall be due and payable, on the last day of
the Interest Period applicable to such Borrowing.
SECTION 2.07. Interest Rates. (a) Each Base
--------------
Rate Loan shall bear interest on the outstanding principal
amount thereof, for each day from the date such Loan is made
until it becomes due, at a rate per annum equal to the Base
Rate for such day. Such interest shall be payable for each
Interest Period on the last day thereof. Any overdue
principal of or interest on any Base Rate Loan shall bear
interest, payable on demand, for each day until paid at a
rate per annum equal to the sum of 1% plus the Base Rate for
such day.
(b) Each CD Loan shall bear interest on the
outstanding principal amount thereof, for each day during
the Interest Period applicable thereto, at a rate per annum
equal to the sum of the Applicable Margin for such day plus
the applicable Adjusted CD Rate for such CD Loan; provided
--------
that, if any CD Loan or any portion thereof shall, as a
result of clause (2)(b) of the definition of Interest
Period, have an Interest Period of less than 30 days, such
portion shall bear interest during such Interest Period at
the rate applicable to Base Rate Loans during such period.
21
<PAGE>
Such interest shall be payable for each Interest Period on
the last day thereof and, if such Interest Period is longer
than 90 days, 90 days after the first day thereof. Any
overdue principal of or interest on any CD Loan shall bear
interest, payable on demand, for each day until paid at a
rate per annum equal to the sum of 1% plus the higher of (i)
the sum of the Applicable Margin for such day plus the
Adjusted CD Rate applicable to such Loan and (ii) the rate
applicable to Base Rate Loans for such day.
The "Adjusted CD Rate" applicable to any CD Loan
means a rate per annum determined pursuant to the following
formula:
[ CDBR ]*
ACDR = [ ---------- ] + AR
[ 1.00 - DRP ]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
__________
* The amount in brackets being rounded upward, if
necessary, to the next higher 1/100 of 1%
The "CD Base Rate" applicable to any CD Loan is the
rate of interest determined by the Agent to be the average
(rounded upward, if necessary, to the next higher 1/100 of 1%)
of the prevailing rates per annum bid at 10:00 A.M. (New York
City time) (or as soon thereafter as practicable) on the first
day of the Interest Period applicable to such CD Loan by two
or more New York certificate of deposit dealers of recognized
standing for the purchase at face value from each CD Reference
Bank of its certificates of deposit in an amount comparable to
the principal amount of the CD Loan of such CD Reference Bank
to which such Interest Period applies and having a maturity
comparable to such Interest Period.
"Domestic Reserve Percentage" means for any day that
percentage (expressed as a decimal) which is in effect on such
day, as prescribed by the Board of Governors of the Federal
Reserve System (or any successor) for determining the maximum
reserve requirement (including without limitation any basic,
supplemental or emergency reserves) for a member bank of the
Federal Reserve System in New York City with deposits
exceeding five billion dollars in respect of new non-personal
time deposits in dollars in New York City having a maturity
comparable to the related Interest Period and in an amount of
22
<PAGE>
$100,000 or more. The Adjusted CD Rate shall be adjusted
automatically on and as of the effective date of any change in
the Domestic Reserve Percentage.
"Assessment Rate" means for any day the annual
assessment rate in effect on such day which is payable by a
member of the Bank Insurance Fund classified as adequately
capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification) within
the meaning of 12 C.F.R. Sec. 327.3(d) (or any successor
provision) to the Federal Deposit Insurance Corporation (or
any successor) for such Corporation's (or such successor's)
insuring time deposits at offices of such institution in the
United States. The Adjusted CD Rate shall be adjusted
automatically on and as of the effective date of any change in
the Assessment Rate.
(c) Each Euro-Dollar Loan shall bear interest on
the outstanding principal amount thereof, for each day during
the Interest Period applicable thereto, at a rate per annum
equal to the sum of the Applicable Margin for such day plus
the applicable London Interbank Offered Rate for such Interest
Period. Such interest shall be payable for each Interest
Period on the last day thereof and, if such Interest Period is
longer than three months, three months after the first day
thereof.
The "London Interbank Offered Rate" applicable to
any Interest Period means the average (rounded upward, if
necessary, to the next higher 1/16 of 1%) of the respective
rates per annum at which deposits in dollars are offered to
each of the Euro-Dollar Reference Banks in the London
interbank market at approximately 11:00 A.M. (London time) two
Euro-Dollar Business Days before the first day of such
Interest Period in an amount approximately equal to the
principal amount of the Euro-Dollar Loan of such Euro-Dollar
Reference Bank to which such Interest Period is to apply and
for a period of time comparable to such Interest Period.
(d) Any overdue principal of or interest on any
Euro-Dollar Loan shall bear interest, payable on demand, for
each day from and including the date payment thereof was due
to but excluding the date of actual payment, at a rate per
annum equal to the sum of 1% plus the Applicable Margin for
such day plus the higher of (i) the London Interbank Offered
Rate applicable to the Interest Period for such Loan and (ii)
the average (rounded upward, if necessary, to the next higher
1/16 of 1%) of the respective rates per annum at which one day
(or, if such amount due remains unpaid more than three
Euro-Dollar Business Days, then for such other period of time
not longer than six months as the Agent may elect) deposits in
23
<PAGE>
dollars in an amount approximately equal to such overdue
payment due to each of the Reference Banks are offered to such
Reference Bank in the London interbank market for the
applicable period determined as provided above (or, if the
circumstances described in clause (a) or (b) of Section 8.01
shall exist, at a rate per annum equal to the sum of 1% plus
the rate applicable to Base Rate Loans for such day).
(e) Subject to clause (a) of Section 8.01, each
Money Market LIBOR Loan shall bear interest on the outstanding
principal amount thereof, for the Interest Period applicable
thereto, at a rate per annum equal to the sum of the London
Interbank Offered Rate for such Interest Period (determined in
accordance with Section 2.07(c) as if the related Money Market
LIBOR Borrowing were a Euro-Dollar Borrowing) plus (or minus)
the Money Market Margin quoted by the Bank making such Loan in
accordance with Section 2.03. Each Money Market Absolute
Rate Loan shall bear interest on the outstanding principal
amount thereof, for the Interest Period applicable thereto, at
a rate per annum equal to the Money Market Absolute Rate
quoted by the Bank making such Loan in accordance with Section
2.03. Such interest shall be payable for each Interest
Period on the last day thereof and, if such Interest Period is
longer than three months, at intervals of three months after
the first day thereof. Any overdue principal of or overdue
interest on any Money Market Loan shall bear interest, payable
on demand, for each day until paid at a rate per annum equal
to the sum of 1% plus the Base Rate for such day.
(f) The Agent shall determine each interest rate
applicable to the Loans hereunder. The Agent shall give
prompt notice to the Borrower and the participating Banks of
each rate of interest so determined, and its determination
thereof shall be conclusive in the absence of manifest error.
(g) Each Reference Bank agrees to use its best
efforts to furnish quotations to the Agent as contemplated by
this Section. If any Reference Bank does not furnish a timely
quotation, the Agent shall determine the relevant interest
rate on the basis of the quotation or quotations furnished by
the remaining Reference Bank or Banks or, if none of such
quotations is available on a timely basis, the provisions of
Section 8.01 shall apply.
(h) The "Applicable Margin" with respect to any CD
Loan or Euro-Dollar Loan at any date is the applicable
percentage amount set forth in the table below based on the
Status for such date:
24
<PAGE>
Level Level Level Level Level Level
I II III IV V VI
Status Status Status Status Status Status
------ ------ ------ ------ ------ ------
Euro-Dollar
Loans .2550% .2950% .3100% .3125% .3125% .3750%
CD Loans .3800% .4200% .4350% .4375% .4375% .5000%
SECTION 2.08. Fees.
----
(a) Facility Fee. The Borrower shall pay to the
------------
Agent for the account of the Banks ratably a facility fee at
the Facility Fee Rate. Such facility fee shall accrue (i)
from and including the Effective Date to but excluding the
Termination Date (or earlier date of termination of the
Commitments in their entirety), on the daily average aggregate
amount of the Commitments (whether used or unused) and (ii)
from and including the Termination Date (or earlier date of
termination of the Commitments in their entirety) to but
excluding the date the Loans shall be repaid in their
entirety, on the daily average aggregate outstanding principal
amount of the Loans.
For this purpose, the "Facility Fee Rate" is a rate
per annum equal to (i) 0.1200% for any day on which Level I
Status exists, (ii) 0.1300% for any day on which Level II
Status exists, (iii) 0.1400% for any day on which Level III
Status exists, (iv) 0.1875% for any day on which Level IV
Status exists, (v) 0.2500% for any day on which Level V Status
exists and (vi) 0.3750% for any other day.
(b) Excess Utilization Fee. The Borrower shall pay
----------------------
to the Agent for the account of the Banks ratably in
proportion to their Commitments a fee on the daily average
outstanding amount of Euro-Dollar Loans and CD Loans for each
calendar quarter (or, in the case of the calendar quarter in
which the Effective Date falls or in which the Commitments are
terminated in their entirety, the applicable portion thereof)
during which the daily average aggregate outstanding principal
amount of Committed Loans exceeds 50% of the daily average
aggregate amount of the Commitments, at the rate per annum of
(i) 1/8 of 1% for any day on which Level I Status, Level II
Status, Level III Status, Level IV Status or Level V Status
exists and (ii) 1/4 of 1% for any other day.
(c) Payments. Accrued fees under this Section
--------
shall be payable quarterly in arrears on each March 31, June
30, September 30 and December 31 and upon the date of
termination of the Commitments in their entirety (and, if
later, the date the Loans shall be repaid in their entirety).
25
<PAGE>
SECTION 2.09. Optional Termination or Reduction of
------------------------------------
Commitments. During the Revolving Credit Period, the Borrower
- -----------
may, upon at least three Domestic Business Days' notice to the
Agent, (i) terminate the Commitments at any time, if no Loans
are outstanding at such time or (ii) ratably reduce from time
to time by an aggregate amount of $25,000,000 or any larger
multiple thereof, the aggregate amount of the Commitments in
excess of the aggregate outstanding principal amount of the
Loans. Commitments reduced or terminated pursuant to this
Section shall not be reinstated. The Agent shall promptly
notify the Banks of any receipt of notice from the Borrower
pursuant to this Section.
SECTION 2.10. Scheduled Termination of Commitments.
