SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
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)
--------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [X]
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, 1994
______________________________
TABLE OF CONTENTS
Form 10-K
Item Number Page
----------- ----
Part I
------
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 9
4. Omitted Pursuant to General Instruction J
Part II
-------
5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . 10
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . 11
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . 11
8. Financial Statements and Supplementary Data . . . . . . . . . . . 17
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . 17
Part III
--------
10-13. Omitted Pursuant to General Instruction J
Part IV
-------
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Index to Consolidated Financial Statements and Schedules . . . . F-1
<PAGE>
PART I
------
Item 1. BUSINESS.
THE COMPANY
Commercial Credit Company (the "Company") is a financial services
holding company engaged, through its subsidiaries, principally in consumer
finance services. The Company's predecessor was founded in 1912. The
Company is a wholly owned subsidiary of The Travelers Inc. ("Travelers"), a
financial services holding company engaged, through its subsidiaries,
principally in four business segments: (i) Investment Services; (ii)
Consumer Finance Services (through the Company); (iii) Life Insurance
Services; and (iv) Property & Casualty Insurance Services. The periodic
reports of Travelers provide additional business and financial information
concerning that company and its consolidated subsidiaries.
On December 30, 1994, the Company sold its 50% interest in
Commercial Insurance Resources, Inc. ("CIRI"), the parent of Gulf Insurance
Company ("Gulf"), to an affiliate, The Travelers Indemnity Company
("Travelers Indemnity"), for $150 million. Travelers Indemnity had
acquired the other 50% of CIRI in 1992, in connection with Travelers'
acquisition of approximately 27% of the common stock of The Travelers
Corporation ("old Travelers"). At that time, the Company acquired
8,947,367 shares of old Travelers common stock. See Note 2 of Notes to
Consolidated Financial Statements. The Company's Consolidated Financial
Statements include the results of operations of Gulf for all periods
presented, and Travelers Indemnity's interest in Gulf in 1993 and 1994 is
shown as minority interest. Gulf's businesses are not described in this
Item 1; however, certain information regarding those businesses is included
in the Annual Report on Form 10-K of Travelers.
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, 1994, the Company maintained 828 loan offices
in 42 states, and it plans to open approximately 50 additional loan offices
in 1995. The Company
1
<PAGE>
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 at December
31, 1994, 1993 and 1992 were approximately $6.9 billion, $6.3 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, both fixed and variable rate real
estate-secured loans and loans to finance consumer goods purchases. 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 $20,000 to $50,000. The number of loan customers
(excluding credit card customers) was approximately 1,250,000 at December
31, 1994, as compared to approximately 1,142,000 at December 31, 1993 and
approximately 1,058,000 at December 31, 1992. A loan program of the
Company solicits applications for loans through the sales force of the
Primerica Financial Services group of companies, which are subsidiaries of
Travelers. At December 31, 1994, the total loans outstanding generated
from this program was approximately $1.1 billion, as compared to
approximately $765 million at December 31, 1993 and approximately $487
million at December 31, 1992.
The average amount of cash advanced per personal loan made was
approximately $4,200 in 1994 and $3,800 in each of 1993 and 1992. The
average amount of cash advanced per real estate-secured loan made was
approximately $28,400 in 1994, approximately $28,800 in 1993 and
approximately $26,000 in 1992. The average annual yield for loans in 1994
was 15.41%, as compared to 15.83% in 1993 and 16.31% in 1992. The average
annual yield for personal loans in 1994 was 20.20%, as compared to 20.11%
in 1993 and 19.99% in 1992, and for real estate-secured loans it was 12.20%
in 1994, as compared to 13.14% in 1993 and 14.05% in 1992. The average
yield for real estate-secured loans has been affected by the introduction
in 1993 of a variable rate product and by decreases generally in prevailing
market interest rates. The Company's average net interest margin for loans
was 8.76% in 1994, 8.44% in 1993 and 8.66% in 1992.
In the late 1980's, 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 improved from 1992 through 1994. See
"Delinquent Receivables and Loss Experience," below.
2
<PAGE>
Delinquent Receivables and Loss Experience
Due to the nature of the finance business, some customer
delinquency and loss is unavoidable. The management of the consumer
finance business attempts to control customer delinquency through careful
evaluation of each borrower's application and credit history at the time
the loan is made or acquired, and 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. The delinquency and loss experience on real estate-
secured loans is generally more favorable than on personal loans.
The table on the following page 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,
------------------
1994 2.40% 1.48% 1.05% 1.79% 1.88%
1993 2.62% 2.15% 1.03% 1.54% 2.21%
1992 3.02% 2.31% 1.87% 1.48% 2.55%
__________________________
(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.
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,
------------
1994 3.50% 0.82% 1.83% 2.03% 2.08%
1993 4.08% 0.84% 2.56% 1.78% 2.36%
1992 5.09% 0.74% 4.01% 2.05% 2.84%
3
<PAGE>
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,
------------------
1994 2.64%
1993 2.64%
1992 2.91%
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, and involuntary unemployment
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, for consumer finance customers:
Consumer Finance Insurance Premiums Written
(in millions)
Year Ended December 31,
-----------------------
1994 1993 1992
---- ---- ----
Premiums written by AHL and
its affiliates(1)
Writings for consumer finance:
Credit life . . . . . . . . . $ 43.3 $ 36.4 $ 36.0
Credit disability and other . 69.3 49.2 $ 46.7
------ ------ ------
Total . . . . . . . . . . . $112.6 $ 85.6 $ 82.7
====== ====== ======
Premiums written by other
insurance companies(2)
Credit property and other . . $ 52.8 $ 38.7 $ 31.0
====== ====== ======
_________________________
(1) Premiums are written by AHL and other subsidiaries of Travelers.
(2) Premiums are written by nonaffiliated insurers for consumer finance
customers.
The increase in 1994 written premiums is primarily the result of
the increase in receivables and expanded availability of certain products
in additional states.
4
<PAGE>
See Note 7 of Notes to Consolidated Financial Statement for
information regarding reinsurance activities.
Investments
The investment holdings of the insurance companies at December
31, 1994 were composed primarily of fixed income securities. At December
31, 1994, 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. State insurance laws prescribe the types, quality and
diversity of permissible investments for insurance companies. See Note 4
of Notes to Consolidated Financial Statements for additional information
regarding the investment portfolios.
Credit Card Services
The Travelers Bank, a subsidiary of the Company, is a state-chartered
bank located in Newark, Delaware, which provides credit card services,
including upper market gold credit card services, to individuals and to
affinity groups (such as nationwide professional associations and fraternal
organizations). The Travelers Bank USA, another state-chartered bank
subsidiary of the Company, was formed in September 1989. The Travelers Bank
USA is not subject to certain regulatory restrictions relating to growth and
cross-marketing activities to which The Travelers 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 The Travelers Bank and The Travelers Bank USA:
Credit Cardholders and Total Outstandings
(outstandings in millions of dollars)
As of and for the year ended December 31,
-----------------------------------------
1994 1993 1992
---- ---- ----
Approximate total
credit cardholders 621,000 534,000 423,000
Approximate gold
credit cardholders 519,000 478,000 371,000
Total outstandings $712.5 $697.1 $538.2
Average annual yield 11.88% 11.66% 12.12%
The primary market for the banks' credit cards consists of
households with annual incomes of $40,000 and above.
The banks offer deposit-taking services (which as to The
Travelers Bank USA are limited to deposits of at least $100,000 per
account). At December 31, 1994, deposits of unaffiliated entities
were $73.5 million, as compared to $56.7 million at December 31, 1993
and $22.4 million
5
<PAGE>
at December 31, 1992. The increase in deposits in 1993 supported a balance
transfer promotion conducted by The Travelers 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 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 banks, which must undergo periodic
examination, are subject to additional regulations relating to
capitalization, leverage, reporting, dividends and permitted asset and
liability products. These 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 The Travelers
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.
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
6
<PAGE>
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. 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.
Proposed legislation has been introduced in Congress that would
modify certain laws and regulations affecting the financial services
industry, including the provisions regarding affiliations among insurance
companies, investment banks and commercial banks. The potential impact of
such legislation on the Company's businesses cannot be predicted at this
time.
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.
CORPORATE AND OTHER OPERATIONS
The Corporate and Other segment consists of corporate staff and
treasury operations, corporate investments 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 Travelers
On December 31, 1993, Travelers acquired the approximately 73% it
did not already own of old Travelers, by means of a merger of old Travelers
into Travelers. 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 Travelers at a ratio of 0.80423 of a share of Travelers
common stock for each share of old Travelers common stock. During 1994,
all of the Company's shares of Travelers common stock were exchanged for
2,655 shares of Cumulative Adjustable Rate Preferred Stock, Series Y, of
Travelers, with a liquidation value of $100,000 per share, which is
redeemable at the option of the holder at certain times and callable by
Travelers at certain times. The preferred stock had a value equal to the
market
7
<PAGE>
value of the common shares at the time the exchange was agreed upon.
Subsequently 550 shares of preferred stock were distributed to Travelers as
a dividend.
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.
At December 31, 1994, 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,
------------------------
1994 1993 1992
---- ---- ----
Certificates of
deposit 4.6% 4.4% 5.4%
Short-term borrowings (1) 4.4% 3.2% 3.8%
Long-term borrowings (2) 7.7% 8.0% 8.4%
Total borrowings 6.4% 6.3% 6.6%
____________________
(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.
8
<PAGE>
Taxation
For a discussion of tax matters affecting the Company and its
operations, see 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.
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 unaffiliated
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. The Company has reached a settlement, which has been tentatively
approved by the court, with respect to all of these claims. The settlement
will not have a material effect on the Company's financial condition, results
of operations or liquidity.
For information concerning certain purported class action
lawsuits filed against the Company and certain of its subsidiaries in May
and June 1994, see the description that appears in the second paragraph of
page 2 of the Company's filing on Form 8-K dated
9
<PAGE>
July 13, 1994, 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. The Lawrence case is stayed pending a decision by the
Supreme Court of Alabama in a case raising similar issues regarding credit
life insurance. The Erkins case was dismissed without prejudice in March
1995, and claims relating only to nonfiling insurance have been restated in
an amended complaint filed in March 1995 in the Nobels action.
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. In the opinion of the Company's management, none of
these actions is expected to have a material adverse effect 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.
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 Travelers.
10
<PAGE>
Item 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(In millions of dollars)
Year Ended December 31, 1994 1993 1992 1991 1990
----------------------- ----- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total revenues $1,598.0 $1,580.3 $1,523.5 $1,459.1 $1,270.7
Income before cumulative
effect of changes in
accounting principles (1) $221.9 $291.8 $281.2 $203.2 $165.2
Net income (1),(2) $221.9 $286.0 $263.1 $203.2 $165.2
December 31,
-------------
Total assets $8,226.8 $8,893.7 $8,039.0 $7,726.7 $7,138.4
Total debt $6,388.1 $6,232.6 $5,750.9 $5,835.5 $5,382.1
</TABLE>
--------------------------------------------
(1) Included in 1993 results are $34.9 of equity in the income of The
Travelers Corporation (old Travelers) and after-tax investment portfolio
gains of $30.3. Included in 1992 results are after-tax gains of $7.1 from
the sale of stock of subsidiaries and affiliates and $22.7 from the sale of
a common stock investment in Musicland Stores Corporation.
(2) See Note 1 of Notes to Consolidated Financial Statements for
information regarding changes in accounting principles in 1992 and 1993.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
<TABLE>
<CAPTION>
Consolidated Results of Operations
Year Ended December 31,
-----------------------------------
($ in millions) 1994 1993 1992
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $1,598.0 $1,580.3 $1,523.5
======= ======= =======
Income before cumulative effect of changes in accounting principles $221.9 $291.8 $281.2
===== ===== =====
Net income $221.9 $286.0 $263.1
===== ===== =====
</TABLE>
11
<PAGE>
Results of Operations
Commercial Credit Company's (the Company) earnings for 1994, include $7.3
million of dividend income from the securities of The Travelers Inc.
