<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-5467
THE FOOTHILL GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 94-1663353
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
11111 SANTA MONICA BOULEVARD 90025
LOS ANGELES, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 996-7000
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<S> <C>
NAME OF EXCHANGE
TITLE OF CLASS ON WHICH REGISTERED
- ---------------------------------------------------------------------------------------------
Class A Common Stock, no par value New York Stock Exchange, Inc.
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of 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]
At March 1, 1995, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $272,755,000.
At March 1, 1995, Registrant had 16,632,754 shares of Class A Common Stock,
no par value, outstanding.
Part I and Part II incorporate information by reference from the
Registrant's Annual Report to Stockholders for the year ended December 31, 1994
and Part III incorporates information by reference from the definitive Proxy
Statement for Registrant's 1995 Annual Meeting of Stockholders, dated March 21,
1995, as set forth herein.
- --------------------------------------------------------------------------------
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<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE REFERENCE
-------------------------------
INCORPORATED BY
REFERENCE FROM
------------------------
ANNUAL
FORM REPORT TO PROXY
10-K STOCKHOLDERS STATEMENT
---- ------------ ---------
<S> <C> <C> <C> <C>
PART I
Item 1. Business............................................... 1-2 19-25
Item 2. Properties............................................. 2
Item 3. Legal Proceedings...................................... 2
Item 4. Submission of Matters to a Vote of Security Holders.... 3
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................... 3 41
Item 6. Selected Financial Data................................ 3 17-18
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 3 19-25
Item 8. Financial Statements and Supplementary Data............ 3 26-41
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 3
PART III
Item 10. Directors and Executive Officers of the Registrant..... 3-4 3-6
Item 11. Executive Compensation................................. 4 6-13
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................. 4 1-6
Item 13. Certain Relationships and Related Transactions......... 4 15-16
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K............................................... 5
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS.
The Foothill Group, Inc. ("Foothill Group" or "parent company") is a
specialized financial services company engaged in asset-based commercial lending
through Foothill Capital Corporation ("Foothill Capital") and money management
services through Foothill Group. Unless the context otherwise indicates, the
"Company" refers to Foothill Group and its subsidiary.
Since 1970, Foothill Capital has made revolving credit and term loans to
companies which are generally unable to secure financing from traditional
lending sources. The loans are generally secured by accounts receivable and
inventory, machinery, equipment and other assets. At December 31, 1994, Foothill
Capital had a total of $648,763,000 in loans outstanding. Foothill Capital
generates revenues principally from interest income as well as loan commitment,
appraisal, audit, monitoring fees and other related services. Foothill Capital's
strategy is to provide innovative financing solutions to borrowers who have
adequate collateral in the form of accounts receivable, inventory and other
assets, but may not meet overall credit standards generally required by
commercial banks. As part of its operating strategy, Foothill Capital, in
conjunction with limited partnerships managed by Foothill Group, purchases loans
at a discount to their principal amounts.
At December 31, 1994, loans in Foothill Capital's portfolio have principal
amounts of up to $17,886,000. The average amount per borrower in Foothill
Capital's portfolio was $2,595,000 and was either a revolving loan secured
primarily by accounts receivable and inventory or a term loan secured by
machinery, equipment or other assets. Revolving loans are normally provided for
up to three year periods and are based on 50% to 80% of eligible accounts
receivable and on 15% to 50% of the lower of cost or market value of eligible
inventory. Term loans are frequently made in combination with revolving loans
and are generally due within five years. Both revolving loans and term loans are
made with full recourse to the borrower.
Foothill Capital has historically purchased secured loans from other
parties ("purchased receivables") consisting of non-public debt instruments
including bank loans and private placements, public debt instruments including
registered bonds, notes and debentures, and discounted receivables (bank debt
purchased at a discount from its principal amount from the original lenders.)
Foothill Capital's bank credit agreement limits the amount of its aggregate
purchased receivables to $75,000,000. At December 31, 1994, purchased
receivables totaled $33,056,000 and represented 4.7% of Foothill Capital's
assets.
In 1988, Foothill Group established a money management business to
capitalize on its experience in lending to and investing in debt securities of
financially troubled borrowers. Foothill Group operates two limited partnerships
for institutional investors (the "Funds") to invest in debt securities or claims
of financially troubled companies. Many of the Funds' investments are in
companies that may be involved in a restructuring or reorganization under the
Federal Bankruptcy Code. Foothill Group acts as a general partner of such
partnerships, which have aggregate capital commitments of $516,000,000. Foothill
Group earns management fees from the Funds as well as incentive compensation
based on distributed profits in excess of specified rates of return.
Effective December 23, 1993, the parent company completed the spin-off of
its Foothill Thrift and Loan subsidiary to Foothill Group shareholders. All
previously reported financial results of Foothill Thrift and Loan, through the
record date for the spin-off, are classified as discontinued operations.
Revenues of Foothill Thrift and Loan totaled $21,658,000 and $23,131,000 for the
years ended December 31, 1993 and 1992.
MANAGEMENT OF CREDIT RISK
The Company endeavors to minimize credit losses by maintaining a diversity
of borrowers and types of collateral, as well as by establishing credit policies
and by maintaining close supervision of its loans and underlying collateral.