--------------------------------------
The Commitments shall terminate on the Termination Date, and any
Loans then outstanding (together with accrued interest thereon)
shall be due and payable on such date.
SECTION 2.11. Optional Prepayments. (a) The
--------------------
Borrower may (i) upon at least one Domestic Business Day's
notice to the Agent, prepay without prepayment penalty any
Base Rate Borrowing (or any Money Market Borrowing bearing
interest at the Base Rate pursuant to clause (a) of Section
8.01), (ii) upon at least three Euro-Dollar Business Days'
notice to the Agent, prepay any Euro-Dollar Borrowing and
(iii) upon at least three Domestic Business Days' notice to
the Agent prepay any CD Borrowing in whole at any time, or
from time to time in part in amounts aggregating $25,000,000
or any larger multiple of $5,000,000, by paying the principal
amount to be prepaid together with accrued interest thereon to
the date of prepayment. Each such optional prepayment shall
be applied to prepay ratably the Loans of the several Banks
included in such Borrowing.
(b) Except as provided in Section 2.11(a)(i) the
Borrower may not prepay all or any portion of the principal
amount of any Money Market Loan prior to the maturity thereof.
(c) Upon receipt of a notice of prepayment pursuant
to this Section, the Agent shall promptly notify each Bank of
the contents thereof and of such Bank's ratable share (if any)
of such prepayment and such notice shall not thereafter be
revocable by the Borrower.
SECTION 2.12. General Provisions as to Payments.
---------------------------------
(a) The Borrower shall make each payment of principal of, and
interest on, the Loans and of fees hereunder, not later than
2:00 P.M. (New York City time) on the date when due, in
Federal or other funds immediately available in New York City,
to the Agent at its address referred to in Section 9.01. The
26
<PAGE>
Agent will promptly distribute to each Bank its ratable share
of each such payment received by the Agent for the account of
the Banks. Whenever any payment of principal of, or interest
on, the Domestic Loans or of fees shall be due on a day which
is not a Domestic Business Day, the date for payment thereof
shall be extended to the next succeeding Domestic Business
Day. Whenever any payment of principal of, or interest on,
the Euro-Dollar Loans or the Money Market LIBOR Loans shall be
due on a day which is not a Euro-Dollar Business Day, the date
for payment thereof shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day
falls in another calendar month, in which case the date for
payment thereof shall be the next preceding Euro-Dollar
Business Day. Whenever any payment of principal of, or
interest on, the Money Market Absolute Rate Loans shall be due
on a day which is not a Euro-Dollar Business Day, the date for
payment thereof shall be extended to the next succeeding
Euro-Dollar Business Day. If the date for any payment of
principal is extended by operation of law or otherwise,
interest thereon shall be payable for such extended time.
(b) Unless the Agent shall have received notice
from the Borrower prior to the date on which any payment is
due to the Banks hereunder that the Borrower will not make
such payment in full, the Agent may assume that the Borrower
has made such payment in full to the Agent on such date and
the Agent may, in reliance upon such assumption, cause to be
distributed to each Bank on such due date an amount equal to
the amount then due such Bank. If and to the extent that the
Borrower shall not have so made such payment, each Bank shall
repay to the Agent forthwith on demand such amount distributed
to such Bank together with interest thereon, for each day from
the date such amount is distributed to such Bank until the
date such Bank repays such amount to the Agent, at the Federal
Funds Rate.
SECTION 2.13. Funding Losses. If the Borrower
--------------
makes any payment of principal with respect to any Fixed Rate
Loan (pursuant to Section 2.11(a)(ii) or (iii), Section 2.16,
Article VI or VIII or otherwise) on any day other than the
last day of the Interest Period applicable thereto, or the end
of an applicable period fixed pursuant to Section 2.07(d), or
if the Borrower fails to borrow or prepay any Fixed Rate Loans
after notice has been given to any Bank in accordance with
Section 2.04(a) or 2.11(c), as the case may be, the Borrower
shall reimburse each Bank on demand for any resulting loss or
expense incurred by it (or by any existing or prospective
Participant in the related Loan), including (without
limitation) any loss incurred in obtaining, liquidating or
employing deposits from third parties, but excluding loss of
margin for the period after any such payment or failure to
27
<PAGE>
borrow or prepay; provided that such Bank shall have delivered
--------
to the Borrower a certificate as to the amount of such loss or
expense, which certificate shall be conclusive in the absence
of manifest error.
SECTION 2.14. Computation of Interest and Fees.
--------------------------------
Interest based on the Prime Rate shall be computed on the
basis of a year of 365 days (or 366 days in a leap year) and
paid for the actual number of days elapsed (including the
first day but excluding the last day). All other interest and
fees shall be computed on the basis of a year of 360 days and
paid for the actual number of days elapsed (including the
first day but excluding the last day).
SECTION 2.15. Regulation D Compensation. For so
-------------------------
long as any Bank maintains reserves against "Eurocurrency
liabilities" (or any other category of liabilities which
includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions
of credit or other assets which includes loans by a non-United
States office of such Bank to United States residents), and as
a result the cost to such Bank (or its Euro-Dollar Lending
Office) of making or maintaining its Euro-Dollar Loans is
increased, then such Bank may require the Borrower to pay,
contemporaneously with each payment of interest on the Euro-
Dollar Loans, additional interest on the related Euro-Dollar
Loan of such Bank at a rate per annum up to but not exceeding
the excess of (i) (A) the applicable London Interbank
Offered Rate divided by (B) one minus the Euro-Dollar Reserve
-----
Percentage over (ii) the applicable London Interbank Offered
Rate. Any Bank wishing to require payment of such additional
interest (x) shall so notify the Borrower and the Agent, in
which case such additional interest on the Euro-Dollar Loans
of such Bank shall be payable to such Bank at the place
indicated in such notice with respect to each Interest Period
commencing at least three Euro-Dollar Business Days after the
giving of such notice and (y) shall furnish to the Borrower at
least five Euro-Dollar Business Days prior to each date on
which interest is payable on the Euro-Dollar Loans an
officer's certificate setting forth the amount to which such
Bank is then entitled under this Section (which shall be
consistent with such Bank's good faith estimate of the level
at which the related reserves are maintained by it). Each
such certificate shall be accompanied by such information as
the Borrower may reasonably request as to the computation set
forth therein.
SECTION 2.16. Change of Control. If one or more
-----------------
of the following events (each, a "Change of Control") shall
occur:
28
<PAGE>
(a) any person or group of persons (within the
meaning of Section 13 or 14 of the Securities Exchange
Act of 1934, as amended) shall have acquired beneficial
ownership (within the meaning of Rule 13d-3 promulgated
by the Securities and Exchange Commission under said Act)
of 35% or more in voting power of the outstanding Voting
Stock of Travelers; provided that for purposes of this
--------
Section, a person or group of persons having beneficial
ownership shall not include (i) a Person who on the
Effective Date is a director or senior executive officer
of Travelers or (ii) a Plan;
(b) during any period of 12 consecutive calendar
months beginning after the Effective Date, a majority of
the board of directors of Travelers shall fail to consist
of individuals who were directors on the first day of
such period and/or individuals whose election as
directors was approved or recommended by a majority of
the directors in office at the time of their election; or
(c) Travelers shall cease to have beneficial
ownership, whether directly or indirectly, of more than
50% of the Voting Stock of the Borrower;
then, and in every such event, (i) the Borrower will, within
ten days after the occurrence of such Change of Control, give
each Bank notice thereof and shall describe in reasonable
detail the facts and circumstances giving rise thereto and
(ii) each Bank may, by three Domestic Business Days' notice to
the Borrower and the Agent given not later than 50 days after
such Bank has received notice from the Borrower of the
occurrence of such Change of Control, terminate its
Commitment, which shall thereupon be terminated, and declare
that each of such Bank's outstanding Loans (together with
accrued interest thereon) and any other amounts payable
hereunder for its account shall be, and such Loans and such
other amounts shall become, in the case of each Loan (together
with accrued interest thereon), due and payable on the earlier
of (x) the end of the Interest Period applicable to such Loan
and (y) 45 days after the date of such notice by such Bank
and, in the case of any other amount, immediately due and
payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Borrower.
ARTICLE III
CONDITIONS
SECTION 3.01. Effectiveness. This Agreement shall
-------------
become effective on the date that each of the following
29
<PAGE>
conditions shall have been satisfied (or waived in accordance
with Section 9.05):
(a) receipt by the Agent of counterparts hereof
signed by each of the parties hereto (or, in the case of
any party as to which an executed counterpart shall not
have been received, receipt by the Agent in form
satisfactory to it of telegraphic, telex or other written
confirmation from such party of execution of a
counterpart hereof by such party);
(b) receipt by the Agent for the account of each
Bank of a duly executed Note dated on or before the
Effective Date complying with the provisions of Section
2.05;
(c) receipt by the Agent of an opinion of the
General Counsel of the Borrower (or other counsel for the
Borrower reasonably satisfactory to the Agent),
substantially in the form of Exhibit E hereto and
covering such additional matters relating to the
transactions contemplated hereby as the Required Banks
may reasonably request;
(d) receipt by the Agent of an opinion of Davis
Polk & Wardwell, special counsel for the Agent,
substantially in the form of Exhibit F hereto and
covering such additional matters relating to the
transactions contemplated hereby as the Required Banks
may reasonably request;
(e) receipt by the Agent of all documents it may
reasonably request relating to the existence of the
Borrower, the corporate authority for and the validity of
this Agreement and the Notes, and any other matters
relevant hereto, all in form and substance satisfactory
to the Agent; and
(f) receipt by the Agent of evidence satisfactory
to it of the payment of all amounts payable under the
1989 Credit Agreement;
provided that this Agreement shall not become effective or be
- --------
binding on any party hereto unless all of the foregoing
conditions are satisfied not later than March 7, 1994. The
Agent shall promptly notify the Borrower and the Banks of the
Effective Date, and such notice shall be conclusive and
binding on all parties hereto. The Banks that are parties to
the 1989 Credit Agreement, comprising the "Required Banks" as
defined therein, and the Borrower agree that the commitments
under the 1989 Credit Agreement shall terminate in their
30
<PAGE>
entirety simultaneously with and subject to the effectiveness
of this Agreement and that the Borrower shall be obligated to
pay the accrued commitment and facility fees thereunder to but
excluding the date of such effectiveness.