(Parent) that were exchanged for the Company's investment (excluding shares
held by American Health and Life Insurance Company) in The Travelers
Corporation (old Travelers). Earnings for 1993 include $34.9 million of
equity in the income of old Travelers and reported after-tax net investment
portfolio gains of $22.7 million in the Consumer Finance Segment and $7.6
million (after minority interest) at Gulf Insurance Company (Gulf). Also
included in earnings 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." Excluding
these items, earnings for 1994 decreased by $12.0 million from the 1993
period, reflecting primarily higher net interest costs in the Corporate
segment, offset in part by higher earnings in the Consumer Finance and
Insurance segments.
Earnings for 1992 include 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); and an after-tax charge of $18.1
million resulting from the adoption of Statement of Financial Accounting
Standards No. 109 (FAS 109), "Accounting for Income Taxes."
The most significant factors in 1993's earnings growth over 1992 were
improved performance of Consumer Finance Services and the 1993 contribution
to earnings from the equity investment in old Travelers. These were
partially offset by the 1993 minority interest in Gulf and higher corporate
expenses.
The following discussion presents in more detail each segment's
performance.
Consumer Finance Services
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1994 1993 1992
--------------------------------------------------------------------
Net Net Net
($ in millions) Revenues income Revenues income Revenues income
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consumer Finance Services (1) $1,236.2 $225.6 $1,190.6 $230.8 $1,154.8 $196.6
==============================================================================================================
</TABLE>
(1) Net income includes $22.7 and $4.3 of reported investment portfolio
gains in 1993 and 1992, respectively.
12
<PAGE>
Consumer Finance earnings before reported investment portfolio gains
increased 8% in 1994 over the prior year. The increase primarily reflects
an 11% increase in average receivables outstanding and an improvement in
net interest margins. The increase in net income and revenues in 1993
compared to 1992 reflects a 3% increase in average receivables outstanding
and a significant decline in loan losses.
Receivables increased in 1994 by $543.6 million to end the year at $6.885
billion. The increase occurred across-the-board and was highlighted by a
15% increase in personal loans. Sixty branch offices were added, bringing
the total to 828 at year end.
Consumer Finance borrows from the Company's corporate treasury operations
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 approximated 8% in 1992 and 1993 and 7.2% in 1994. For
variable rate loan products Consumer Finance is charged rates based on
prevailing short term 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 15.41% in 1994
from 15.83% in the prior year end and 16.31% in 1992, due to lower yields
on fixed rate second mortgages and the adjustable rate real estate-secured
loan product introduced at the end of 1992. Decreased cost of funds has
resulted in an improvement in net interest margins to 8.76% in 1994 from
8.44% in 1993 and 8.66% in 1992.
The allowance for losses as a percentage of net receivables was 2.64% at
year-end 1994 and 1993 compared to 2.91% at year-end 1992 reflecting the
improved credit quality of the loan portfolio.
As of, and for, the
Year Ended December 31,
-------------------------
1994 1993 1992
-------------------------
Allowance for losses as % of net
consumer finance
receivables at year end 2.64% 2.64% 2.91%
Charge-off rate for the year 2.08% 2.36% 2.84%
60 + days past due on a contractual
basis as % of gross consumer finance
receivables at year end 1.88% 2.21% 2.55%
Subsidiaries of the Company provide credit life, health and property
insurance to Consumer Finance customers. Premiums earned were $111.6
million in 1994, $84.8 million in 1993 and $86.1 million in 1992. The
increase in 1994 premiums is the result of the increase in receivables and
expanded availability of certain products in additional states, as well as
the
13
<PAGE>
reinsurance by the Company in 1994 of business previously insured by non-
affiliated companies.
Outlook - Consumer Finance is affected by the interest rate environment and
general economic conditions. In a rising interest rate environment, net
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 CCC to reflect the Company's
overall higher cost of funds.
Asset Quality - Consumer Finance assets totaled approximately $7.7 billion
at December 31, 1994, of which $6.7 billion, or 87%, 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 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 $555 million were
investments of insurance subsidiaries, including $463 million of fixed-
income securities and $61 million of short-term investments with a weighted
average quality rating of Aa2.
Insurance Services
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1994 1993 1992
---------------------------------------------------------------------
Net Net Net
($ in millions) Revenues income Revenues income Revenues income
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gulf property and casualty (1) $314.7 $29.6 $314.5 $ 44.9 $322.2 $57.9
Minority Interest - Gulf - (14.8) - (22.5) - -
Other 2.3 2.3 5.6 (0.2) 5.0 (0.5)
--------------------------------------------------------------------------------------------------------------
Total Insurance Services $317.0 $17.1 $320.1 $ 22.2 $327.2 $57.4
==============================================================================================================
</TABLE>
14
<PAGE>
(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.
The Insurances Services segment includes the operations of Gulf and the
non-affiliated insurance business of AHL. As discussed in Note 2 of Notes
to Consolidated Financial Statements on December 30, 1994 the Company sold
its 50% interest in Commercial Insurance Resources, Inc. (CIRI), the parent
of Gulf Insurance Company (Gulf), to an affiliate, The Travelers Indemnity
Company for $150 million.
Operating earnings (before reported portfolio gains) for the 1994 period
for Gulf remained about even with the prior year period, and continue to
reflect emphasis on the higher margin specialty businesses, which
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. Gulf's combined
ratio was 99.1% for 1994 versus 95.9% in 1993.
Earnings from Gulf in 1993 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. Notwithstanding a
$2 million after-tax provision for losses from Hurricane Andrew in the
third quarter of 1992, Gulf's 1992 earnings improved over 1991, as a result
of the growth of the specialty business.
Corporate and Other
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
1994 1993 1992
----------------------------------------------------------------------------------
Net Net Net
($ in millions) Revenues income Revenues income Revenues income
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Corporate and Other $(20.8) $ 3.9 $20.1
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 $44.8 $(20.8) $69.6 $38.8 $41.5 $27.2
==================================================================================================================
</TABLE>
15
<PAGE>
The decline in Corporate and Other net income in 1994 compared to 1993
is primarily attributable to increases in interest costs borne at the
corporate level.
Corporate and Other in 1993 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 compared to 1992.
The 1993 equity in income of old Travelers of $34.9 million 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.
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, 1994, the Company had unused credit availability of $3.010 billion
consisting of $2.280 billion under 5-year revolving credit facilities and
$730 million under 364-day revolving credit facilities. 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 1994 the Parent, the Company and The Travelers Insurance Company
(TIC) entered into an agreement with a syndicate of banks to provide $1.5
billion of revolving credit, to be allocated to any of the Parent, the
Company or TIC. The participation of TIC in this agreement is limited to
$300 million. The revolving credit facility consists of a 364-day
revolving credit facility in the amount of $300 million and a 5-year
revolving credit facility in the amount of $1.2 billion. At December 31,
1994, $650 million was allocated to the Company and $200 million to TIC.
During 1994 and through March 3, 1995, CCC completed the following debt
offerings leaving $950 million available for debt offerings under its shelf
registration statement:
- 7 7/8% Notes due July 15, 2004 $200 million
- 8 1/4% Notes due November 1, 2001 $300 million
- 7 7/8% Notes due February 1, 2025 $200 million
- 7 3/4% Notes due March 1, 2005 $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, 1994, the Company would have
been able to remit $270.3 million to the Parent under its most restrictive
covenants or regulatory requirements.
16
<PAGE>
Recent Accounting Standards
FAS 114 and FAS 118
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan," and Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures," describe how impaired loans should be
measured when determining the amount of a loan loss accrual. These
Statements also amend existing guidance on the measurement of restructured
loans in a troubled debt restructuring involving a modification of terms.
The adoption of these Statements effective January 1, 1995 will not have a
material effect on the Company's results of operations or financial
position.
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.
17
<PAGE>
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 31, 1994, the Company filed a Current Report on
Form 8-K, dated October 31, 1994, reporting under Item 5
thereof the results of its operations for the three months and
nine months ended September 30, 1994, and certain other selected
financial data.
On November 8, 1994, the Company filed a Current Report on
Form 8-K, dated November 3, 1994, filing certain exhibits
under Item 7 thereof relating to the sale of the Company's 8 1/4%
Notes due November 1, 2001.
On December 7, 1994, the Company filed a Current Report on
Form 8-K, dated November 30, 1994, reporting under Item 5
thereof the proposed sale of the Company's interest in the
parent of Gulf Insurance Company to The Travelers Indemnity
Company.
No other reports on Form 8-K have been filed by the Company
during the last quarter of the period covered by this report;
however, on January 18, 1995, the Company filed a Current
Report on Form 8-K, dated January 17, 1995, reporting under
Item 5 thereof the results of its operations for the three
months and year ended December 31, 1994, and certain other
18
<PAGE>
selected financial data; on January 20, 1995, the Company
filed a Current Report on Form 8-K, dated January 18, 1995,
filing certain exhibits under Item 7 thereof relating to the
Company's Medium-Term Note Program; on February 7, 1995, the
Company filed a Current Report on Form 8-K, dated February 3,
1995, filing certain exhibits under Item 7 thereof relating to
the sale of the Company's 7 7/8% Notes due February 1, 2025; on
February 27, 1995, the Company filed a Current Report on Form
8-K, dated February 23, 1995, filing certain exhibits under
Item 7 thereof relating to the sale of the Company's 7 3/4% Notes
due March 1, 2005; and on March 16, 1995, the Company filed a
Current Report on Form 8-K, dated March 14, 1995, filing
certain exhibits under Item 7 thereof relating to the sale of
the Company's 7 3/8% Notes due March 15, 2002.
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
<S> <C> <C>
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 Securities and
Exchange Commission upon request.
10.01 $1,760,000,000 Five Year Credit Agreement dated as of December 16, 1994 Electronic
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 Charges. Electronic
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 LLP, Independent Certified Public Accountants. Electronic
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
<S> <C> <C>
27.01 Financial Data Schedule. Electronic
99.01 The second paragraph of page 2 of the Company's Current Report on Form 8-K Electronic
dated July 28, 1992 (File No. 1-6594).
99.02 The second paragraph of page 2 of the Company's Current Report on Form 8-K Electronic
dated July 13, 1994 (File No. 1-6594).
</TABLE>
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.
21
<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, 1995.
COMMERCIAL CREDIT COMPANY
(Registrant)
By: /s/ Robert B. 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, 1995.