SECTION 3.02. Borrowings. The obligation of any
----------
Bank to make a Loan on the occasion of any Borrowing is
subject to the satisfaction of the following conditions:
(a) receipt by the Agent of a Notice of Borrowing
as required by Section 2.02 or 2.03, as the case may be;
(b) the fact that, immediately after such
Borrowing, the aggregate outstanding principal amount of
the Loans will not exceed the aggregate amount of the
Commitments;
(c) the fact that, immediately after such
Borrowing, no Default shall have occurred and be
continuing; and
(d) the fact that the representations and
warranties of the Borrower contained in this Agreement
(except, in the case of any Borrowing subsequent to the
Effective Date, the representations and warranties set
forth in Section 4.04(c) and also, in the case of any
Refunding Borrowing, the representations and warranties
set forth in Section 4.05(i)) shall be true on and as of
the date of such Borrowing.
Each Borrowing hereunder shall be deemed to be a representation
and warranty by the Borrower on the date of such Borrowing as to
the facts specified in clauses (b), (c) and (d) of this Section.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.01. Corporate Existence and Power. The
-----------------------------
Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of Delaware, and has all
corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on
its business as now conducted.
31
<PAGE>
SECTION 4.02. Corporate and Governmental
--------------------------
Authorization; Contravention. The execution, delivery and
- ----------------------------
performance by the Borrower of this Agreement and the Notes
are within the Borrower's corporate powers, have been duly
authorized by all necessary corporate action, require no
action by or in respect of, or filing with, any governmental
body, agency or official and do not contravene, or constitute
a default under, any provision of applicable law or regulation
or of the certificate of incorporation or by-laws of the
Borrower or of any agreement, judgment, injunction, order,
decree or other instrument binding upon the Borrower or result
in the creation or imposition of any Lien on any asset of the
Borrower or any of its Subsidiaries.
SECTION 4.03. Binding Effect. This Agreement
--------------
constitutes a valid and binding agreement of the Borrower and
the Notes, when executed and delivered in accordance with this
Agreement, will constitute valid and binding obligations of
the Borrower.
SECTION 4.04. Financial Information. (a) The
---------------------
consolidated statement of financial position of the Borrower
and its Consolidated Subsidiaries as of December 31, 1992 and
the related consolidated statements of earnings, changes in
shareholder's equity and cash flows for the fiscal year then
ended, reported on by KPMG Peat Marwick and incorporated in
the Borrower's 1992 Form 10-K, a copy of which has been
delivered to each of the Banks, fairly present, in conformity
with generally accepted accounting principles, the
consolidated financial position of the Borrower and its
Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such
fiscal year.
(b) The unaudited consolidated statement of
financial position of the Borrower and its Consolidated
Subsidiaries as of September 30, 1993 and the related
unaudited consolidated statements of income and cash flows for
the nine months then ended, set forth in the Borrower's
quarterly report for the fiscal quarter ended September 30,
1993 as filed with the Securities and Exchange Commission on
Form 10-Q, a copy of which has been delivered to each of the
Banks, fairly present, in conformity with generally accepted
accounting principles applied on a basis consistent with the
financial statements referred to in subsection (a) of this
Section, the consolidated financial position of the Borrower
and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such
nine-month period (subject to normal year-end adjustments).
32
<PAGE>
(c) Since September 30, 1993 there has been no
material adverse change in the business, financial position or
results of operations of the Borrower and its Consolidated
Subsidiaries, considered as a whole.
SECTION 4.05. Litigation. There is no action, suit
----------
or proceeding pending against, or to the knowledge of the
Borrower threatened against or affecting, the Borrower or any
of its Subsidiaries before any court or arbitrator or any
governmental body, agency or official (i) in which there is a
reasonable probability of an adverse decision which could
materially adversely affect the business, consolidated
financial position or consolidated results of operations of
the Borrower and its Consolidated Subsidiaries or (ii) which
in any manner draws into question the validity of this
Agreement or the Notes.
SECTION 4.06. Compliance with ERISA. Each member
---------------------
of the ERISA Group has fulfilled its obligations under the
minimum funding standards of ERISA and the Internal Revenue
Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of
ERISA and the Internal Revenue Code with respect to each Plan.
No member of the ERISA Group has (i) sought a waiver of the
minimum funding standard under Section 412 of the Internal
Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or
in respect of any Benefit Arrangement, or made any amendment
to any Plan or Benefit Arrangement, which has resulted or
could result in the imposition of a Lien or the posting of a
bond or other security under ERISA or the Internal Revenue
Code or (iii) incurred any liability under Title IV of ERISA
other than a liability to the PBGC for premiums under Section
4007 of ERISA.
SECTION 4.07. Taxes. United States Federal income
-----
tax returns of the Borrower and its Subsidiaries have been
examined and closed through the period ended November 4, 1986.
The Borrower and its Subsidiaries have filed all United States
Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes
due pursuant to such returns or pursuant to any assessment
received by the Borrower or any Subsidiary. The charges,
accruals and reserves on the books of the Borrower and its
Subsidiaries in respect of taxes or other governmental charges
are, in the opinion of the Borrower, adequate.
SECTION 4.08. Subsidiaries. Each of the corporate
------------
Material Subsidiaries is a corporation duly incorporated,
validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers
33
<PAGE>
and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as
now conducted.
SECTION 4.09. Not an Investment Company. The
-------------------------
Borrower is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
ARTICLE V
COVENANTS
The Borrower agrees that, so long as any Bank has
any Commitment hereunder or any amount payable under any Note
remains unpaid:
SECTION 5.01. Information. The Borrower will
-----------
deliver to each of the Banks:
(a) as soon as available and in any event within
120 days after the end of each fiscal year of the
Borrower, a consolidated statement of financial position
of the Borrower and its Consolidated Subsidiaries as of
the end of such fiscal year and the related consolidated
statements of income and cash flows for such fiscal year,
setting forth in each case in comparative form the
figures as of the end of and for the previous fiscal
year, all reported on in a manner acceptable to the
Securities and Exchange Commission by KPMG Peat Marwick
or other independent public accountants of nationally
recognized standing (delivery of a copy of the Borrower's
annual report on Form 10-K filed by the Borrower with the
Securities and Exchange Commission for such fiscal year
shall constitute compliance with this subsection);
(b) as soon as available and in any event within 60
days after the end of each of the first three quarters of
each fiscal year of the Borrower, (i) a consolidated
statement of financial position of the Borrower and its
Consolidated Subsidiaries as of the end of such quarter,
(ii) the related consolidated statement of income for
such quarter and for the portion of the Borrower's fiscal
year ended at the end of such quarter and (iii) the
related consolidated statement of cash flows for the
portion of the Borrower's fiscal year ended at the end of
such quarter, setting forth in comparative form the
figures, in the case of clause (i), as of the end of the
Borrower's previous fiscal year, and in the case of
clauses (ii) and (iii), for the corresponding periods of
the Borrower's previous fiscal year, all certified
34
<PAGE>
(subject to normal year-end adjustments) as to fairness
of presentation, generally accepted accounting principles
and consistency by the chief financial officer or the
chief accounting officer of the Borrower (delivery of a
copy of the Borrower's Quarterly Report on Form 10-Q
filed by the Borrower with the Securities and Exchange
Commission for such quarterly period shall constitute
compliance with this subsection);
(c) simultaneously with the delivery of each set of
financial statements referred to in clauses (a) and (b)
above, a certificate of the chief financial officer or
the chief accounting officer of the Borrower (i) setting
forth in reasonable detail the calculations required to
establish whether the Borrower was in compliance with the
requirements of Section 5.07, the first sentence of
Section 5.08 and clause (f) of Section 5.09 on the date
of such financial statements and (ii) stating whether any
Default exists on the date of such certificate and, if
any Default then exists, setting forth the details
thereof and the action which the Borrower is taking or
proposes to take with respect thereto;
(d) simultaneously with the delivery of each set of
financial statements referred to in clause (a) above, a
statement of the firm of independent public accountants
which reported on such statements (i) whether anything
has come to their attention to cause them to believe that
any Default existed on the date of such statements and
(ii) confirming the calculations set forth in the
officer's certificate delivered simultaneously therewith
pursuant to clause (c) above;
(e) within five days of any officer of the Borrower
obtaining knowledge of any Default, if such Default is
then continuing, a certificate of the chief financial
officer or the chief accounting officer of the Borrower
setting forth the details thereof and the action which
the Borrower is taking or proposes to take with respect
thereto;
(f) promptly upon the filing thereof, copies of all
registration statements (other than the exhibits thereto
and any registration statements on Form S-8 or its
equivalent) and reports on Forms 10-K, 10-Q and 8-K (or
their equivalent) which the Borrower shall have filed
with the Securities and Exchange Commission; and
(g) if and when any member of the ERISA Group (i)
gives or is required to give notice to the PBGC of any
"reportable event" (as defined in Section 4043 of ERISA)
35
<PAGE>
with respect to any Plan which might constitute grounds
for a termination of such Plan under Title IV of ERISA,
or knows that the plan administrator of any Plan has
given or is required to give notice of any such
reportable event, a copy of the notice of such reportable
event given or required to be given to the PBGC; (ii)
receives notice of complete or partial withdrawal
liability under Title IV of ERISA or notice that any
Multiemployer Plan is in reorganization, is insolvent or
has been terminated, a copy of such notice; (iii)
receives notice from the PBGC under Title IV of ERISA of
an intent to terminate, impose liability (other than for
premiums under Section 4007 of ERISA) in respect of, or
appoint a trustee to administer, any Plan, a copy of such
notice; (iv) applies for a waiver of the minimum funding
standard under Section 412 of the Internal Revenue Code,
a copy of such application; (v) gives notice of intent to
terminate any Plan under Section 4041(c) of ERISA, a copy
of such notice and other information filed with the PBGC;
(vi) gives notice of withdrawal from any Plan pursuant to
Section 4063 of ERISA, a copy of such notice; or (vii)
fails to make any payment or contribution to any Plan or
Multiemployer Plan or in respect of any Benefit
Arrangement or makes any amendment to any Plan or Benefit
Arrangement which has resulted or could result in the
imposition of a Lien or the posting of a bond or other
security, a certificate of the chief financial officer or
the chief accounting officer of the Borrower setting
forth details as to such occurrence and action, if any,
which the Borrower or applicable member of the ERISA
Group is required or proposes to take.
SECTION 5.02. Payment of Obligations. The
----------------------
Borrower will pay and discharge, and will cause each
Subsidiary to pay and discharge, at or before maturity, all
their respective material obligations and liabilities,
including, without limitation, tax liabilities, except where
the same may be contested in good faith by appropriate
proceedings, and will maintain, and will cause each Subsidiary
to maintain, in accordance with generally accepted accounting
principles, appropriate reserves for the accrual of any of the
same.
SECTION 5.03. Maintenance of Property; Insurance.
----------------------------------
(a) The Borrower will keep, and will cause each Material
Subsidiary to keep, all property useful and necessary in its
business in good working order and condition, ordinary wear
and tear excepted.
(b) The Borrower will maintain, and will cause each
Material Subsidiary to maintain, insurance with financially
36
<PAGE>
sound and reputable insurance companies or associations (or to
self-insure) in such amounts and as to such risks as, in the
judgment of the Borrower, are usually insured or self-insured
by companies engaged in the same or a similar business and
similarly situated, which insurance may provide for reasonable
deductibility from coverage thereof.
SECTION 5.04. Maintenance of Existence. The
------------------------
Borrower will preserve, renew and keep in full force and
effect, and will cause each corporate Material Subsidiary to
preserve, renew and keep in full force and effect their
respective corporate existences and their respective rights,
privileges and franchises necessary or desirable in the normal
conduct of business; provided that any Material Subsidiary may
--------
merge or consolidate with or into the Borrower (but only if
the Borrower is the surviving entity) or a Consolidated
Subsidiary.
SECTION 5.05. Compliance with Laws. The Borrower
--------------------
will comply, and cause each Subsidiary to comply, in all
material respects with all applicable laws, ordinances, rules,
regulations, and requirements of governmental authorities
(including, without limitation, ERISA and the rules and
regulations thereunder) except where the necessity of
compliance therewith is contested in good faith by appropriate
proceedings.
SECTION 5.06. Books and Records. The Borrower will
-----------------
keep, and will cause each Material Subsidiary to keep, proper
books of record and account in which full, true and correct
entries shall be made of all dealings and transactions in
relation to its business and activities and will, and will
cause each Material Subsidiary to, furnish to each Bank such
financial and other information as any Bank may from time to
time reasonably request; provided that the Borrower is not
--------
prohibited by any confidentiality agreement binding upon it or
a Subsidiary from delivering such information to such Bank.
SECTION 5.07. Financial Covenants.
-------------------
(a) Adjusted Consolidated Tangible Net Worth.
----------------------------------------
Adjusted Consolidated Tangible Net Worth (as defined below)
will at no time be less than the sum of
----------
(i) $925,000,000 plus
----
(ii) for each fiscal quarter ended after
September 30, 1993 for which Adjusted Consolidated
Net Income (as defined below) is positive, 25% of
such Adjusted Consolidated Net Income plus
----
37
<PAGE>
(iii) 50% of Extraordinary Event Amounts (as
defined below) for each fiscal quarter ended after
September 30, 1993 plus
----
(iv) 85% of any increase in stockholder's
equity of the Borrower resulting from an excess of
---------
net cash proceeds of shares of capital stock issued
by the Borrower during each such fiscal quarter of
the Borrower over cash payments for shares of the
----
Borrower's capital stock repurchased or retired by
the Borrower or a Subsidiary during such fiscal
quarter.
(b) Debt-to-Equity Ratio. At any date at which "A"
--------------------
Status does not exist, the ratio of (i) the total Debt of the
Borrower and its Consolidated Subsidiaries (on a consolidated
basis) to (ii) Adjusted Consolidated Tangible Net Worth (as
defined below) will not exceed 8:1.
(c) Definitions of "Adjusted Consolidated Net
-----------------------------------------
Income," "Adjusted Consolidated Tangible Net Worth" and
- -------------------------------------------------------
"Extraordinary Event Amounts".
- -----------------------------
(i) "Adjusted Consolidated Net Income" for a
fiscal quarter means net income (after taxes) of the
Borrower and its Consolidated Subsidiaries, but
---
excluding
---------
(1) gains or losses from sales not in the
ordinary course of business of a business
operation or a material part thereof (an
"Extraordinary Sale"), and
(2) gains arising from a write-up of
assets, and
(3) unusual and nonrecurring write-downs
of assets, and
(4) unusual and nonrecurring reserve
provisions,
all determined for such fiscal quarter.
(ii) "Adjusted Consolidated Tangible Net
Worth" at a date means stockholder's equity of the
Borrower and its Consolidated Subsidiaries,
excluding unrealized gains or losses on (x) the
---------
Travelers Common Stock or (y) investment securities
held by insurance company Subsidiaries or equity
investees and decreased by
---------
38
<PAGE>
(1) 50% of the cost of acquired
businesses in excess of net assets resulting
from transactions consummated after September
30, 1993,
and increased by
(2) the amount of any reductions in the
Borrower's consolidated net worth, up to
$25,000,000 in aggregate amount, caused by the
Borrower's adoption after September 30, 1993 of
any accounting standards required by the
Financial Accounting Standards Board, the
Securities and Exchange Commission or other
governing body that sets accounting standards,
all determined as at such date.
(iii) "Extraordinary Event Amounts" for any
fiscal quarter of the Borrower means any excess of
net after-tax gains from Extraordinary Sales (as
defined above) (less expenses thereof) over the sum
of
(1) net after-tax losses from
Extraordinary Sales (plus expenses thereof) and
(2) without duplication of amounts
included in gains, losses or expenses of
Extraordinary Sales, unusual and nonrecurring
asset write-downs or reserve provisions,
all determined for such fiscal quarter.
SECTION 5.08. Transactions with Affiliates.
----------------------------
Excluding any amounts representing the value of Investments in
(A) until December 31, 1994, the Travelers Preferred Stock and
(B) the Travelers Common Stock, the sum of the outstanding
amounts of (i) the funds paid by each of the Borrower and the
Subsidiaries to or for the account of its Affiliates plus (ii)
the Investments made by each of the Borrower and the
Subsidiaries in its Affiliates shall at no time exceed in the
aggregate 50% of Adjusted Consolidated Tangible Net Worth (as
defined in Section 5.07(c)). The Borrower will not, and will
not permit any of its Subsidiaries to, directly or indirectly,
engage in any transaction with an Affiliate (including any
transaction described in the preceding sentence) unless the
terms and conditions of such transaction are substantially as
or more favorable to the Borrower or such Subsidiary as the
39
<PAGE>
terms and conditions which could have been obtained from a
Person which was not an Affiliate.
SECTION 5.09. Liens. The Borrower will not, and
-----
will not permit any of its Subsidiaries to, directly or
indirectly, create, assume, incur or permit to be created,
assumed or incurred or to exist any Lien on any of its
properties or assets, whether now owned or hereafter acquired,
or transfer any of its properties or assets to any of its
Subsidiaries, not in the ordinary course of business, for the
purpose of subjecting the same to the payment of any
Indebtedness of such Subsidiary in priority to the payment of
any other Indebtedness; provided that the foregoing
--------
restrictions shall not prevent:
(a) any Subsidiary from mortgaging or pledging all
or part of its properties and assets to the Borrower as
security for Indebtedness owing to the Borrower or from
mortgaging or pledging all or part of its properties and
assets to any other Subsidiary which owns directly or
indirectly all of the shares of the stock of such
Subsidiary, other than directors' qualifying shares, as
security for Indebtedness owing to such other Subsidiary;
(b) the Borrower or any Subsidiary from (i)
creating, incurring or permitting to exist any purchase
money mortgage or other purchase money lien upon or
conditional sales or other title retention agreement with
respect to any physical property or physical assets
acquired by the Borrower or such Subsidiary; (ii)
mortgaging any fixed property or fixed assets (not
covered by a mortgage, lien or conditional sales or other
title retention agreement referred to above) acquired or
constructed by the Borrower or such Subsidiary to secure
the balance of the purchase price or construction cost
thereof; (iii) acquiring any physical property or
physical assets subject to mortgages or liens existing
thereon at the date of such acquisition, whether or not
the Indebtedness secured by any such mortgage or lien is
assumed or guaranteed by the Borrower or such Subsidiary;
provided that in each of the foregoing clauses (i), (ii)
--------
and (iii) the mortgage or lien or conditional sales or
other title retention agreement shall be limited solely
to the property or asset so acquired or constructed; or
(iv) replacing, extending or renewing any mortgage, lien
or conditional sales or other title retention agreement
permitted by the foregoing clauses (i), (ii) or (iii)
upon the same property or asset theretofore subject
thereto, or replacing, extending or renewing the
Indebtedness secured thereby, provided that in no such
40
<PAGE>
case shall the principal amount of such Indebtedness at
the time outstanding be increased;
(c) the Borrower or any Subsidiary from acquiring a
majority of the stock of any corporation all or any part
of the properties and assets of which, at the time of
such acquisition, are subject to any mortgage, pledge,
security interest, lien, charge, encumbrance or
conditional sales or other title retention agreement, and
the continued existence of any such mortgage, pledge,
security interest, lien, charge, encumbrance or
conditional sales or other title retention agreement
shall not constitute a violation of this Section;
(d) any Subsidiary from creating or incurring or
permitting to exist any mortgage, pledge, security
interest, lien, charge or encumbrance upon any of its
properties or assets to secure, in the ordinary course of
business, its indebtedness for money borrowed in an
amount not material in relation to the consolidated
Indebtedness of the Borrower and its Subsidiaries, if as
a matter of practice prior to the time it became a
Subsidiary it had borrowed on the basis of secured loans
or had customarily deposited collateral to secure all or
any of its obligations;
(e) the Borrower or any Subsidiary from making any
deposit with or giving any form of security to any
governmental agency in order to entitle the Borrower or
such Subsidiary to maintain self insurance, or to
participate in any fund in connection with workers'
compensation, disability benefits, unemployment
insurance, old age pensions or other social security or
to share in any privileges or other benefits available to
companies participating in any such arrangement, or for
any other purpose at any time required by law or
governmental regulation as a condition to the transaction
of any business or the exercise of any privilege or
license; or depositing assets of the Borrower or a
Subsidiary with any surety company or clerk of any court,
or in escrow, as collateral in connection with, or in
lieu of, any bond on appeal by the Borrower or a
Subsidiary from any judgment or decree against it, or in
connection with any other proceedings in actions at law
or in equity or in admiralty by or against the Borrower
or such Subsidiary; or
(f) the Borrower or any Subsidiary from creating,
assuming or suffering to exist Liens which would not
otherwise be permitted by the foregoing restrictions to
the extent such Liens secure indebtedness for money
41
<PAGE>
borrowed, advances or extensions of credit or payables in
an aggregate amount which, together with all other Liens
to the extent such Liens secure indebtedness for money
borrowed, advances or extensions of credit or payables of
the Borrower and its Subsidiaries which would not
otherwise be permitted by the foregoing restrictions,
does not exceed 5% of Consolidated Total Assets.