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
22
<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, 1994, 1993 and 1992 F-3
Consolidated Statement of Financial Position at
December 31, 1994 and 1993 F-4
Consolidated Statement of Changes in Stockholder's
Equity for the year ended December 31, 1994, 1993 and 1992 F-5
Consolidated Statement of Cash Flows for the year ended
December 31, 1994, 1993 and 1992 F-6
Notes to Consolidated Financial Statements F-7 - F-23
Schedules:
Schedule I - Condensed Financial Information of
Registrant (Parent Company only) F-24 - F-26
*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, 1994 and
1993, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1994 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 method of accounting for certain investments in debt
and equity securities in 1994. Also, 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 LLP
New York, New York
January 17, 1995
F-2
<PAGE>
<TABLE><CAPTION>
COMMERCIAL CREDIT COMPANY and SUBSIDIARIES
Consolidated Statement of Income
(In millions of dollars)
Year Ended December 31, 1994 1993 1992
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Finance related interest and other charges $1,029.8 $ 953.5 $ 952.7
Insurance premiums 387.6 342.1 326.7
Interest and dividends 75.4 69.2 79.5
Equity in income of old Travelers - 38.0 -
Other income 105.2 177.5 164.6
-----------------------------------------------------------------------------------------------------
Total revenues 1,598.0 1,580.3 1,523.5
-----------------------------------------------------------------------------------------------------
Expenses
Interest 402.8 363.7 369.7
Policyholder benefits and claims 238.1 216.2 210.4
Insurance underwriting, acquisition and operating 104.9 87.0 85.2
Non-insurance compensation and benefits 183.9 164.1 153.5
Provision for credit losses 151.6 133.9 165.3
Other operating 152.8 147.5 122.6
-----------------------------------------------------------------------------------------------------
Total expenses 1,234.1 1,112.4 1,106.7
-----------------------------------------------------------------------------------------------------
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 363.9 467.9 428.8
Provision for income taxes 127.2 153.6 147.6
-----------------------------------------------------------------------------------------------------
Income before minority interest and cumulative
effect of changes in accounting principles 236.7 314.3 281.2
Minority interest, net of income taxes (14.8) (22.5) -
Cumulative effect of changes in accounting principles,
net of income taxes - (5.8) (18.1)
-----------------------------------------------------------------------------------------------------
Net income $ 221.9 $ 286.0 $ 263.1
======================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
<TABLE><CAPTION>
COMMERCIAL CREDIT COMPANY and SUBSIDIARIES
Consolidated Statement of Financial Position
(In millions of dollars)
December 31, 1994 1993
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 23.6 $ 25.6
Investments:
Fixed maturities:
Available for sale, at market in 1994 and amortized cost in 1993 673.4 752.5
Held to maturity, at amortized cost - 33.7
Equity securities (1994, cost $20.7; 1993, market $368.5) 19.6 300.0
Mortgage loans 173.0 205.1
Short-term and other 36.6 246.7
---------------------------------------------------------------------------------------------------------------------
Total investments 902.6 1,538.0
---------------------------------------------------------------------------------------------------------------------
Consumer finance receivables 6,927.7 6,383.1
Allowance for losses (181.9) (167.5)
---------------------------------------------------------------------------------------------------------------------
Net consumer finance receivables 6,745.8 6,215.6
Other receivables 216.4 560.9
Deferred policy acquisition costs 18.3 26.7
Cost of acquired businesses in excess of net assets 102.1 105.8
Other assets 218.0 421.1
---------------------------------------------------------------------------------------------------------------------
Total assets $8,226.8 $8,893.7
=====================================================================================================================
Liabilities
Certificates of deposit $ 73.5 $ 56.7
Short-term borrowings 2,304.6 2,206.1
Long-term debt 4,010.0 3,969.8
---------------------------------------------------------------------------------------------------------------------
Total debt 6,388.1 6,232.6
Insurance policy and claims reserves 386.5 894.7
Accounts payable and other liabilities 339.8 655.7
---------------------------------------------------------------------------------------------------------------------
Total liabilities 7,114.4 7,783.0
---------------------------------------------------------------------------------------------------------------------
Stockholder's equity
Common stock ($.01 par value; authorized shares: 1,000; share issued: 1) - -
Additional paid-in-capital 163.5 94.7
Retained earnings 974.5 1,002.6
Unrealized gain (loss) on investment securities and other (25.6) 13.4
---------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 1,112.4 1,110.7
---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $8,226.8 $8,893.7
=====================================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
F-4
<PAGE>
<TABLE><CAPTION>
COMMERCIAL CREDIT COMPANY and SUBSIDIARIES
Consolidated Statement of Changes in Stockholder's Equity
(In millions of dollars)
Year ended December 31, 1994 1993 1992
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock
Balance, beginning and end of year $ - $ - $ -
---------------------------------------------------------------------------------------------------------------
Additional Paid-In Capital
Balance, beginning of year 94.7 105.9 105.9
Capital contribution - 1.2 -
Adjustments relating to exchange of
investment in Parent securities 58.6 - -
Adjustment relating to sale of Gulf 10.2 - -
Adjustments relating to exchange of investment
in old Travelers, net - (12.4) -
---------------------------------------------------------------------------------------------------------------
Balance, end of year 163.5 94.7 105.9
---------------------------------------------------------------------------------------------------------------
Retained Earnings
Balance, beginning of year 1,002.6 926.6 943.5
Net income 221.9 286.0 263.1
Cash dividends (195.0) (210.0) (280.0)
Other dividends (55.0) - -
---------------------------------------------------------------------------------------------------------------
Balance, end of year 974.5 1,002.6 926.6
---------------------------------------------------------------------------------------------------------------
Unrealized Gain (Loss) on Investment Securities and Other
Balance, beginning of year 13.4 2.8 0.7
Net change in unrealized gains and losses
on investment securities (39.2) 10.8 2.3
Translation adjustments, net .2 (0.2) (0.2)
---------------------------------------------------------------------------------------------------------------
Balance, end of year (25.6) 13.4 2.8
---------------------------------------------------------------------------------------------------------------
Total stockholder's equity $1,112.4 $1,110.7 $1,035.3
===============================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
F-5
<PAGE>
<TABLE><CAPTION>
COMMERCIAL CREDIT COMPANY and SUBSIDIARIES
Consolidated Statement of Cash Flows
(In millions of dollars)
Year ended December 31, 1994 1993 1992
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Income before income taxes, minority interest and cumulative effect of change in
accounting principles $ 363.9 $ 467.9 $ 428.8
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 61.0 54.7 54.8
Additions to deferred policy acquisition costs (77.6) (54.3) (55.2)
Provision for credit losses 151.6 133.9 165.3
Undistributed equity earnings (1.9) (26.8) (3.0)
Changes in insurance policy and claims reserves 131.3 51.2 11.6
Changes in other assets and liabilities, net 7.3 60.8 16.5
Other, net 4.0 (73.4) (78.1)
------------------------------------------------------------------------------------------------------------------
Net cash provided by operations 639.6 614.0 540.7
Income taxes paid (149.0) (136.7) (119.1)
------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 490.6 477.3 421.6
------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Net change in credit card receivables (29.7) (174.9) (85.9)
Loans originated or purchased (2,788.9) (2,672.8) (2,067.3)
Loans repaid or sold 2,093.8 2,108.0 2,020.4
Purchases of investments (664.2) (1,066.8) (800.7)
Proceeds from sales of investments 653.9 992.1 716.2
Proceeds from maturities of investments 45.1 34.0 13.9
Business divestments (acquisitions) 150.0 (11.3) 10.4
Redemption of the Parent's redeemable preferred stock 100.0 100.0 100.0
Other, net (13.1) (53.7) 22.7
------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (453.1) (745.4) (70.3)
------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Dividends paid (195.0) (210.0) (280.0)
Issuance of long-term debt 500.0 950.0 550.0
Payments and redemptions of long-term debt (459.8) (222.1) (732.1)
Net change in short-term borrowings 98.5 (280.5) 193.2
Net change in certificates of deposit 16.8 34.3 (95.7)
------------------------------------------------------------------------------------------------------------------
Net cash (used in) financing activities (39.5) 271.7 (364.6)
------------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents (2.0) 3.6 (13.3)
Cash and cash equivalents at beginning of period 25.6 22.0 35.3
------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 23.6 $ 25.6 $ 22.0
------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 400.7 $ 346.9 $ 362.1
Value of assets exchanged for shares of old Travelers $ - $ - $ 150.0
==================================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
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 115. Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards (FAS) 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. Debt securities
that the Company has the positive intent and ability to hold to maturity
have been classified as "held to maturity" and have been reported at
amortized cost. Investment securities that are not classified as "held
to maturity" have been classified as "available for sale" and are
reported at fair value, with unrealized gains and losses, net of income
taxes, charged or credited directly to stockholder's equity.
Previously, securities classified as available for sale were carried at
the lower of aggregate cost or market value. Initial adoption of this
standard resulted in a net increase of $80.8 (net of taxes) to net
unrealized gains on investment securities which is included in
stockholder's equity.
FAS 106. In 1993, the Company adopted FAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" (FAS 106).
As required, 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). Ongoing net periodic postretirement
benefit costs are not material.
FAS 112. In 1993, the Company adopted FAS 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. For the Company
these benefits are principally disability-related benefits and
severance. 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).
FAS 113. In the first quarter of 1993, the Company adopted FAS No. 113,
"Accounting and Reporting for Reinsurance of Short-Duration and Long-
Duration Contracts" (FAS 113). FAS 113
F-7
<PAGE>
Notes to Consolidated Financial Statements (continued)
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. Adoption of FAS 113 did not have an
impact on the Company's earnings; however, assets and liabilities
increased by like amounts. See Note 7 for additional reinsurance
disclosures.
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 1994
and 1993 represents the old Travelers' interest in Gulf Insurance
Company (Gulf). Significant intercompany transactions and balances have
been eliminated.
Certain reclassifications have been made to prior years' financial
statements to conform to current year's presentation.
Cash and cash equivalents include cash on hand 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. Equity
securities include common and non-redeemable preferred stocks. Fixed
maturities classified as "held to maturity" represent securities that
the Company has both the ability and the intent to hold until maturity
and are carried at amortized cost. Fixed maturity securities classified
as "available for sale" and equity securities are carried at market
values that are based primarily on quoted market prices. The difference
between amortized cost and market values of such securities net of
applicable income taxes is reflected as a component of stockholders'
equity. Provisions are made to write down the value of fixed maturity
securities for declines in value that are other than temporary.
Mortgage loans and short-term investments are carried at cost, which
approximates fair value. Realized gains and losses on sales of investments
are included in other income on a specific identification basis.
At December 31, 1993 noninsurance entities carried 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 have been provided for in accordance with the provisions of
FAS No. 109, "Accounting for Income Taxes" (FAS 109), which was adopted
effective January 1, 1992. The Company and its wholly owned domestic
non-life insurance subsidiaries file a consolidated federal income tax
return with the Parent. A life insurance subsidiary files a separate
federal income tax return. 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
subsidiary's retained earnings designated as "policyholders' surplus,"
because such taxes will become payable only to the extent
F-8
<PAGE>
Notes to Consolidated Financial Statements (continued)
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 (subject to a tax effect of $13.8) at December 31,
1994.
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 and FAS 118
FAS No. 114, "Accounting by Creditors for Impairment of a Loan," and FAS
No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures," describe how impaired loans should be
measured when determining the amount of a loan loss accrual. These
Statements also amend existing guidance on the measurement of
restructured loans in a troubled debt restructuring involving a
modification of terms. The adoption of these statements effective
January 1, 1995, will not have a material effect on results of
operations or financial position.
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
F-9
<PAGE>
Notes to Consolidated Financial Statements (continued)
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 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 of Subsidiaries and Affiliates
---------------------------------------------
On December 30, 1994 the Company sold its 50% interest in Commercial
Insurance Resources, Inc. (CIRI), the parent of Gulf Insurance Company
(Gulf), to an affiliate, The Travelers Indemnity Company for $150
million. This amount exceeded the Company's investment by $10.2 and
such excess was treated as an adjustment to additional-paid-in capital.
In December 1992, the Parent acquired approximately 27% of The Travelers
Corporation (old Travelers) common stock. As a part of the transaction,
the Company acquired 8,947,367 shares of old Travelers common stock in
exchange for 50% of the common stock of CIRI and $20 cash. As a result
of the exchange of CIRI stock the Company recorded an after-tax gain of
$11.1 ($17.0 pre-tax), which is reflected in the 1992 Consolidated
Statement of Income. Also during 1992, the
F-10
<PAGE>
Notes to Consolidated Financial Statements (continued)
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.
3. Business Segment Information
----------------------------
The Company, through its subsidiaries, is primarily engaged in the
following businesses: Consumer Finance Services and Insurance Services.
<TABLE><CAPTION>
Revenues 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Consumer Finance Services $1,236.2 $1,190.6 $1,154.8
Insurance Services 317.0 320.1 327.2
Corporate and Other 44.8 69.6 41.5
------- ------- -------
$1,598.0 $1,580.3 $1,523.5
======= ======= =======
Income before income taxes, minority
interest and cumulative effect of
changes in accounting principles
Consumer Finance Services $ 354.1 $ 358.3 $ 303.4
Insurance Services 42.3 63.1 83.2
Corporate and Other (32.5) 46.5 42.2
------- ------- -------
$ 363.9 $ 467.9 $ 428.8
======= ======= =======
Income before cumulative effect of changes
in accounting principles
Consumer Finance Services $ 225.6 $ 230.8 $ 196.6
Insurance Services (after minority
interest of $14.8 and $22.5 in 1994 and 1993) 17.1 22.2 57.4
Corporate and Other (20.8) 38.8 27.2
------- ------- -------
$ 221.9 $ 291.8 $ 281.2
======= ======= =======
Identifiable assets
Consumer Finance Services $7,640.2 $7,171.7 $6,406.8
Insurance Services 33.0 906.9 884.7
Corporate and Other 553.6 815.1 747.5
------- ------- -------
$8,226.8 $8,893.7 $8,039.0
======= ======= =======
</TABLE>
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) and its affiliates.
Insurance Services includes the operations of Gulf through its sale on
December 30, 1994 (See Note 2). Gulf provides 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. Also included in the
segment is the non-affiliated insurance business of AHL.
F-11
<PAGE>
Notes to Consolidated Financial Statements (continued)
Corporate and Other consists of corporate staff and treasury operations,
a hotel mortgage investment 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.
Cumulative effect of changes in accounting principles, and 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.
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, (see Note 2) 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 and included in "equity securities". During
1994, all of the Company's shares of the Parent's common stock were
exchanged for 2,655 shares of Cumulative Adjustable Rate Preferred Stock
Series Y of the Parent, with a liquidation value of $100,000 per share,
which is redeemable at the option of the holder at certain times and
callable by the Parent at certain times. The preferred stock had a
value equal to the market value of the common shares at the time the
exchange was agreed upon. The market value exceeded the Company's
carrying value by $58.6 and such excess was treated as an adjustment to
additional-paid-in capital. Subsequently 550 shares of preferred stock
were distributed to the Parent as a dividend. At December 31, 1994,
this investment is included in "fixed maturities - available for sale"
and is reflected at a carrying amount of $210.5. During 1994 the
Company recorded $8.7 of dividend income from these investments in
common and preferred stock.
F-12
<PAGE>
Notes to Consolidated Financial Statements (continued)
The amortized cost and estimated market values of investments in fixed
maturities were as follows:
<TABLE><CAPTION>
---------------------------------------
Amortized Gross Market
Unrealized
------------------
December 31, 1994 Cost Gains Losses Value
----------------- ---------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities-principally
obligations of U.S. Government agencies $177.6 $ - $(14.0) $163.6
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies 210.1 .5 (22.6) 188.0
Obligations of states and political subdivisions 35.9 - (2.1) 33.8
Corporate securities 290.0 1.9 (3.9) 288.0
-----------------------------------------
Total $713.6 $2.4 $(42.6) $673.4
=========================================
<CAPTION>
-----------------------------------------
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>
The amortized cost and estimated market value at December 31, 1994 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.
F-13
<PAGE>
Notes to Consolidated Financial Statements (continued)
Estimated
Amortized Market
Cost Value
---------- ---------
Due in one year or less $ 11.8 $ 10.9
Due after one year through five years 59.0 56.7
Due after five years through ten years 146.1 133.8
Due after ten years 108.6 97.9
----- -----
325.5 299.3
Mortgage-backed securities 177.6 163.6
Investment in Series Y Preferred Stock of the
Parent 210.5 210.5
----- -----
$713.6 $673.4
===== =====
Realized gains and losses on fixed maturities for the year ended
December 31 were as follows:
1994 1993 1992
---- ---- ----
Realized gains
Pre-tax $ 3.1 $67.3 $22.2
---- ---- ----
After-tax 2.0 43.7 14.7
---- ---- ----
Realized losses
Pre-tax $ .4 $0.2 $0.2
---- --- ---
After-tax .3 0.1 0.1
---- --- ---
5. Consumer Finance Receivables
----------------------------
Consumer finance receivables, net of unearned finance charges
of $673.7 and $613.0 at December 31, 1994 and 1993,
respectively, consisted of the following:
1994 1993
---- --------
Real estate-secured loans $2,844.7 $2,705.8
Personal loans 2,874.7 2,495.2
Credit cards 712.5 697.1
Sales finance and other 453.5 443.7
------- --------
Consumer finance receivables 6,885.4 6,341.8
Accrued interest receivable 42.3 41.3
Allowance for credit losses (181.9) (167.5)
------- -------
Net consumer finance receivables $6,745.8 $6,215.6
======= =======
F-14
<PAGE>
Notes to Consolidated Financial Statements (continued)
An analysis of the allowance for credit losses on consumer finance
receivables at December 31, was as follows:
<TABLE><CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Balance, January 1 $ 167.5 $ 168.6 $ 166.8
Provision for credit losses 151.6 133.9 165.3
Amounts written off (162.9) (163.1) (184.8)
Recovery of amounts previously written off 25.7 22.7 21.3
Allowance on receivables purchased -. 5.4 -.
------- ------- -------
Balance, December 31 $ 181.9 $ 167.5 $ 168.6
======= ======= =======
Net outstandings $6,885.4 $6,341.8 $5,787.7
======= ======= =======
Ratio of allowance for credit losses to net outstandings 2.64% 2.64% 2.91%
======= ======= =======
</TABLE>
Contractual maturities of receivables before deducting unearned finance
charges and excluding accrued interest were as follows:
<TABLE><CAPTION>
Receivables
Outstanding Due
December 31, Due Due Due Due After
1994 1995 1996 1997 1998 1998
------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Real estate-secured loans $2,907.7 $ 184.7 $ 190.6 $ 199.9 $206.0 $2,126.5
Personal loans 3,400.4 1,046.3 930.4 716.8 414.3 292.6
Credit cards 710.7 62.0 57.0 52.0 47.0 492.7
Sales finance and other 540.3 245.3 132.8 66.6 36.5 59.1
------- ------- ------- ------- ------ -------
Total $7,559.1 $1,538.3 $1,310.8 $1,035.3 $703.8 $2,970.9
======= ======= ======= ======= ===== =======
Percentage 100% 20% 18% 14% 9% 39%
======= ======= ======= ======= ===== =======
Contractual terms average 12 years on real estate-secured loans and 4
years on 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.
The Company has a geographically diverse consumer finance loan
portfolio. At December 31, the distribution by state was as follows:
1994 1993
-------- ------
Ohio 13% 13%
North Carolina 10% 10%
South Carolina 7% 7%
Pennsylvania 6% 6%
Maryland 5% 6%
California 5% 5%
Texas 5% 5%
All other states* 49% 48%
---- ----
Total 100% 100%
==== ====
* None of the remaining states individually accounts for more than 4% of total
consumer finance receivables.
F-15
<PAGE>
Notes to Consolidated Financial Statements (continued)
The estimated fair value of the consumer finance receivables portfolio
depends on the methodology selected to value such portfolio (i.e., exit
value versus entry value). 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, 1994 is approximately
$618 above the recorded carrying 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, 1994 is approximately equal
to the aggregate carrying value due to the increase in variable rate
receivables whose rates are periodically reset and the fact that the
average yield on fixed rate receivables is approximately equal to that
on new fixed rate loans made at year end 1994. Fair values included in
Note 11 are based on the exit value methodology.
6. Debt
----
At December 31, short-term borrowings consisted of commercial paper
outstanding with weighted average interest rates as follows:
</TABLE>
<TABLE><CAPTION>
1994 1993
---------------------------------- ---------------------------------
Outstanding Interest Rate Outstanding Interest Rate
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Commercial Credit Company $2,304.6 5.89% $2,206.1 3.34%
======== ===== ======== =====
</TABLE>
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.
In 1994 the Parent, the Company and The Travelers Insurance Company
(TIC) entered into an agreement with a syndicate of banks to provide
$1,500 of revolving credit, to be allocated to any of the Parent, the
Company or TIC. The participation of TIC in this agreement is limited
to $300. The revolving credit facility consists of a 364-day revolving
credit facility in the amount of $300 and a 5-year revolving credit
facility in the amount of $1,200. At December 31, 1994, $650 was
allocated to the Parent, $650 was allocated to the Company and $200 was
allocated to TIC.
At December 31, 1994, the Company also had committed and available
revolving credit facilities on a stand alone basis of $2,360, of which
$600 expires in 1995 and $1,760 expires in 1999.
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, 1994, the Company
would have been able to remit $270.3 to the Parent under its most
F-16
<PAGE>
Notes to Consolidated Financial Statements (continued)
restrictive covenants or regulatory requirements.
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:
1994 1993
---- ----
8.29% to 12.85% Medium-Term Notes due 1994-1995 $ 10.0 $ 54.8
8% Notes due 1994 - 100.0
12.7% Notes due 1994 - 15.0
6.95% Notes due 1994 - 200.0
8.45% Notes due 1994 - 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 100.0 100.0
5 1/2% Notes due 1998 100.0 100.0
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 100.0 100.0
5 3/4% Notes due 2000 200.0 200.0
6 1/8% Notes due 2000 100.0 100.0
6.00% Notes due 2000 150.0 150.0
8.25% Notes due 2001 300.0 -
5.9% Notes due 2003 200.0 200.0
7.875% Notes due 2004 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
------- -------
$4,010.0 $3,969.8
======= =======
F-17
<PAGE>
Notes to Consolidated Financial Statements (continued)
Principal payments due on debt for the next five years are as follows:
1995 $810
1996 $450
1997 $350
1998 $300
1999 $350
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, 1994 these fair values were approximately $3,926.
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:
<TABLE><CAPTION>
Ceded to
Gross Other Net
Amount Companies Amount
------ --------- ------
<S> <C> <C> <C>
Year ended December 31, 1994
----------------------------
Premiums
Credit life insurance $ 45.7 $ (7.6) $ 38.1
Credit accident and health insurance 97.8 (48.9) 48.9
Property and casualty insurance 596.4 (295.8) 300.6
----- ------ -----
$739.9 $(352.3) $387.6
===== ====== =====
Claims $374.1 $(136.0) $238.1
===== ====== =====
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
===== ====== =====
</TABLE>
F-18
<PAGE>
Notes to Consolidated Financial Statements (continued)
8. Income Taxes
------------
Income taxes have been provided in accordance with the provisions of FAS
109, which was adopted effective January 1, 1992.
The provision for income taxes (before minority interest) for the year
ended December 31 was as follows:
1994 1993 1992
----- ----- -----
Current:
Federal $121.4 $128.7 $113.6
Foreign 4.6 2.5 2.0
State 8.9 7.1 6.0
----- ----- -----
134.9 138.3 121.6
----- ----- -----
Deferred:
Federal (2.4) 18.0 27.2
Foreign (4.4) (2.2) (1.8)
State (0.9) (0.5) 0.6
----- ----- -----
(7.7) 15.3 26.0
----- ----- -----
Total $127.2 $153.6 $147.6
===== ===== =====
Deferred income taxes at December 31 related to the following:
1994 1993
---- ----
Deferred tax assets:
Bad debt reserves $65.3 $ 62.8
Differences in computing
policy reserves 14.7 24.0
Investments 13.2 2.4
Other deferred tax assets 25.2 22.3
----- -----
118.4 111.5
----- -----
Deferred tax liabilities:
Israeli leasing transactions (3.9) (9.3)
Fixed asset depreciation (13.8) (11.7)
Deferred policy acquisition costs (4.5) (7.8)
Other deferred tax liabilities (29.3) (28.1)
----- -----
(51.5) (56.9)
----- -----
Total $ 66.9 $ 54.6
===== =====
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 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:
1994 1993 1992
---- ---- ----
Federal statutory rate 35.0% 35.0% 34.0%
Equity in income of old Travelers - (1.6) -
Other, net (0.1) (0.6) 0.4
---- ---- ----
Effective income tax rate 34.9% 32.8% 34.4%
==== ==== ====
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, 1994 the Company would be able to remit
$270.3 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, 1994 and 1993 was $154.1 and
$242.7, 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 1994 and 1993, for the years ended December 31, 1994, 1993
and 1992 was $58.0, $64.4 and $107.4, respectively.