SECTION 5.10. Consolidations, Mergers and Sales of
------------------------------------
Assets. The Borrower will not (i) except as provided in
- ------
Section 5.04, consolidate or merge with or into any other
Person or (ii) sell, lease or otherwise transfer all or
substantially all of its assets to any other Person.
SECTION 5.11. Use of Proceeds. The proceeds of the
---------------
Loans made under this Agreement will be used by the Borrower
for general corporate purposes. None of such proceeds will
be used, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of buying or carrying any
"margin stock" within the meaning of Regulation U.
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default. If one or more of
-----------------
the following events ("Events of Default") shall have occurred
and be continuing:
(a) the Borrower shall fail to pay when due any
principal of any Loan, or shall fail to pay within five
Domestic Business Days of the due date thereof any
interest on any Loan, or shall fail to pay within ten
Domestic Business Days of the due date thereof any fees
or any other amount payable hereunder;
(b) the Borrower shall fail to observe or perform
any covenant contained in Sections 5.07 to 5.11,
inclusive;
(c) the Borrower shall fail to observe or perform
any covenant or agreement contained in this Agreement
(other than those covered by clause (a) or (b) above) for
30 days after written notice thereof has been given to
the Borrower by the Agent at the request of any Bank;
(d) any representation, warranty, certification or
statement made by the Borrower in this Agreement or in
any certificate, financial statement or other document
delivered pursuant to this Agreement shall prove to have
42
<PAGE>
been incorrect in any material respect when made (or
deemed made);
(e) the Borrower or any Subsidiary shall fail to
make any payment in respect of any Material Debt (other
than the Notes) when due or within any applicable grace
period;
(f) any event or condition shall occur which
results in the acceleration of the maturity of any
Material Debt of the Borrower or any Subsidiary or
enables (or, with the giving of notice of acceleration,
would enable) the holder of such Debt or any Person
acting on such holder's behalf to accelerate the maturity
thereof;
(g) the Borrower or any Material Subsidiary (other
than a Depositary Subsidiary) shall commence a voluntary
case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or
its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian
or other similar official of it or any substantial part
of its property, or shall consent to any such relief or
to the appointment of or taking possession by any such
official in an involuntary case or other proceeding
commenced against it, or shall make a general assignment
for the benefit of creditors, or shall fail generally to
pay its debts as they become due, or the Borrower or any
corporate Material Subsidiary shall take any corporate
action to authorize any of the foregoing;
(h) an involuntary case or other proceeding shall
be commenced against the Borrower or any Material
Subsidiary (other than a Depositary Subsidiary) seeking
liquidation, reorganization or other relief with respect
to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking
the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any
substantial part of its property, and such involuntary
case or other proceeding shall remain undismissed and
unstayed for a period of 60 days; or an order for relief
shall be entered against the Borrower or any Material
Subsidiary (other than a Depositary Subsidiary) under the
federal bankruptcy laws as now or hereafter in effect;
(i) a decree or order of a court or agency or
supervisory authority having jurisdiction in the premises
for the appointment of a conservator or receiver or
43
<PAGE>
liquidator in any insolvency proceedings, readjustment of
debt, marshalling of assets and liabilities or similar
proceedings affecting any Depositary Subsidiary or all or
substantially all of its property, or for the winding-up
or liquidation of its affairs, shall have been entered;
or any Depositary Subsidiary shall consent to the
appointment of a conservator or receiver or liquidator in
any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings affecting
such Depositary Subsidiary or all or substantially all of
its property; or any Depositary Subsidiary shall file a
petition or take any other action to take advantage of
any applicable insolvency or reorganization statute or
shall voluntarily suspend payment of its obligations;
(j) any member of the ERISA Group shall fail to pay
when due an amount or amounts aggregating in excess of
$15,000,000 which it shall have become liable to pay
under Title IV of ERISA; or notice of intent to terminate
a Material Plan shall be filed under Title IV of ERISA by
any member of the ERISA Group, any plan administrator or
any combination of the foregoing; or the PBGC shall
institute proceedings under Title IV of ERISA to
terminate, to impose liability (other than for premiums
under Section 4007 of ERISA) in respect of, or to cause a
trustee to be appointed to administer, any Material Plan;
or a condition shall exist by reason of which the PBGC
would be entitled to obtain a decree adjudicating that
any Material Plan must be terminated; or there shall
occur a complete or partial withdrawal from, or a
default, within the meaning of Section 4219(c)(5) of
ERISA, with respect to, one or more Multiemployer Plans
which could cause one or more members of the ERISA Group
to incur a current payment obligation in excess of
$25,000,000;
(k) a judgment or order for the payment of money in
excess of $25,000,000 shall be rendered against the
Borrower or any Subsidiary and such judgment or order
shall continue unsatisfied and unstayed for a period of
30 days;
then, and in every such event, the Agent shall (i) if
requested by the Required Banks by notice to the Borrower
terminate the Commitments and they shall thereupon terminate,
and (ii) if requested by Banks holding Notes evidencing more
than 66 2/3% in aggregate principal amount outstanding of the
Loans, by notice to the Borrower declare the Notes (together
with accrued interest thereon) to be, and the Notes and such
interest shall thereupon become, immediately due and payable
without presentment, demand, protest or other notice of any
44
<PAGE>
kind, all of which are hereby waived by the Borrower; provided
--------
that in the case of any of the Events of Default specified in
clause (g) or (h) above with respect to the Borrower, without
any notice to the Borrower or any other act by the Agent or
the Banks, the Commitments shall thereupon terminate and the
Notes (together with accrued interest thereon) shall become
immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby
waived by the Borrower.
SECTION 6.02. Notice of Default. The Agent shall
-----------------
give notice to the Borrower under Section 6.01(c) promptly
upon being requested to do so by any Bank and shall thereupon
notify all the Banks thereof.
ARTICLE VII
THE AGENT
SECTION 7.01. Appointment and Authorization. Each
-----------------------------
Bank irrevocably appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers
under this Agreement and the Notes as are delegated to the
Agent by the terms hereof or thereof, together with all such
powers as are reasonably incidental thereto.
SECTION 7.02. Agent and Affiliates. Morgan
--------------------
Guaranty Trust Company of New York shall have the same rights
and powers under this Agreement as any other Bank and may
exercise or refrain from exercising the same as though it were
not the Agent, and Morgan Guaranty Trust Company of New York
and its affiliates may accept deposits from, lend money to,
and generally engage in any kind of business with, the
Borrower or any Subsidiary or affiliate of the Borrower as if
it were not the Agent hereunder.
SECTION 7.03. Action by Agent. The obligations of
---------------
the Agent hereunder are only those expressly set forth herein.
Without limiting the generality of the foregoing, the Agent
shall not be required to take any action with respect to any
Default, except as expressly provided in Article VI.
SECTION 7.04. Consultation with Experts. The Agent
-------------------------
may consult with legal counsel (who may be counsel for the
Borrower), independent public accountants and other experts
selected by it and shall not be liable for any action taken or
omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
45
<PAGE>
SECTION 7.05. Liability of Agent. Neither the
------------------
Agent nor any of its directors, officers, agents, or employees
shall be liable for any action taken or not taken by it in
connection herewith (i) with the consent or at the request of
the Required Banks or (ii) in the absence of its own gross
negligence or willful misconduct. Neither the Agent nor any
of its directors, officers, agents or employees shall be
responsible for or have any duty to ascertain, inquire into or
verify (i) any statement, warranty or representation made in
connection with this Agreement or any borrowing hereunder;
(ii) the performance or observance of any of the covenants or
agreements of the Borrower; (iii) the satisfaction of any
condition specified in Article III, except, in the case of the
Agent, receipt of items required to be delivered to the Agent;
or (iv) the validity, effectiveness or genuineness of this
Agreement, the Notes or any other instrument or writing
furnished in connection herewith. The Agent shall not incur
any liability by acting in reliance upon any notice, consent,
certificate, statement, or other writing (which may be a bank
wire, telex, telecopy or similar writing) believed by it to be
genuine or to be signed by the proper party or parties.
SECTION 7.06. Indemnification. Each Bank shall,
---------------
ratably in accordance with its Commitment, indemnify the Agent
(to the extent not reimbursed by the Borrower) against any
cost, expense (including counsel fees and disbursements),
claim, demand, action, loss or liability (except such as
result from the Agent's gross negligence or willful
misconduct) that the Agent may suffer or incur in connection
with this Agreement or any action taken or omitted by the
Agent hereunder.
SECTION 7.07. Credit Decision. Each Bank
---------------
acknowledges that it has, independently and without reliance
upon the Agent or any other Bank, and based on such documents
and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement.
Each Bank also acknowledges that it will, independently and
without reliance upon the Agent or any other Bank, and based
on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in
taking or not taking any action under this Agreement.
SECTION 7.08. Successor Agent. The Agent may
---------------
resign at any time by giving notice thereof to the Banks and
the Borrower. Upon any such resignation, the Required Banks
shall have the right to appoint a successor Agent with the
consent of the Borrower, which consent shall not be
unreasonably withheld. If no successor Agent shall have been
so appointed by the Required Banks, and shall have accepted
such appointment, within 30 days after the retiring Agent's
46
<PAGE>
giving of notice of resignation, then the retiring Agent may,
on behalf of the Banks, appoint a successor Agent, which shall
be a commercial bank organized or licensed under the laws of
the United States of America or of any State thereof and
having a combined capital and surplus of at least
$100,000,000. Upon the acceptance in writing of its
appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested
with all the rights and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Article shall inure
to its benefit as to any actions taken or omitted to be taken
by it while it was Agent.
SECTION 7.09. Agent's Fees. The Borrower shall pay
------------
to the Agent for its account fees for the Agent's services in
arranging and/or administering this Agreement in the amounts
and at the times heretofore mutually agreed by the Borrower
and the Agent.
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate
-----------------------------------
Inadequate or Unfair. If on or prior to the first day of any
- --------------------
Interest Period for any Fixed Rate Borrowing:
(a) the Agent is advised by the Reference Banks
that deposits in dollars (in the applicable amounts) are
not being offered to the Reference Banks in the relevant
market for such Interest Period, or
(b) in the case of a Committed Borrowing, Banks
having 50% or more of the aggregate amount of the
Commitments advise the Agent that the Adjusted CD Rate or
the London Interbank Offered Rate, as the case may be, as
determined by the Agent will not adequately and fairly
reflect the cost to such Banks of funding their CD Loans
or Euro-Dollar Loans, as the case may be, for such
Interest Period,
the Agent shall forthwith give notice thereof to the Borrower
and the Banks, whereupon until the Agent notifies the Borrower
that the circumstances giving rise to such suspension no
longer exist, the obligations of the Banks to make CD Loans or
Euro-Dollar Loans, as the case may be, shall be suspended.
Unless the Borrower notifies the Agent at least two Domestic
47
<PAGE>
Business Days before the date of any Fixed Rate Borrowing for
which a Notice of Borrowing has previously been given that it
elects not to borrow on such date, (i) if such Fixed Rate
Borrowing is a Committed Borrowing such Borrowing shall
instead be made as a Base Rate Borrowing and (ii) if such
Fixed Rate Borrowing is a Money Market LIBOR Borrowing, the
Money Market LIBOR Loans comprising such Borrowing shall bear
interest for each day from and including the first day to but
excluding the last day of the Interest Period applicable
thereto at the Base Rate for such day.
SECTION 8.02. Illegality. If, on or after the date
----------
of this Agreement, the adoption of any applicable law, rule or
regulation, or any change in any applicable law, rule or
regulation, or any change in the interpretation or
administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its
Euro-Dollar Lending Office) with any request or directive
(whether or not having the force of law) of any such
authority, central bank or comparable agency shall make it
unlawful or impossible for any Bank (or its Euro-Dollar
Lending Office) to make, maintain or fund its Euro-Dollar
Loans and such Bank shall so notify the Agent, the Agent shall
forthwith give notice thereof to the other Banks and the
Borrower, whereupon until such Bank notifies the Borrower and
the Agent that the circumstances giving rise to such
suspension no longer exist, the obligation of such Bank to
make Euro-Dollar Loans shall be suspended. Before giving any
notice to the Agent pursuant to this Section, such Bank shall
designate a different Euro-Dollar Lending Office if such
designation will avoid the need for giving such notice and
will not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank. If such Bank shall determine
that it may not lawfully continue to maintain and fund any of
its outstanding Euro-Dollar Loans to maturity and shall so
specify in such notice, the Borrower shall immediately prepay
in full the then outstanding principal amount of each such
Euro-Dollar Loan, together with accrued interest thereon.
Concurrently with prepaying each such Euro-Dollar Loan, the
Borrower shall borrow a Base Rate Loan in an equal principal
amount from such Bank (on which interest and principal shall
be payable contemporaneously with the related Euro-Dollar
Loans of the other Banks), and such Bank shall make such a
Base Rate Loan.
SECTION 8.03. Increased Cost and Reduced Return.
---------------------------------
(a) If on or after (x) the date hereof, in the case of any
Committed Loan or any obligation to make Committed Loans or
(y) the date of the related Money Market Quote, in the case of
any Money Market Loan, the adoption of any applicable law,
48
<PAGE>
rule or regulation, or any change in any applicable law, rule
or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its
Applicable Lending Office) with any request or directive
(whether or not having the force of law) of any such
authority, central bank or comparable agency shall impose,
modify or deem applicable any reserve (including, without
limitation, any such requirement imposed by the Board of
Governors of the Federal Reserve System, but excluding (i)
with respect to any CD Loan any such requirement included in
an applicable Domestic Reserve Percentage and (ii) with
respect to any Euro-Dollar Loan any such requirement with
respect to which such Bank is entitled to compensation during
the relevant Interest Period under Section 2.15), special
deposit, insurance assessment (excluding, with respect to any
CD Loan, any such requirement reflected in an applicable
Assessment Rate) or similar requirement against assets of,
deposits with or for the account of, or credit extended by,
any Bank (or its Applicable Lending Office) or shall impose on
any Bank (or its Applicable Lending Office) or on the United
States market for certificates of deposit or the London
interbank market any other condition affecting its Fixed Rate
Loans, its Note or its obligation to make Fixed Rate Loans and
the result of any of the foregoing is to increase the cost to
such Bank (or its Applicable Lending Office) of making or
maintaining any Fixed Rate Loan, or to reduce the amount of
any sum received or receivable by such Bank (or its Applicable
Lending Office) under this Agreement or under its Note with
respect thereto, by an amount deemed by such Bank to be
material, then, within 15 days after demand by such Bank (with
a copy to the Agent), the Borrower shall pay to such Bank such
additional amount or amounts as will compensate such Bank for
such increased cost or reduction.
(b) If any Bank shall have determined that, after
the date hereof, the adoption of any applicable law, rule or
regulation regarding capital adequacy, or any change in any
such law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the
interpretation or administration thereof, or any request or
directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing
the rate of return on capital of such Bank (or its Parent) as
a consequence of such Bank's obligations hereunder to a level
below that which such Bank (or its Parent) could have achieved
but for such adoption, change, request or directive (taking
into consideration its policies with respect to capital
49
<PAGE>
adequacy) by an amount deemed by such Bank to be material,
then from time to time, within 15 days after demand by such
Bank (with a copy to the Agent), the Borrower shall pay to
such Bank such additional amount or amounts as will compensate
such Bank (or its Parent) for such reduction.
(c) Each Bank will promptly notify the Borrower and
the Agent of any event of which it has knowledge, occurring
after the date hereof, which will entitle such Bank to
compensation pursuant to this Section and will designate a
different Lending Office if such designation will avoid the
need for, or reduce the amount of, such compensation and will
not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank. A Bank claiming compensation
under this Section shall submit a certificate setting forth,
in reasonable detail, the additional amount or amounts to be
paid to it hereunder which shall be conclusive in the absence
of manifest error. In determining such amount, such Bank may
use any reasonable averaging and attribution methods.
Notwithstanding the foregoing subsections (a) and (b) of this
Section, the Borrower shall only be obligated to compensate
any Bank for any amount arising or accruing during any time or
period commencing not more than 30 days prior to the date on
which such Bank notifies the Agent and the Borrower that it
proposes to demand such compensation and identifies to the
Agent and the Borrower the statute, regulation or other basis
upon which the claimed compensation is or will be based.
SECTION 8.04. Base Rate Loans Substituted for
-------------------------------
Affected Fixed Rate Loans. If (i) the obligation of any Bank
- -------------------------
to make Euro-Dollar Loans has been suspended pursuant to
Section 8.02 or (ii) any Bank has demanded compensation under
Section 8.03(a) and the Borrower shall, by at least five
Euro-Dollar Business Days' prior notice to such Bank through
the Agent, have elected that the provisions of this Section
shall apply to such Bank, then, unless and until such Bank
notifies the Borrower that the circumstances giving rise to
such suspension or demand for compensation no longer exist:
(a) all Loans which would otherwise be made by such
Bank as Euro-Dollar Loans or CD Loans, as the case may
be, shall be made instead as Base Rate Loans (on which
interest and principal shall be payable contemporaneously
with the related Fixed Rate Loans of the other Banks),
and
(b) after each of its Euro-Dollar Loans or CD
Loans, as the case may be, has been repaid, all payments
of principal which would otherwise be applied to repay
such Fixed Rate Loans shall be applied to repay its Base
Rate Loans instead.
50
<PAGE>
SECTION 8.05. Taxes on Payments. (a) Each Bank
-----------------
shall deliver to the Borrower and to the Agent, (i) no more
than 30 days after the date hereof (or, in the case of an
Assignee that becomes a Bank pursuant to Section 9.06(c), no
more than 30 days after it becomes a Bank), either a statement
that it is incorporated in the United States of America or, if
it is not so incorporated, two duly completed copies of, as
applicable, a United States Internal Revenue Service Form 1001
or Form 4224 promulgated under the Internal Revenue Code (each
such statement or form, as applicable to any person and
together with any substitute or successor form, a "Tax Form")
indicating that such Bank is entitled to receive payments
under this Agreement without deduction or withholding of any
United States federal income taxes as permitted by the
Internal Revenue Code, (ii) from time to time, such extensions
or renewals of such Tax Form as may reasonably be requested by
the Borrower or the Agent (but only to the extent such Bank
determines that it may properly effect such extensions or
renewals under applicable tax treaties, laws, regulations and
directives) and (iii) in the event of a transfer of any Loan
to an affiliate of such Bank, a new Tax Form for such
affiliate. The Borrower and the Agent shall each be entitled
to rely on such Tax Forms in its possession until receipt of
any revised or successor form pursuant to the preceding
sentence.
(b) If as a result of any present and future taxes,
assessments or governmental charges (together, "Taxes")
imposed by the United States of America, or any political
subdivision or taxing authority thereof, any Bank (or its
Lending Office) shall be subject to any deduction or
withholding with respect to any payment (including fees) in
respect of its Loans, its Commitment or its Note, such Bank
shall promptly notify the Borrower of such Taxes, enclosing a
copy of the relevant statute, regulation, interpretation or
notice from a taxing authority requiring such deduction or
withholding and setting forth in reasonable detail such Bank's
calculation of the dollar amount of such Taxes. Within 30
days after receipt of each such notice (or such longer period
as will comply with the law relating to such Taxes without
subjecting such Bank to additional payments with respect to
such Taxes), the Borrower shall, as requested by such Bank in
such notice, (i) increase the amount of such payment so that
such Bank will receive a net amount (after deduction of all
Taxes) equal to the amount due hereunder, (ii) pay such Taxes
to the appropriate taxing authority for the account of such
Bank, and (iii) as promptly as possible thereafter, send such
Bank evidence showing payment thereof, together with such
additional documentary evidence as such Bank may from time to
time require. The Borrower shall indemnify any Bank for any
incremental taxes, interest or penalties that may become
51
<PAGE>
payable as a result of any failure by the Borrower to comply
with clause (ii) or (iii) above. Notwithstanding the
foregoing, the Borrower shall not be required to make any
payment to any Bank under this subsection (b) as a result of
any deduction or withholding or incremental tax, interest or
penalty that is required in respect of such Bank by reason of
such Bank's failure or inability to furnish any Tax Form
pursuant to Section 8.05(a) or any extension or renewal
thereof, unless such failure or inability is the result of an
amendment to or a change in any applicable law or regulation
or in the interpretation thereof by any regulatory authority
(including without limitation any change in an applicable tax
treaty) that becomes effective after the date hereof.