10. Pension 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. 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 $2.7, $2.1 and $1.3 in 1994, 1993 and 1992,
respectively.
The Company also has an unfunded noncontributory supplemental retirement
plan that covers certain executives and key employees. Pension cost
related to this plan was $1.0, $1.2 and $0.8 in 1994, 1993 and 1992,
respectively.
11. Fair Value of Financial Instruments
-----------------------------------
The following table summarizes the fair value and carrying amount of the
Company's financial instruments at December 31, 1994 and 1993. 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 as disclosed further in various Notes to the Consolidated
Financial Statements. Disclosed fair values for financial instruments
do not reflect any premium or discount that could
F-20
<PAGE>
Notes to Consolidated Financial Statements (continued)
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.
<TABLE><CAPTION>
1994 1993
---------------------------- -----------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Assets:
Investments $ 902.6 $ 902.6 $1,538.0 $1,639.4
Net consumer finance receivables 6,745.8 7,364.0 6,215.6 6,831.0
Liabilities:
Long-term debt $4,010.0 $3,926.0 $3,969.8 $4,234.0
</TABLE>
12. Lease Commitments and Other Financial Instruments
-------------------------------------------------
Rentals
Rental expense (principally for offices and computer equipment) was
$32.8, $33.7 and $35.0 for the years ended December 31, 1994, 1993 and
1992, respectively.
At December 31, 1994, future minimum annual rentals under noncancellable
operating leases were as follows:
1995 $16.4
1996 13.4
1997 8.6
1998 5.2
1999 3.1
Thereafter 4.1
-----
$50.8
====
Credit Cards
The Company provides bank and private label credit card services through
its subsidiaries. These services are provided to individuals and to
affinity groups nationwide. At December 31, 1994 and 1993 total credit
lines available to credit cardholders were $5,423 and $4,263, of which
$820 and $790 were utilized, respectively.
13. Related Party Transactions
--------------------------
During the fourth quarter of 1994, an affiliate acquired for cash a
$50.0 interest in a real estate mortgage loan held by the Company;
the transfer was made at the Company's recorded carrying value of the
mortgage loan.
F-21
<PAGE>
Notes to Consolidated Financial Statements (continued)
In addition to the securities of the Parent discussed in Note 4 included
in other assets at December 31, 1993 is an investment in the Series Z
Redeemable Preferred Stock of the Parent amounting to $100.0. The
Company recorded $1.5, $4.0 and $8.0 for the years ended December 31,
1994, 1993 and 1992, respectively, of dividend income from the Parent on
this investment of which $100.0 was repurchased in each of the years
1994, 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 up to a maximum of $100.0. 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 a material adverse effect on
its results of operations, financial condition or liquidity.
F-22
<PAGE>
Notes to Consolidated Financial Statements (continued)
14. Quarterly Financial Data (unaudited)
------------------------------------
<TABLE><CAPTION>
1994 1993
-------------------------------------------- -----------------------------------------------
First Second Third Fourth Total First Second Third Fourth Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $384.3 $392.5 $405.1 $416.1 $1,598.0 $389.7 $378.8 $423.8 $388.0 $1,580.3
Total expenses 297.1 300.7 310.3 326.0 1,234.1 275.8 278.2 272.3 286.1 1,112.4
Income before income
taxes, and minority
interest and cumulative
effect of changes in
accounting principles 87.2 91.8 94.8 90.1 363.9 113.9 100.6 151.5 101.9 467.9
Provision for income taxes 30.9 31.8 33.1 31.4 127.2 38.6 33.9 53.6 27.5 153.6
Minority interest, net of
income taxes (3.7) (3.8) (3.9) (3.4) (14.8) (8.2) (4.0) (6.7) (3.6) (22.5)
----- ----- ----- ----- ----- ------ ------ ------- ----- ------
Net income 52.6 56.2 57.8 55.3 221.9 67.1 62.7 91.2 70.8 291.8
Cumulative effect of
changes in
accounting principle -. -. -. -. -. (5.8) -. -. -. (5.8)
----- ----- ----- ----- ----- ------ ------ ------ ----- -------
Net income $ 52.6 $ 56.2 $ 57.8 $ 55.3 $221.9 $ 61.3 $ 62.7 $ 91.2 $ 70.8 $ 286.0
===== ===== ===== ===== ===== ====== ====== ====== ===== =======
</TABLE>
F-23
<PAGE>
<TABLE><CAPTION>
SCHEDULE I
COMMERCIAL CREDIT COMPANY
(Parent Company Only)
Condensed Financial Information of Registrant
(In millions of dollars)
Condensed Statement of Income
Year Ended December 31, 1994 1993 1992
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Equity in income of old Travelers $ - $ 38.0 $ -
Gain on sales of stock of subsidiary and affiliate - - 12.0
Other income 396.8 383.2 423.5
-----------------------------------------------------------------------------------------------------
Total 396.8 421.2 435.5
-----------------------------------------------------------------------------------------------------
Expenses
Interest 407.3 364.2 368.9
Other 22.1 22.2 13.0
-----------------------------------------------------------------------------------------------------
Total 429.4 386.4 381.9
-----------------------------------------------------------------------------------------------------
Pre-tax (loss) income (32.6) 34.8 53.6
Income tax benefit (expense) 12.2 (3.3) (18.5)
-----------------------------------------------------------------------------------------------------
Net (loss) income before equity in net income of
subsidiaries (20.4) 31.5 35.1
Equity in net income of subsidiaries 242.3 260.3 246.1
Cumulative effect of changes in accounting principles
(including $5.8 in 1993 and $18.1 in 1992, respectively,
applicable to subsidiaries) - (5.8) (18.1)
-----------------------------------------------------------------------------------------------------
Net income $221.9 $286.0 $263.1
=====================================================================================================
</TABLE>
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto.
F-24
<PAGE>
<TABLE><CAPTION>
SCHEDULE I
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, 1994 1993
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investment in securities of the Parent $ 179.2 $ 278.4
Investment in mortgage loans 161.1 194.4
Notes and accounts receivable from subsidiaries-eliminated
in consolidation 6,515.9 6,035.6
Investment in subsidiaries at cost plus equity in net
earnings-eliminated in consolidation 710.6 832.0
Other 37.8 128.1
--------------------------------------------------------------------------------------------------------------------
Total assets $7,604.6 $7,468.5
=====================================================================================================================
Liabilities
Short-term borrowings $2,304.6 $2,206.1
Long-term debt 4,010.0 3,969.8
Accrued expenses and other liabilities 177.6 181.9
---------------------------------------------------------------------------------------------------------------------
Total liabilities 6,492.2 6,357.8
---------------------------------------------------------------------------------------------------------------------
Stockholder's equity
Common stock ($.01 par value; authorized shares: 1,000; share issued: 1) - -
Additional paid-in capital 163.5 94.7
Retained earnings 974.5 1,002.6
Other (25.6) 13.4
---------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 1,112.4 1,110.7
---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $7,604.6 $7,468.5
=====================================================================================================================
</TABLE>
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto.
F-25
<PAGE>
<TABLE><CAPTION>
SCHEDULE I
COMMERCIAL CREDIT COMPANY
(Parent Company Only)
Condensed Financial Information of Registrant
(In millions of dollars)
Condensed Statement of Cash Flows
Year ended December 31, 1994 1993 1992
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Income from operation before income tax benefit and equity in
earnings of subsidiaries $ (32.6) $ 34.8 $ 53.6
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 (1.9) (26.8) (3.0)
Dividends received from subsidiaries 162.2 167.5 176.2
Net advances to subsidiaries (294.6) (411.5) (1.7)
Other, net (10.9) 5.0 8.9
------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) continuing activities (177.8) (231.0) 234.0
Income taxes paid (36.9) (80.6) (94.9)
------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (214.7) (311.6) 139.1
------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Redemption of the Parent's redeemable preferred stock 100.0 100.0 100.0
Sale of stock of subsidiary or affiliate 150.0 - 30.7
Sale (purchase) of investment 46.2 3.2 (1.3)
Other, net (24.5) (28.6) (0.2)
------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 271.7 74.6 129.2
------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Net change in short-term borrowings 98.5 (280.5) 193.2
Issuance of long-term debt 500.0 950.0 550.0
Payments and redemptions of long-term debt (459.8) (222.1) (732.1)
Dividends paid (195.0) (210.0) (280.0)
------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (56.3) 237.4 (268.9)
------------------------------------------------------------------------------------------------------------------
Change in cash and cash equivalents .7 0.4 (0.6)
Cash and cash equivalents at beginning of period 2.3 1.9 2.5
------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 3.0 $ 2.3 $ 1.9
==================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 397.5 $ 345.3 $ 360.2
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-26
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
<S> <C> <C>
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 Securities and
Exchange Commission upon request.
10.01 $1,760,000,000 Five Year Credit Agreement dated as of December 16, 1994 Electronic
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 Charges. Electronic
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 LLP, Independent Certified Public Accountants. Electronic
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
<S> <C> <C>
27.01 Financial Data Schedule. Electronic
99.01 The second paragraph of page 2 of the Company's Current Report on Form 8-K Electronic
dated July 28, 1992 (File No. 1-6594).
99.02 The second paragraph of page 2 of the Company's Current Report on Form 8-K Electronic
dated July 13, 1994 (File No. 1-6594).
</TABLE>
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]
$1,760,000,000
FIVE-YEAR
CREDIT AGREEMENT
dated as of
December 16, 1994
among
Commercial Credit Company
The Banks Parties Hereto
and
Morgan Guaranty Trust Company of New York,
as Agent
<PAGE>
FIVE-YEAR
CREDIT AGREEMENT
AGREEMENT dated as of December 16, 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.
"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 (i) a Committed Loan which bears interest
at the Base Rate pursuant to the applicable Notice of Committed Borrowing
or Notice of Interest Rate Election or the provisions of Article VIII or
(ii) an overdue amount which was a Base Rate Loan immediately before it
became overdue.
"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 1993 Form 10-K" means the Borrower's annual report on
Form 10-K for 1993, 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 (i) a Committed Loan which bears interest at a CD
Rate pursuant to the applicable Notice of Committed Borrowing or Notice of
Interest Rate Election or (ii) an overdue amount which was a CD Loan
immediately before it became overdue.
"CD Margin" has the meaning set forth in Section 2.07(b).
"CD Rate" means a rate of interest determined pursuant to Section
2.07(b) on the basis of an Adjusted CD Rate.
"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; provided that, if any such loan or loans (or
--------
portions thereof) are combined or subdivided pursuant to a Notice of
Interest Rate Election, the term "Committed Loan" shall refer to the
combined principal amount resulting from such combination or to each of the
separate principal amounts resulting from such subdivision, as the case may
be.
"Consolidated Subsidiary" means at any date any Subsidiary or
other entity the accounts of which would, in accordance with generally
accepted accounting principles as
3
<PAGE>
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
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.
4
<PAGE>
"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 statute.
"ERISA Group" means the Borrower, any Subsidiary and all members
of a controlled group of corporations and 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 (i) a Committed Loan which bears
interest at a Euro-Dollar Rate pursuant to the applicable Notice of
Committed Borrowing or Notice of Interest Rate Election or (ii) an overdue
amount which was a Euro-Dollar Loan immediately before it became overdue.
"Euro-Dollar Margin" has the meaning set forth in Section
2.07(c).
"Euro-Dollar Rate" means a rate of interest determined pursuant
to Section 2.07(c) on the basis of a London Interbank Offered Rate.
"Euro-Dollar Reference Banks" means the principal London offices
of Credit Suisse, Chemical Bank and Morgan Guaranty Trust Company of New
York.
5
<PAGE>
"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
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.
"Group of Loans" means at any time a group of Committed Loans
consisting of (i) all Committed Loans which are Base Rate Loans at such
time or (ii) all Committed Loans which are Fixed Rate Loans of the same
type having the same Interest Period at such time; provided that, if a
--------
Committed Loan of any particular Bank is converted to or made as a Base
Rate Loan pursuant to Section 8.02 or 8.04, such Loan shall be included in
the same Group or Groups of Loans from
6
<PAGE>
time to time as it would have been in if it had not been so converted or
made.
"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
Loan, a period commencing on the date of borrowing specified in the
applicable Notice of Borrowing or on the date specified in the applicable
Notice of Interest Rate Election and ending one, two, three or six months
thereafter, as the Borrower may elect in the applicable notice; 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 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
7
<PAGE>
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(2) with respect to each CD Loan, a period commencing on the date of
borrowing specified in the applicable Notice of Borrowing or on the date
specified in the applicable Notice of Interest Rate Election and ending 30,
60, 90 or 180 days thereafter, as the Borrower may elect in the applicable
notice; 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 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:
--------
(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.
(4) 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 7 days) as the Borrower may elect in
accordance with Section 2.03; provided that:
--------
8
<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; 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.
"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 agreement or instrument or is
commercial paper issued on the same date) in an unpaid principal amount
exceeding $50,000,000.
"Material Plan" means at any time a Plan or Plans having
aggregate Unfunded Liabilities in excess of $35,000,000.
"Material Subsidiary" means at any time any Subsidiary of the
Borrower that as of such time meets the
9
<PAGE>
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.
"Multiemployer Plan" means at any time an employee pension
benefit plan within the meaning of Section
10
<PAGE>
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.
"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)).
"Notice of Interest Rate Election" has the meaning set forth in
Section 2.10.
"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.
"Pricing Schedule" means the Schedule attached hereto identified
as such.
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.
"Quarterly Date" means the last day of each March, June,
September and December.
"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.
"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 Ratings Group.
"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 December 16, 1999, or, if such day is
not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business
Day.
"Three-Year Credit Agreement" means the $1,500,000,000 Credit
Agreement dated as of February 24, 1994, as amended, among the Borrower,
the banks listed therein and Morgan Guaranty Trust Company of New York, as
agent thereunder.
"Travelers" means The Travelers Inc., a Delaware corporation, and
its successors.
"Travelers Series Y Stock" means the 2,105 shares of Cumulative
Adjustable Rate Series Y Preferred Stock, par value $1.00, and liquidation
value $100,000, per share, of Travelers held on the Effective Date by the
Borrower or any of its Consolidated Subsidiaries, or any investment
securities of Travelers or any of its subsidiaries into
12
<PAGE>
which any shares of the Travelers Series Y Stock are converted or for which
any shares of the Travelers Series Y Stock are exchanged.
"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 the same date, all of which Loans are of the same
type (subject to Article VIII) and, except in the case of Base Rate Loans,
have the same Interest Period or initial 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 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
13
<PAGE>
in which the Bank participants are determined in accordance therewith).
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 $10,000,000 or any larger multiple of $1,000,000
(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, prepay Loans
to the extent permitted by Section 2.11, and reborrow at any time during
the Revolving Credit Period under this Section. The Commitments shall
terminate on the Termination Date.
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,
(b) the aggregate amount of such Borrowing,
(c) whether the Loans comprising such Borrowing are to bear
interest initially at the Base Rate or at a CD Rate or a Euro-Dollar
Rate, and
(d) in the case of a Fixed Rate Borrowing, the duration of the
initial Interest Period applicable thereto, subject to the provisions
of the definition of Interest Period.
14
<PAGE>
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 fourth 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 $10,000,000 or a larger multiple of $1,000,000,
(iii) the duration of the Interest Period applicable thereto,
subject to the provisions of the definition of Interest Period, and
(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
15
<PAGE>
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) 9:30 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) 9:15 A.M. (New York City time) on the 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:
16
<PAGE>
(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;
(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.
17
<PAGE>
(e) Notice to Borrower. The Agent shall promptly (but in no
------------------
event later than 10:00 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 10:30
---------------------------------
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:
--------
(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
$10,000,000 or a larger multiple of $1,000,000,
(iii) subject to the proviso contained in subsection (g) of this
Section, acceptance of offers,
18
<PAGE>
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 therein shall 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) Unless the Agent shall have received notice from a Bank
prior to the date of or, in the case of a Base
19
<PAGE>
Rate Borrowing, prior to 1:00 P.M. (New York City time) on 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 subsection (b) 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 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 and type 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
20
<PAGE>
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. (a) Each Committed Loan shall
-----------------
mature, and the principal amount thereof shall be due and payable together
with accrued interest thereon, on the Termination Date.
(b) Each Money Market Loan included in any Money Market
Borrowing shall mature, and the principal amount thereof shall be due and
payable, together with accrued interest thereon, 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
quarterly in arrears on each Quarterly Date and, with respect to the
principal amount of any Base Rate Loan converted to a CD Loan or a Euro-
Dollar Loan, on each date a Base Rate Loan is so converted. 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 each Interest Period
applicable thereto, at a rate per annum equal to the sum of the CD Margin
for such day plus the Adjusted CD Rate applicable to such Interest Period;
provided that if any CD Loan shall, as a result of clause (2)(b) of the
definition of Interest Period, have an Interest Period of less than 30
days, such CD Loan shall bear interest during such Interest Period at the
rate applicable to Base Rate Loans during such period. 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 rate applicable to Base
Rate Loans for such day and (ii) the sum of the CD Margin for such day plus
the Adjusted CD Rate which was applicable to the Interest Period for such
Loan at the date such payment was due.
"CD Margin" means a rate per annum determined in accordance with
the Pricing Schedule.
21
<PAGE>
The "Adjusted CD Rate" applicable to any Interest Period 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 Interest Period 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 such Interest Period 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 $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
22
<PAGE>
the meaning of 12 C.F.R. Sec. 327.3(e) (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 each Interest Period
applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar
Margin for such day plus the London Interbank Offered Rate applicable to
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.
"Euro-Dollar Margin" means a rate per annum determined in
accordance with the Pricing Schedule.
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 Euro-Dollar Margin for
such day plus the higher of (i) the London Interbank Offered Rate which was
applicable to the Interest Period for such Loan at the date such payment
was due 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 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
23
<PAGE>
(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.
SECTION 2.08. Facility Fee. The Borrower shall pay to the
------------
Agent for the account of the Banks ratably a facility fee at the Facility
Fee Rate (determined daily in accordance with the Pricing Schedule). 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
24
<PAGE>
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.
Accrued fees under this Section shall be payable quarterly in arrears on
each Quarterly Date 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).
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 $10,000,000 or any
larger multiple of $5,000,000, 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. Method of Electing Interest Rates. (a) The Loans
---------------------------------
included in each Committed Borrowing shall bear interest initially at the
type of rate specified by the Borrower in the applicable Notice of
Committed Borrowing. Thereafter, the Borrower may from time to time elect
to change or continue the type of interest rate borne by each Group of
Loans (subject in each case to the provisions of Article VIII), as follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect to
convert such Loans to CD Loans as of any Domestic Business Day or to
Euro-Dollar Loans as of any Euro-Dollar Business Day;
(ii) if such Loans are CD Loans, the Borrower may elect to
convert such Loans to Base Rate Loans or Euro-Dollar Loans or elect to
continue such Loans as CD Loans for an additional Interest Period, in
each case effective on the last day of the then current Interest
Period applicable to such Loans;
(iii) if such Loans are Euro-Dollar Loans, the Borrower may elect
to convert such Loans to Base Rate Loans or CD Loans or elect to
continue such Loans as Euro-Dollar Loans for an additional Interest
Period, in each case effective on the last day of the then current
Interest Period applicable to such Loans.
25
<PAGE>
Each such election shall be made by delivering a notice (a "Notice of
Interest Rate Election") to the Agent at least three Euro-Dollar Business
Days before the conversion or continuation selected in such notice is to be
effective (unless the relevant Loans are to be (x) converted from Domestic
Loans to Domestic Loans of the other type, (y) continued as Domestic Loans
of the same type for an additional Interest Period or (z) converted from
Euro-Dollar Loans to Domestic Loans, in which case such notice shall be
delivered to the Agent at least two Domestic Business Days before such
conversion or continuation is to be effective). A Notice of Interest Rate
Election may, if it so specifies, apply to only a portion of the aggregate
principal amount of the relevant Group of Loans; provided that (i) such
--------
portion is allocated ratably among the Loans comprising such Group and (ii)
the portion to which such Notice applies, and the remaining portion to
which it does not apply, are each $10,000,000 or any larger multiple of
$1,000,000.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such notice
applies;
(ii) the date on which the conversion or continuation selected in
such notice is to be effective, which shall comply with the applicable
clause of subsection (a) above;
(iii) if the Loans comprising such Group are to be converted, the
new type of Loans and, if such new Loans are Fixed Rate Loans, the
duration of the initial Interest Period applicable thereto; and
(iv) if such Loans are to be continued as CD Loans or Euro-Dollar
Loans for an additional Interest Period, the duration of such
additional Interest Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
(c) Upon receipt of a Notice of Interest Rate Election from the
Borrower pursuant to subsection (a) above, the Agent shall promptly notify
each Bank of the contents thereof and such notice shall not thereafter be
revocable by the Borrower. If the Borrower fails to deliver a timely
Notice of Interest Rate Election to the Agent for any Group of Fixed Rate
Loans, such Loans shall be converted into Base
26
<PAGE>
Rate Loans on the last day of the then current Interest Period applicable
thereto.
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 the Group of Base Rate Loans (or any Money
Market Borrowing bearing interest at the Base Rate pursuant to clause (a)
of Section 8.01) and (ii) subject to Section 2.13, upon at least three
Euro-Dollar Business Days' notice to the Agent, prepay any Group of
Euro-Dollar Loans or, upon at least two Domestic Business Days' notice to
the Agent, prepay any Group of CD Loans, in each case in whole at any time,
or from time to time in part in amounts aggregating $10,000,000 or any
larger multiple of $1,000,000, 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 Group or 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 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
27
<PAGE>
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 or any Fixed Rate
Loan is converted to a Base Rate Loan (pursuant to Section 2.11(a)(ii),
Section 2.16, Article VI or VIII or otherwise) on any day other than the
last day of an 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
conversion or failure to 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
28
<PAGE>
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:
(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
29
<PAGE>
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 (if any) 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 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
30
<PAGE>
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 Three-Year 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 January 15, 1995. 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
Three-Year Credit Agreement, comprising the "Required Banks" as defined
therein, and the Borrower agree that the commitments under the Three-Year
Credit Agreement shall terminate in their entirety simultaneously with and
subject to the effectiveness of this Agreement and that the Borrower shall
be obligated to pay the accrued fees thereunder to but excluding the date
of such effectiveness.
31
<PAGE>
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)) 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.