SECTION 8.06. Substitution of Bank. The Borrower
--------------------
may at any time, upon ten Domestic Business Days' prior notice
to the Agent and the Banks, if (i) the obligation of any Bank
to make Euro-Dollar Loans has been suspended pursuant to
Section 8.02, (ii) any Bank has demanded compensation or
payment under Section 8.03 or 8.05, (iii) any Bank has
terminated its Commitment under Section 2.16 or (iv) any
senior unsecured long-term debt securities, without third-
party credit enhancement, of any Bank are rated lower than
BBB- by S&P or Baa3 by Moody's, select a substitute bank or
banks (which may be one or more of the Banks) to purchase the
Note and assume the Commitment of such Bank. Upon the
execution of a letter agreement reasonably satisfactory to the
Agent by the Borrower, the Agent and each such additional or
substituted bank setting forth the Commitment of each such
bank and stating that it shall be bound by this Agreement with
all the benefits and obligations of a Bank hereunder, each
such bank shall be deemed to be a "Bank" for all purposes of
this Agreement and the Agent shall notify each other Bank
accordingly.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices. All notices, requests and
-------
other communications to any party hereunder shall be in
writing (including bank wire, telex, telecopy or similar
writing) and shall be given to such party: (x) in the case of
the Borrower or the Agent, at its address or telex or telecopy
number set forth on the signature pages hereof, (y) in the
case of any Bank, at its address or telex or telecopy number
set forth in its Administrative Questionnaire or (z) in the
case of any party, such other address or telex or telecopy
number as such party may hereafter specify for the purpose by
notice to the Agent and the Borrower. Each such notice,
52
<PAGE>
request or other communication shall be effective (i) if given
by telex, when such telex is transmitted to the telex number
specified in this Section and the appropriate answerback is
received, (ii) if given by mail, 72 hours after such
communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (iii) if given by
any other means, when delivered at the number or address
specified in this Section; provided that notices to the Agent
--------
under Article II or Article VIII shall not be effective until
received.
SECTION 9.02. No Waivers. No failure or delay by
----------
the Agent or any Bank in exercising any right, power or
privilege hereunder or under any Note shall operate as a
waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights
and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
SECTION 9.03. Expenses; Documentary Taxes;
----------------------------
Indemnification. (a) The Borrower shall pay (i) all
- ---------------
reasonable out-of-pocket expenses of the Agent, including
reasonable fees and disbursements of special counsel for the
Agent, in connection with the preparation of this Agreement,
any waiver or consent hereunder or any amendment hereof or any
Default or alleged Default hereunder and (ii) if an Event of
Default occurs, all reasonable out-of-pocket expenses incurred
by the Agent or any Bank, including fees and disbursements of
counsel (including the reasonably allocated cost of in-house
counsel), in connection with such Event of Default and
collection, bankruptcy, insolvency and other enforcement
proceedings resulting therefrom. The Borrower shall indemnify
each Bank against any transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by
reason of the execution and delivery of this Agreement or the
Notes.
(b) The Borrower agrees to indemnify the Agent and
each Bank and hold the Agent and each Bank harmless from and
against any and all liabilities, damages, costs and expenses
of any kind, including, without limitation, the reasonable
fees and disbursements of counsel (including the reasonably
allocated cost of in-house counsel) which may be incurred by
the Agent or such Bank in connection with any investigative,
administrative or judicial proceeding (whether or not the
Agent or such Bank shall be designated a party thereto)
brought or threatened to the extent arising out of (i) the
Borrower's breach of, or any Event of Default under, this
Agreement, (ii) any claim by a Person not a party to this
Agreement that the Borrower's, the Agent's or a Bank's conduct
53
<PAGE>
in connection with this Agreement is unlawful or has violated
or will violate such Person's legal rights, (iii) any actual
or proposed use of proceeds of Loans hereunder or (iv) any
action initiated by the Borrower against the Agent or a Bank
relating to this Agreement, unless a court of competent
jurisdiction enters a final non-appealable order in such
action in favor of the Borrower, provided that neither the
--------
Agent nor any Bank shall have the right to be indemnified
hereunder for its own gross negligence, willful misconduct,
breach of this Agreement or violation of applicable law, as
determined by a court of competent jurisdiction.
SECTION 9.04. Sharing of Set-Offs. Each Bank
-------------------
agrees that if it shall, by exercising any right of set-off or
counterclaim or otherwise, receive payment of a proportion of
the aggregate amount of principal and interest due with
respect to the Note held by it which is greater than the
proportion received by any other Bank in respect of the
aggregate amount of principal and interest due with respect to
the Note held by such other Bank, the Bank receiving such
proportionately greater payment shall purchase such
participation in the Notes held by the other Banks, and such
other adjustments shall be made, as may be required so that
all such payments of principal and interest with respect to
the Notes held by the Banks shall be shared by the Banks pro
rata; provided that nothing in this Section shall impair the
--------
right of any Bank to exercise any right of set-off or
counterclaim it may have and to apply the amount subject to
such exercise to the payment of indebtedness of the Borrower
other than its indebtedness under the Notes. The Borrower
agrees, to the fullest extent it may effectively do so under
applicable law, that any holder of a participation in a Note,
whether or not acquired pursuant to the foregoing
arrangements, may exercise rights of set-off or counterclaim
and other rights with respect to such participation as fully
as if such holder of a participation were a direct creditor of
the Borrower in the amount of such participation.
SECTION 9.05. Amendments and Waivers. Any
----------------------
provision of this Agreement or the Notes may be amended or
waived if, but only if, such amendment or waiver is in writing
and is signed by the Borrower and the Required Banks (and, if
the rights or duties of the Agent are affected thereby, by the
Agent); provided that no such amendment or waiver shall,
--------
unless signed by all the Banks, (i) except as contemplated in
Sections 8.06 and 9.06, increase or decrease the Commitment of
any Bank or subject any Bank to any additional obligation,
(ii) reduce the principal of or rate of interest on any Loan
or any fees hereunder, (iii) postpone the date fixed for any
payment of principal of or interest on any Loan or any fees
hereunder or for termination of any Commitment or (iv) change
54
<PAGE>
the percentage of the Commitments or of the aggregate unpaid
principal amount of the Notes, or the number of Banks, which
shall be required for the Banks or any of them to take any
action under this Section or any other provision of this
Agreement.
SECTION 9.06. Successors and Assigns. (a) The
----------------------
provisions of this Agreement and the Notes shall be binding
upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Borrower
may not assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement and any Notes
without the prior written consent of all of the Banks.
(b) Any Bank may at any time grant to one or more
banks or other institutions (each a "Participant")
participating interests in its Commitment or any or all of its
Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon
notice to the Borrower and the Agent, such Bank shall remain
responsible for the performance of its obligations hereunder,
and the Borrower and the Agent shall continue to deal solely
and directly with such Bank in connection with such Bank's
rights and obligations under this Agreement. Any agreement
pursuant to which any Bank may grant such a participating
interest shall provide that such Bank shall retain the sole
right and responsibility to enforce the obligations of the
Borrower hereunder including, without limitation, the right to
approve any amendment, modification or waiver of any provision
of this Agreement; provided that such participation agreement
--------
may provide that such Bank will not agree to any modification,
amendment or waiver of this Agreement described in clause (i),
(ii) or (iii) of Section 9.05 without the consent of the
Participant. The Borrower agrees that each Participant
shall, to the extent provided in its participation agreement,
be entitled to the benefits of Article VIII with respect to
its participating interest. An assignment or other transfer
which is not permitted by subsection (c) or (d) of this
Section shall be given effect for purposes of this Agreement
only to the extent of a participating interest granted in
accordance with this subsection (b).
(c) Any Bank may at any time assign to one or more
banks or other institutions (each an "Assignee") all, or a
proportionate part (equivalent to an initial Commitment of not
less than $10,000,000) of all, of its rights and obligations
under this Agreement and the Notes, and such Assignee shall
assume such rights and obligations, pursuant to an Assignment
and Assumption Agreement substantially in the form of Exhibit
G hereto executed by such Assignee and such transferor Bank,
with (and subject to) the subscribed consent of the Borrower,
55
<PAGE>
so long as no Event of Default specified in Section 6.01(g) or
(h) shall have occurred and be continuing, and the Agent, such
consent not to be unreasonably withheld; provided that no such
--------
consent shall be required if the transferee Bank is another
Bank; and provided further that such assignment may, but need
-------- -------
not, include rights of the transferor Bank in respect of
outstanding Money Market Loans. Upon execution and delivery
of such an instrument and payment by such Assignee to such
transferor Bank of an amount equal to the purchase price
agreed between such transferor Bank and such Assignee, such
Assignee shall be a Bank party to this Agreement and shall
have all the rights and obligations of a Bank with a
Commitment as set forth in such instrument of assumption, and
the transferor Bank shall be released from its obligations
hereunder to a corresponding extent, and no further consent or
action by any party shall be required. Upon the consummation
of any assignment pursuant to this subsection (c), the
transferor Bank, the Agent and the Borrower shall make
appropriate arrangements so that, if required, a new Note is
issued to the Assignee, and, if the Commitment of the
transferor Bank is terminated in its entirety and no Loans
from such transferor Bank are then outstanding, the Note of
such transferor Bank is forthwith canceled and returned to the
Borrower.
(d) Any Bank may at any time assign all or any
portion of its rights under this Agreement and its Note to an
affiliate of such Bank or to a Federal Reserve Bank. No such
assignment shall release the transferor Bank from its
obligations hereunder.
(e) No Assignee, Participant or other transferee of
any Bank's rights shall be entitled to receive any greater
payment under Section 8.03 than such Bank would have been
entitled to receive with respect to the rights transferred,
unless such transfer is made with the Borrower's prior written
consent or by reason of the provisions of Section 8.02 or 8.03
requiring such Bank to designate a different Applicable
Lending Office under certain circumstances or at a time when
the circumstances giving rise to such greater payment did not
exist.
SECTION 9.07. Collateral. Each of the Banks
----------
represents to the Agent and each of the other Banks that it in
good faith is not relying upon any "margin stock" (as defined
in Regulation U) as collateral in the extension or maintenance
of the credit provided for in this Agreement.
SECTION 9.08. NEW YORK LAW. THIS AGREEMENT AND
------------
EACH NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF NEW YORK.