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
32
<PAGE>
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, 1993 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 1993 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, 1994
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, 1994 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).
(c) Since September 30, 1994 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
33
<PAGE>
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 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.
34
<PAGE>
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 (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
35
<PAGE>
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, clause (a) of Section 5.08 and clause
(a)(viii) 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) 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
36
<PAGE>
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 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
37
<PAGE>
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 Net Worth. Adjusted Consolidated Net
-------------------------------
Worth (as defined below) will not at any future date be less than the sum
-------
of
--
(i) $839,100,000 plus
----
(ii) cumulatively, for each of the following fiscal periods
for which Adjusted Consolidated Net Income (as defined below) is
positive, 25% of such Adjusted Consolidated Net Income:
38
<PAGE>
(w) if such date is prior to December 31, 1994, the
fiscal quarter ended September 30, 1994,
(x) if such date is on or after December 31, 1994, the
period consisting of two fiscal quarters ended December 31,
1994,
(y) if such date is on or after December 31, 1995, each
fiscal year ended on or after December 31, 1995 but on or
prior to such date, and
(z) if such date is after December 31, 1994 and is not
the last day of a fiscal year, the period consisting of any
fiscal quarters of such current fiscal year which quarters
ended on or prior to such date.
(b) Definitions of "Adjusted Consolidated Net Income" and
------------------------------------------------------
"Adjusted Consolidated Net Worth". "Adjusted Consolidated Net Income" for
---------------------------------
a fiscal quarter means net income (after taxes) of the Borrower and its
Consolidated Subsidiaries, determined for such fiscal quarter, and
"Adjusted Consolidated Net Worth" at a date means stockholder's equity of
the Borrower and its Consolidated Subsidiaries, determined as at such date,
both excluding
---- ---------
(i) after-tax gains or losses from extraordinary items
which are disclosed on the Borrower's consolidated financial
statements, and
(ii) the cumulative non-cash effect of any changes in net
income caused by the Borrower's adoption after December 31, 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, and
(iii) unrealized gains or losses on investment securities
(including Series Y preferred stock of Travelers owned by the
Borrower) which are reflected in stockholders' equity.
SECTION 5.08. Transactions with Affiliates. At any date upon
----------------------------
which (i) the Indenture from the Borrower to Citibank, N.A., as Trustee,
dated as of December 1, 1986 is amended to delete Section 1008
("Restrictions on Related Company Transactions") or (ii) "A" Status does
not exist, the following restrictions shall apply:
39
<PAGE>
(a) Excluding any amounts representing the value of Investments
in Travelers Series Y 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 Net Worth
(as defined in Section 5.07(b)); and
(b) 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 clause (a)) unless the terms and conditions of such
transaction are substantially as or more favorable to the Borrower or
such Subsidiary as the terms and conditions which could have been
obtained from a Person which was not an Affiliate.
SECTION 5.09. Liens. (a) Neither the Borrower nor any
-----
Subsidiary will create, assume or suffer to exist any Lien arising outside
the ordinary course of business on any asset now owned or hereafter
acquired by it, except:
(i) Liens on a Subsidiary's property in favor of the
Borrower or another Subsidiary that owns directly or indirectly
all of the shares of the stock of such Subsidiary, other than
directors' qualifying shares;
(ii) Liens (including Liens arising under capital leases) on
property acquired or constructed by the Borrower or a Subsidiary
to secure the unpaid balance of the property's purchase price or
construction cost;
(iii) Liens on property that arose prior to the acquisition
of the property by the Borrower or a Subsidiary and not incurred
in contemplation thereof;
(iv) Liens in favor of a governmental agency that entitle
the Borrower or a Subsidiary to self-insure, to participate in
any fund in connection with workers' compensation, disability
benefits, unemployment insurance, old age pensions or other
social security, to share in privileges or other benefits
available to companies participating in such arrangements, or as
otherwise required by law or governmental regulation as a
condition to the
40
<PAGE>
transaction of any business or the exercise of any privilege or
license;
(v) Liens as collateral for or in lieu of a bond on appeal
from any judgment or decree or in connection with any other
proceedings by or against the Borrower or a Subsidiary;
(vi) Liens for taxes not yet due or delinquent, or that can
be paid without penalty or that are being contested in compliance
with Section 5.02 with respect to payment of obligations;
(vii) Liens on receivables or other financial assets
resulting from transfers by the Borrower of such receivables or
financial assets that are treated as sales under generally
accepted accounting principles;
(viii) other Liens not in the ordinary course of business to
the extent such Liens secure Debt where the lesser of (A) the
aggregate fair market value of all property subject to such Liens
and (B) the aggregate amount of the Debt so secured does not
exceed 5% of Consolidated Total Assets; and
(ix) Liens granted in replacement or extension of Liens
otherwise permitted by this Section 5.09.
(b) The Borrower shall notify the Agent of any Lien not
permitted by clause (a) above with reasonable promptness after the Borrower
obtains knowledge of the existence of such Lien. The Agent shall promptly
transmit to each Bank a copy of such notice. Thereafter, any Bank may
instruct the Agent to send the Borrower a notice to explain or cure such
Lien (an "Explain-or-Cure Notice"). Within a reasonable time after the
receipt of such instruction from a Bank, the Agent shall send the Borrower,
with a copy to each Bank, an Explain-or-Cure Notice which shall state that
the Borrower must within 15 days deliver to the Agent and to each Bank
(i) an explanation as to why the Lien does not adversely
affect the Banks' prospect of payment (of principal, interest or
fees) by the Borrower, or
41
<PAGE>
(ii) notice that the Lien has been removed in whole or part,
explaining why any remaining partial Lien does not adversely
affect such prospect of payment, or
(iii) notice of proposed amendments to this Agreement or
other arrangements so that the Lien will not adversely affect
such prospect of payment.
If the Borrower responds to the Explain-or-Cure Notice as set
forth therein, the Borrower shall have "Explained or Cured" the Lien unless
(i) Banks having at least 33 1/3% of the aggregate amount of the
Commitments or, if the Commitments shall have been terminated, holding
Notes evidencing at least 33 1/3% of the aggregate unpaid principal amount
of the Loans ("One-Third of the Banks") subsequently notify the Agent that,
in their judgment (after considering the response and giving effect to any
action taken or proposed (and reasonably achievable) by the Borrower in
response to the Explain-or-Cure Notice), the Lien adversely affects such
prospect of payment or (ii) One-Third of the Banks notify the Agent and the
Borrower of their determination that the Borrower has not used its best
efforts promptly and diligently to effect any action proposed in its
response to the Explain-or-Cure Notice.
(c) The existence of a Lien not permitted by clause (a) above
shall not cause the Borrower to breach a covenant in this Section 5.09 if
(i) the Lien did not result from a transaction that the
Borrower knew would create a Lien not permitted by clause (a) of
this Section 5.09, and
(ii) the Borrower notifies the Agent of the Lien with
reasonable promptness after it obtains knowledge of the existence
of such Lien, and
(iii) the Borrower "Explains or Cures" the Lien as set forth
in clause (b) above, or the Borrower does not receive an Explain-
or-Cure Notice as to the Lien.
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.
42
<PAGE>
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 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 or enables (or, with
the giving of notice of acceleration or termination, would enable) the
43
<PAGE>
holder of such Material Debt or any Person acting on such holder's
behalf to accelerate the maturity thereof or to terminate any related
commitment;
(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 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
44
<PAGE>
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 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,
45
<PAGE>
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.
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
46
<PAGE>
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 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
47
<PAGE>
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 CD
------
Loan, Euro-Dollar Loan or Money Market LIBOR Loan:
(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 CD Loans or Euro-Dollar Loans, Banks having
50% or more of the aggregate principal 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, (i) the
obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case
may be, or to convert outstanding Loans into CD Loans or Euro-Dollar Loans,
as the case may be, shall be suspended and (ii) each outstanding CD Loan or
Euro-Dollar Loan, as the case may be,
48
<PAGE>
shall be converted into a Base Rate Loan on the last day of the then
current Interest Period applicable thereto. Unless the Borrower notifies
the Agent at least two Domestic 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, or to convert outstanding Loans into 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 notice is given, each Euro-Dollar Loan of such Bank
then outstanding shall be converted to a Base Rate Loan either (a) on the
last day of the then current Interest Period applicable to such Euro-Dollar
Loan if such Bank may lawfully continue to maintain and fund such Loan to
such day or (b) immediately if such Bank shall determine that it may not
lawfully continue to maintain and fund such Loan to such day.
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
49
<PAGE>
of any Money Market Loan, 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
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
50
<PAGE>
Parent) could have achieved but for such adoption, change, request or
directive (taking into consideration its policies with respect to capital
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 or maintain
----------
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 (or
continued as or converted into) Euro-Dollar Loans or CD Loans, as the
case may be, shall instead be Base Rate Loans (on which interest and
principal shall be payable contemporaneously with the related Fixed
Rate Loans of the other Banks), and
51
<PAGE>
(b) after each of its Euro-Dollar Loans or CD Loans, as the case
may be, has been repaid (or converted to a Base Rate Loan), 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.
If such Bank notifies the Borrower that the circumstances giving rise to
such notice no longer apply, the principal amount of each such Base Rate
Loan shall be converted into a CD Loan or Euro-Dollar Loan, as the case may
be, on the first day of the next succeeding Interest Period applicable to
the related CD Loans or Euro-Dollar Loans of the other Banks.
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
52
<PAGE>
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 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 or maintain 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
(x) 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 and (y) payment to the departing Bank of all amounts payable
to it hereunder, each such bank shall be deemed to be a "Bank" for all
purposes of
53
<PAGE>
this Agreement, the departing Bank shall cease to be a "Bank" 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,
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
54
<PAGE>
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 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.
55
<PAGE>
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 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
56
<PAGE>
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 Section 2.15
and 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, 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 consents 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. In connection with any
such assignment the transferor Bank shall pay or cause to be paid to the
Agent an administrative fee for processing such assignment in the amount of
$2,500.
57
<PAGE>
(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. Governing Law; Submission to Jurisdiction. This
-----------------------------------------
Agreement and each Note shall be governed by and construed in accordance
with the laws of the State of New York. The Borrower hereby submits to the
nonexclusive jurisdiction of the United States District Court for the
Southern District of New York and of any New York State court sitting in
New York City for purposes of all legal proceedings arising out of or
relating to this Agreement or the transactions contemplated hereby. The
Borrower irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of
any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient
forum.
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
58
<PAGE>
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.
59
<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
60
<PAGE>
Commitments
-----------
$64,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By: /s/ Jerry J. Fall
---------------------------
Title: Vice President
$60,000,000 BANK OF AMERICA ILLINOIS
By: /s/ John R. Wolak
---------------------------
Title: Vice President
$60,000,000 BANK OF MONTREAL
By: /s/ Donald J. Jordan
--------------------------
Title: Director
$60,000,000 THE BANK OF NEW YORK
By: /s/ Lizanne T. Eberle
--------------------------
Title: Vice President
$60,000,000 THE CHASE MANHATTAN BANK, N.A.
By: /s/ Robert B. Frasca
-------------------------
Title: Managing Director
$60,000,000 CHEMICAL BANK
By: /s/ Roger Parker
-------------------------
Title: Vice President
61
<PAGE>
$60,000,000 FIRST NATIONAL BANK OF CHICAGO
By: /s/ Samuel W. Bridges
---------------------------
Title: Vice President
$60,000,000 FIRST INTERSTATE BANK OF CALIFORNIA
By: /s/ Robert C. Meyers
---------------------------
Title: Vice President
By: /s/ Johnathan S. David
---------------------------
Title: Assistant Vice President
$60,000,000 MELLON BANK, N.A.
By: /s/ M. James Barry, III
--------------------------
Title: Vice President
$60,000,000 NATIONSBANK OF NORTH CAROLINA, N.A.
By: /s/ James W. Fee Jr.
--------------------------
Title: Senior Vice President
$60,000,000 THE SAKURA BANK, LIMITED
By: /s/ Hiroshi Shimzaki
--------------------------
Title: Senior Vice President
& Manager
62
<PAGE>
$60,000,000 UNION BANK OF SWITZERLAND, NEW YORK BRANCH
By: /s/ Daniel H. Perron
--------------------------
Title: Vice President
By: /s/ Daniel R. Strickford
--------------------------
Title: Assiatant Treasurer
$40,000,000 ABN AMRO BANK N.V., NEW YORK BRANCH
By: /s/ David A. Mandell
--------------------------
Title: Vice President
By: /s/ John Logsdon
--------------------------
Title: Assistant Vice President
$40,000,000 CIBC, INC.
By: /s/ Stephen D. Reynolds
-------------------------
Title: Vice President
$40,000,000 CITIBANK, N.A.
By: /s/ David A. Dodge
-------------------------
Title: Vice President &
Attorney-In-Fact
63
<PAGE>
$40,000,000 CREDIT LYONNAIS, NEW YORK BRANCH
By: /s/ R. d'Herbes
--------------------------
Title: FVP
CREDIT LYONNAIS, CAYMAN ISLAND BRANCH
By: /s/ R. d'Herbes
--------------------------
Title: Authorized Signer
$40,000,000 CREDIT SUISSE
By: /s/ Dawn E. Rubenstein
--------------------------
Title: Associate
By: /s/ Christopher Eldin
--------------------------
Title: Member of Senior
Management
$40,000,000 THE DAI-ICHI KANGYO BANK, LTD., NEW YORK BRANCH
By: /s/ Matthew G. Murphy
-------------------------
Title: Assistant Vice President
$40,000,000 FIRST NATIONAL BANK OF MARYLAND
By: /s/ Clinton S. Lucas
------------------------
Title: Vice President
64
<PAGE>
$40,000,000 FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By: /s/ Tom P. Bohrer
----------------------------
Title: Vice President
$40,000,000 THE FUJI BANK, LIMITED, NEW YORK
BRANCH
By: /s/ Gina Kearns
----------------------------
Title: Vice President & Manager
$40,000,000 PNC BANK, NATIONAL ASSOCIATION
By: /s/ Karen L. Voight
---------------------------
Title: Vice President
$40,000,000 ROYAL BANK OF CANADA
By: /s/ Gary Overton
---------------------------
Title: Senior Management
$40,000,000 THE SUMITOMO BANK, LIMITED
By: /s/ Yoshinori Kawamura
--------------------------
Title: Joint General Manager
$32,000,000 THE SANWA BANK LIMITED
By: /s/ Jean-Michel Fatovic
-------------------------
Title: Vice President
65
<PAGE>
$32,000,000 SWISS BANK CORPORATION, NEW YORK BRANCH
By: /s/ Nicolas T. Erni
--------------------------
Title: Associate Director
Credit Risk Management
By: /s/ Michael T. Fabiano
--------------------------
Title: Associate Director
Merchant Banking
$28,000,000 BANK OF HAWAII
By: /s/ Alison J. Sierens
---------------------------
Title: Corporate Banking Officer
$28,000,000 THE BANK OF NOVA SCOTIA
By: /s/ Stephen E. Lockhart
---------------------------
Title: Senior Relations Manager
$28,000,000 THE BANK OF TOKYO TRUST COMPANY
By: /s/ Neal Hoffson
--------------------------
Title: Vice President
$28,000,000 THE FIRST NATIONAL BANK OF BOSTON
By: /s/ John A. Ketchum
-------------------------
Title: Division Executive
66
<PAGE>
$28,000,000 THE INDUSTRIAL BANK OF JAPAN, LIMITED
By: /s/ Toshiyuki Ban
--------------------------
Title: Senior Vice President
$28,000,000 MONTE DEI PASCHI DI SIENA
By: /s/ S.M. Sondak
--------------------------
Title: F.V.P. & Dep. General
Manager
By: /s/ Brian R. Landy
--------------------------
Title: Vice President
$28,000,000 THE NORTHERN TRUST COMPANY
By: /s/ J.C. McCall
--------------------------
Title: Second Vice President
$28,000,000 SHAWMUT BANK CONNECTICUT, N.A.
By: /s/ Jane C. Lee
--------------------------
Title: Vice President
$24,000,000 BANQUE NATIONALE DE PARIS
By: /s/ Eric Vigne
-------------------------
Title: Senior Vice President
By: /s/ Walter Kaplan
-------------------------
Title: Vice President
67
<PAGE>
$24,000,000 UNITED STATES NATIONAL BANK OF OREGON
By: /s/ Clare C. Jones
--------------------------
Title: Assistant Vice President
$20,000,000 AMSOUTH BANK OF ALABAMA F/K/A AMSOUTH BANK N.A.
By: /s/ R. Mark Graf
--------------------------
Title: Vice President
$20,000,000 BARNETT BANK OF CENTRAL FLORIDA, N.A.
By: /s/ Marisa Carnevale-Henderson
-------------------------------
Title: Assistant Vice President
$20,000,000 CORESTATES BANK, N.A.
By: /s/ Deidre Ledwith
--------------------------
Title: Vice President
$20,000,000 FIRST FIDELITY BANK, N.A.
By: /s/ Mary Grace Finn
--------------------------
Title: Assistant Vice President
$20,000,000 FIRST HAWAIIAN BANK
By: /s/ Robert Heberer
--------------------------
Title: Vice President
68
<PAGE>
$20,000,000 FLEET BANK, N.A.
By: /s/ John V. Raleigh
-------------------------
Title: Vice President
$20,000,000 THE MITSUBISHI BANK, LIMITED
By: /s/ Paula Mueller
-------------------------
Title: Vice President
$20,000,000 SOCIETE GENERALE
By: /s/ Rochelle Guttman
-------------------------
Title: Vice President
$20,000,000 THE TOKAI BANK, LIMITED
By: /s/ Masaharu Muto
--------------------------
Title: Deputy General Manager
$20,000,000 WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK
AND CAYMAN ISLANDS BRANCHES
By: /s/ Elie B. Khoury
---------------------------
Title: Vice President
By: /s/ Laura Spichiger
---------------------------
Title: Sr. Credit Analyst
69
<PAGE>
$20,000,000 THE YASUDA TRUST & BANKING CO., LTD.
By: /s/ Gerald T. Gill
---------------------------
Title: Vice President
_________________
Total Commitments
$ 1,760,000,000
=================
70
<PAGE>
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By /s/ Jerry J. Fall
----------------------------
Title: Vice President
60 Wall Street
New York, New York 10260-0060
Telex number: 177615, 620106
Telecopy number: 212-385-2603
71
<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,
-----------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income from continuing operations
before income taxes and minority
interests......................... $363.9 $467.9 $428.8 $302.9 $234.3
Elimination of undistributed
equity earnings................... (1.9) (26.8) (3.0) (4.6) (3.4)
Pre-tax minority interest........... (20.0) (32.3) - - -
Add:
Interest.......................... 402.8 363.7 369.7 434.9 415.4
Interest portion of rentals....... 10.9 11.2 11.7 11.5 9.6
----- ------ ------ ------ ------
Income available for fixed charges.. $755.7 $783.7 $807.2 $744.7 $655.9
===== ===== ===== ===== =====
Fixed charges:
Interest.......................... $402.8 $363.7 $369.7 $434.9 $415.4
Interest portion of rentals....... 10.9 11.2 11.7 11.5 9.6
----- ------ ----- ------ ------
Fixed charges....................... $413.7 $374.9 $381.4 $446.4 $425.0
===== ===== ===== ===== =====
Ratio of earnings to fixed charges.. 1.83x 2.09x 2.12x 1.67x 1.54x
===== ==== ==== ==== ====
</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 the related offerings
of securities Registered under Registration Statement No. 33-10444),
33-28723, 33-35618, 33-39857, 33-43351, 33-51814, 33-50513 and
33-56553) on Form S-3 of Commercial Credit Company, of our report
dated January 17, 1995, relating to the consolidated statements
of financial position of Commercial Credit Company and
subsidiaries as of December 31, 1994 and 1993, 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, 1994, which report appears herein. Our report refers
to: a change in the method of accounting for certain investments in
debt and equity securities in 1994; changes in the methods of
accounting for postretirement benefits other than pensions and
accounting for postemployment benefits in 1993; and a change in the
method of accounting for income taxes in 1992.
/s/ KPMG Peat Marwick LLP
New York, New York
March 29, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE DECEMBER 31, 1994 FINANCIAL STATEMENTS OF COMMERCIAL CREDIT COMPANY
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> $23,600
<SECURITIES> 902,600<F1>
<RECEIVABLES> 7,144,100<F2>
<ALLOWANCES> (181,900)
<INVENTORY> 0<F3>
<CURRENT-ASSETS> 0<F3>
<PP&E> 0<F3>
<DEPRECIATION> 0<F3>
<TOTAL-ASSETS> 8,226,800
<CURRENT-LIABILITIES> 0<F3>
<BONDS> 6,388,100<F4>
<COMMON> 0
0<F3>
0<F3>
<OTHER-SE> 1,112,400<F5>
<TOTAL-LIABILITY-AND-EQUITY> 8,226,800
<SALES> 0<F3>
<TOTAL-REVENUES> 1,598,000
<CGS> 0<F3>
<TOTAL-COSTS> 1,234,100
<OTHER-EXPENSES> 0<F3>
<LOSS-PROVISION> 151,600<F6>
<INTEREST-EXPENSE> 402,800<F6>
<INCOME-PRETAX> 363,900
<INCOME-TAX> 127,200
<INCOME-CONTINUING> 221,900
<DISCONTINUED> 0<F3>
<EXTRAORDINARY> 0<F3>
<CHANGES> 0<F3>
<NET-INCOME> 221,900
<EPS-PRIMARY> 0<F3>
<EPS-DILUTED> 0<F3>
<FN>
<F1>Includes the following items from the financial statements: total investments
$902,600.
<F2>Includes the following items from the financial statements: consumer finance
receivables $6,927,700 and other receivables $216,400.
<F3>Items which are inapplicable relative to the underlying finacial statements are
indicated with a zero as required.
<F4>Includes the following items from the financial statements: certificates of
deposit $73,500; short-term borrowings $2,304,600 and long-term debt $4,010,000.
<F5>Includes the following items from the financial statements: additional paid-in
capital $163,500; retained earnings $974,500; unrealized gain (loss) on investments
$(25,300); and cumulative translation adjustment $(300).
<F6>Included in total cost and expenses applicable to sales and revenues.
</FN>
</TABLE>
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.
EXHIBIT 99.02
COMPANY'S FORM 8-K
July 13, 1994
Page 2
Item 5. Other Events
------------
In May and June 1994, three purported class action lawsuits were
filed against the Company and its subsidiaries Commercial Credit
Corporation, Voyager Guaranty Insurance Company and American
Health and Life Insurance Company. Two of such actions, Erkins
v. First Franklin Financial Corp., et al. and Lawrence v.
Commercial Credit Corp., et al., were filed in the Circuit Court,
Jefferson County, Alabama. The third action, Princess Nobels v.
Associates Corporation of North America, was filed in the U.S.
District Court for the Middle District of Alabama. The suits
allege, among other things, that the Company's subsidiaries
charged excessive premiums on credit life insurance, credit
property insurance and nonfiling insurance, and that as a result,
the Company and its subsidiaries violated federal and state laws
and regulations. The plaintiffs seek, among other things,
compensatory and punitive damages in an unspecified amount. The
Company believes it has meritorious defenses to these actions and
intends to contest the allegations.