56
<PAGE>
SECTION 9.09. Counterparts; Integration. This
-------------------------
Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
This Agreement constitutes the entire agreement and
understanding among the parties hereto and supersedes any and
all prior agreements and understandings, oral or written,
relating to the subject matter hereof.
SECTION 9.10. Borrower's Reliance. In certifying
-------------------
to anything under this Agreement, an officer of the Borrower
shall be entitled as to financial matters to rely in good
faith on the most recent financial statements prepared in the
ordinary course of the Borrower's business, even if such
financial statements are not dated as of the date of such
certification, and on such officer's reasonable inferences as
to the likely effects of any material events that such officer
knows to have occurred subsequent to the date of such
financial statements.
SECTION 9.11. WAIVER OF JURY TRIAL. EACH OF THE
--------------------
BORROWER, THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
57
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed by their respective
authorized officers as of the day and year first above
written.
COMMERCIAL CREDIT COMPANY
By: /s/ Jerome T. Fadden
------------------------------
Title: Vice President and Treasurer
By: /s/ Daniel E. Rubenstein
------------------------------
Title: Vice President and
Assistant Treasurer
300 St. Paul Place
Baltimore, Maryland 21202
Attention: Treasurer
Telecopy number: (410) 332-3854
58
<PAGE>
Commitments
- -----------
$ 30,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ Patricia Merritt
------------------------------
Title: Vice President
$ 30,000,000 J.P. MORGAN DELAWARE
By: /s/ Philip S. Detjeas
------------------------------
Title: Vice President
$ 60,000,000 BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ Donald J. Chin
------------------------------
Title: Vice President
$ 60,000,000 BANK OF MONTREAL
By: /s/ Rene Encarnacion
------------------------------
Title: Director
$ 60,000,000 THE BANK OF NEW YORK
By: /s/ Lizanne T. Eberle
------------------------------
Title: Vice President
59
<PAGE>
$ 60,000,000 THE CHASE MANHATTAN BANK N.A.
By: /s/ Robert B. Frasca
------------------------------
Title: Managing Director
$ 60,000,000 CHEMICAL BANK
By: /s/ Robert C. Kennedy
------------------------------
Title: Vice President
$ 60,000,000 CONTINENTAL BANK N.A.
By: /s/ Kathryn W. Robinson
------------------------------
Title: Vice President
$ 60,000,000 CREDIT SUISSE
By: /s/ Jay Chall
------------------------------
Title: Member of Senior Management
By: /s/ Dawn E. Rubinstein
------------------------------
Title: Associate
$ 60,000,000 FIRST INTERSTATE BANK OF CALIFORNIA
By: /s/ Stephen F. Marshall
------------------------------
Title: Vice President
By: /s/ Robert C. Meyer
------------------------------
Title: Vice President
60
<PAGE>
$ 60,000,000 THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Robert J. Brandau
------------------------------
Title: Assistant Vice President
$ 60,000,000 UNION BANK OF SWITZERLAND, NEW YORK
BRANCH
By: /s/ Daniel H. Perron
------------------------------
Title: Vice President
By: /s/ James P. Kelleher
------------------------------
Title: Assistant Treasurer
$ 45,000,000 CITIBANK, N.A.
By: /s/ Michael A. Coye
------------------------------
Title: Vice President
$ 45,000,000 THE FIRST NATIONAL BANK OF BOSTON,
N.A.
By: /s/ Gunther E. A. Fritze
------------------------------
Title: Vice President
$ 45,000,000 THE SAKURA BANK, LIMITED, NEW YORK
BRANCH
By: /s/ Yasuhiro Terada
------------------------------
Title: Senior Vice President and
Assistant General Manager
61
<PAGE>
$ 37,500,000 ABN AMRO BANK N.V., NEW YORK BRANCH
By: /s/ David A. Mandell
------------------------------
Title: Vice President
By: /s/ Jonathan C. Jones
------------------------------
Title: Vice President
$ 37,500,000 CIBC, INC.
By: /s/ David B. Walsh
------------------------------
Title: Managing Director
$ 37,500,000 CREDIT LYONNAIS
By: /s/ Renaud D'Herbes
------------------------------
Title: First Vice President
$ 37,500,000 DAI-ICHI KANGYO BANK, LTD.
By: /s/ Matthew Murphy
------------------------------
Title: Assistant Vice President
$ 37,500,000 THE FIRST NATIONAL BANK OF MARYLAND
By: /s/ F. Winfield Trice, Jr.
------------------------------
Title: Vice President
$ 37,500,000 FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: /s/ Allison C. Zollicoffer
------------------------------
Title: Vice President
62
<PAGE>
$ 37,500,000 THE FUJI BANK, LIMITED, NEW YORK
BRANCH
By: /s/ Yoshihiko Shiotsugu
------------------------------
Title: Vice President and Manager
$ 37,500,000 MELLON BANK, N.A.
By: /s/ M. James Barry
------------------------------
Title: Vice President
$ 37,500,000 NATIONAL WESTMINSTER BANK USA
By: /s/ Christine Montagna
------------------------------
Title: Vice President
$ 37,500,000 ROYAL BANK OF CANADA
By: /s/ Gary R. Overton
------------------------------
Title: Senior Manager
$ 37,500,000 SHAWMUT BANK CONNECTICUT, N.A.
By: /s/ Jane C. Lee
------------------------------
Title: Vice President
$ 30,000,000 PNC BANK, NATIONAL ASSOCIATION
By: /s/ Brenda Carrasquillo
------------------------------
Title: Senior Banking Officer
63
<PAGE>
$ 30,000,000 SWISS BANK CORPORATION, NEW YORK
BRANCH
By: /s/ Michael T. Fabiano
------------------------------
Title: Associate Director
By: /s/ Stephanie Kim
------------------------------
Title: Associate Director
$ 26,250,000 THE BANK OF NOVA SCOTIA
By: /s/ John Campbell
------------------------------
Title: Vice President and Agent
$ 26,250,000 BANQUE PARIBAS
By: /s/ Anne C. Pifer
------------------------------
Title: Assistant Vice President
By: /s/ Stephen J. Kelly
------------------------------
Title: Group Vice President
$ 26,250,000 THE NORTHERN TRUST COMPANY
By: /s/ Deborah D. Thomas
------------------------------
Title: Vice President
$ 22,500,000 UNITED STATES NATIONAL BANK OF OREGON
By: /s/ Clare C. Jones
------------------------------
Title: Corporate Banking Officer
64
<PAGE>
$ 18,750,000 AMSOUTH BANK N.A.
By: /s/ R. Mark Graf
------------------------------
Title: Vice President
$ 18,750,000 BANK OF HAWAII
By: /s/ Scott G. Balke
------------------------------
Title: Vice President
$ 18,750,000 THE BANK OF TOKYO TRUST COMPANY
By: /s/ Neal Hoffson
------------------------------
Title: Vice President
$ 18,750,000 BANQUE NATIONALE DE PARIS
By: /s/ Eric Vigne
------------------------------
Title: Senior Vice President
By: /s/ Sophie Revillard Kaufman
------------------------------
Title: Vice President
$ 18,750,000 FLEET BANK, N.A.
By: /s/ John V. Raleigh
------------------------------
Title: Vice President
$ 18,750,000 NATIONSBANK OF GEORGIA, N.A.
By: /s/ James W. Fee, Jr.
------------------------------
Title: Senior Vice President
65
<PAGE>
$ 18,750,000 SOCIETE GENERALE, NEW YORK BRANCH
By: /s/ M. Emilio Martinez
------------------------------
Title: Vice President
_________________
Total Commitments
$1,500,000,000
=================
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By /s/ Patricia Merritt
-------------------------------
Title: Vice President
60 Wall Street
New York, New York 10260-0060
Telex number: 177615, 620106
Telecopy number: 212-385-2603
66
<TABLE> <CAPTION> EXHIBIT 12.01
Commercial Credit Company and SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
ALL COMPANIES CONSOLIDATED
(In millions of dollars)
Year ended December 31,
-----------------------------------------------------------------------
1993 1992 1991 1990 1989
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income from continuing operations
before income taxes and minority
interests......................... $467.9 $428.8 $302.9 $234.3 $166.2
Elimination of undistributed
equity earnings................... (26.8) (3.0) (4.6) (3.4) (0.1)
Pre-tax minority interest........... (32.3) - - - -
Add:
Interest.......................... 363.7 369.7 434.9 415.4 319.0
Interest portion of rentals....... 11.2 11.7 11.5 9.6 6.5
------ ------ ------ ------ ------
Income available for fixed charges.. $783.7 $807.2 $744.7 $655.9 $491.6
===== ===== ===== ===== ======
Fixed charges:
Interest.......................... $363.7 $369.7 $434.9 $415.4 $319.0
Interest portion of rentals....... 11.2 11.7 11.5 9.6 6.5
------ ----- ------ ----- ------
Fixed charges....................... $374.9 $381.4 $446.4 $425.0 $325.5
===== ===== ===== ===== ======
Ratio of earnings to fixed charges.. 2.09x 2.12x 1.67x 1.54x 1.51x
==== ==== ==== ==== =======
</TABLE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Commercial Credit Company:
We consent to the incorporation by reference in the Registration
Statements (Nos. 33-18208, 33-27241 and related offerings as
described in note (1) to the cover page thereof, 33-28723, 33-
35618, 33-39857, 33-43351, 33-51814 and 33-50513) on Form S-3 of
Commercial Credit Company, of our report dated January 24, 1994,
relating to the consolidated statements of financial position of
Commercial Credit Company and subsidiaries as of December 31,
1993 and 1992, and the related consolidated statements of income,
changes in stockholder's equity and cash flows, and the related
financial statement schedules for each of the years in the three
year period ended December 31, 1993, which report appears herein.
/s/ KPMG Peat Marwick
Baltimore, Maryland
March 30, 1994
EXHIBIT 99.01
Company's Form 8-K
July 28, 1992
Page 2
In June 1992, a purported class action was filed in the
Circuit Court of the Second Judicial Circuit in and for Leon
County, Florida, against a number of defendants, including
American Health and Life Insurance Company, a subsidiary of the
Registrant. The complaint seeks declaratory relief that
defendants remain liable to the class members for the performance
of obligations under certain annuity policies which were
originally issued or assumed by one of the defendants and were
subsequently transferred to Guarantee Security Life Insurance
Company, a company that is now insolvent. The Registrant intends
to contest the allegations.