Borrowers of Foothill Capital may be a higher credit risk than traditional
unsecured borrowers of commercial banks. Foothill Capital attempts to offset
this risk by collateralizing all loans. Foothill Capital's credit policies
prohibit loans in excess of 15% of capital funds (consolidated net worth plus
subordinated debt) to any one borrower. In practice, few of its loans approach
such maximum. At December 31, 1994, Foothill Capital's largest loan was
$17,886,000 (9.3% of capital funds). Foothill Capital
1
<PAGE> 4
also manages its loan portfolio to avoid geographic and industry concentration
risk. At December 31, 1994, 70% of its finance receivables were from borrowers
outside the State of California, and borrowers from no other state represented
more than 14% of its loan portfolio. In addition, it is Foothill Capital's
policy to have no single industry other than wholesale trade (as defined by two
digit SIC codes) account for greater than 10% of its loan portfolio.
In addition to originating loans for its own portfolio, Foothill Capital
reduces its credit exposure by selling nonrecourse participations in loans to
banks and other asset-based lenders. At December 31, 1994, Foothill Capital had
sold $218,052,000 in nonrecourse loan participations.
The Company's credit investigation normally involves analysis of the
underlying collateral securing the loan, review and analysis of the prospective
borrower's financial statements and background, an analysis of cash flow ability
of the prospective borrower to meet the Company's repayment requirements and
review of credit and historical data with credit reporting agencies. In
addition, the Company performs audits of information and operational data
provided by revolving credit prospects.
COMPETITION
In its commercial finance activities, the Company competes with commercial
finance companies throughout the nation as well as with banks and other
financial institutions. Competition from banks comes primarily from their
secured lending subsidiaries and divisions. Frequently, other finance companies
are affiliated with large financial institutions and have greater financial
resources and the ability to borrow at a lower cost of funds which enables them
to charge lower rates to borrowers while maintaining adequate margins. These
cost structures are available to banks and several other financial institutions
with whom Foothill Capital competes. The Company believes, however, despite the
generally higher interest rates it frequently charges, Foothill Capital's
ability to respond quickly and to design specialized and non-traditional loan
structures specific to its borrowers' needs, enables it to compete effectively
in its markets.
Foothill Group faces competition in its money management activities from
asset and money managers, some of whom are affiliated with major investment or
commercial banks and investment advisors whose investment strategies are
substantially similar to those of the Funds.
EMPLOYEES
As of December 31, 1994, the Company and its subsidiary employed 128
people.
ITEM 2. PROPERTIES.
The Company leases all of its offices. Information with respect to the
Company's offices as of December 31, 1994 is as follows:
<TABLE>
<CAPTION>
FLOOR SPACE LEASE
IN ANNUAL EXPIRATION
LOCATION SQUARE FEET RENTAL DATE
----------------------------------------- ----------- ---------- ----------
<S> <C> <C> <C>
Foothill Capital:
Los Angeles, California(1)............. 28,455 $1,096,000 2000
Boston, Massachusetts.................. 500 68,000 1995
Chicago, Illinois...................... 270 38,000 1995
</TABLE>
- ---------------
(1) Offices also used by the Registrant.
ITEM 3. LEGAL PROCEEDINGS.
There are several lawsuits and claims pending against the Company which
management considers incident to normal operations, some of which seek
substantial monetary damages. Management, after review, including consultation
with counsel, believes that any ultimate liability which could arise from these
lawsuits and claims would not materially affect the financial position of the
Company.
2
<PAGE> 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is incorporated herein by reference the information from the section
entitled "Stock Information" on page 41 of the Company's Annual Report to
Stockholders for the year ended December 31, 1994.
ITEM 6. SELECTED FINANCIAL DATA.
There is incorporated herein by reference the information from the sections
entitled "Selected Consolidated Financial Data" and "Selected Financial Data For
Foothill Capital Corporation" on pages 17 and 18 of the Company's Annual Report
to Stockholders for the year ended December 31, 1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
There is incorporated herein by reference the information from the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 19 to 25 of the Company's Annual Report to
Stockholders for the year ended December 31, 1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
There is incorporated herein by reference the "Consolidated Financial
Statements" of The Foothill Group, Inc. and its subsidiary, together with the
Report of Ernst & Young, Independent Auditors, on pages 26 to 41 of the
Company's Annual Report to Stockholders for the year ended December 31, 1994.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
With the exception of the information incorporated in Items 1, 5, 6, 7 and
8, the Annual Report is not deemed filed as part of this report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
There is incorporated herein by reference the information from the section
entitled "Election of Directors" on pages 3 to 6 of the Company's definitive
Proxy Statement, dated March 21, 1995, filed with the Securities and Exchange
Commission. Reference is also made to the list of Executive Officers, which is
provided below under the caption "Executive Officers of the Registrant."
3
<PAGE> 6
EXECUTIVE OFFICERS OF THE REGISTRANT
The following individuals are executive officers of the Registrant.
Pertinent information relating to these individuals is set forth below. There
are no family relationships between any of the officers. All of the Registrant's
officers hold their respective offices at the pleasure of the Board of
Directors, subject to the rights, if any, of an officer under any contract of
employment.
DON L. GEVIRTZ -- Chairman of the Board and Chief Executive Officer -- Age 67
Mr. Gevirtz has been Chairman of the Board and Chief Executive Officer
since April 1972.
JOHN F. NICKOLL -- President, Vice Chairman of the Board, Co-Chief Executive
Officer and Chief Operating Officer -- Age 60
Mr. Nickoll has been President since April 1977. Since April 1972, he has
been Vice Chairman of the Board and Chief Operating Officer. He has been
Co-Chief Executive Officer since January 1985.
DAVID C. HILTON -- Executive Vice President -- Age 47
Mr. Hilton was elected Executive Vice President in January 1990 and had
served as Chief Financial Officer since November 1984, Senior Vice President
since March 1983 and as Controller from April 1979 through October 1984. He was
elected Executive Vice President of Foothill Capital in June 1985.
PETER E. SCHWAB -- Executive Vice President -- Age 51
Mr. Schwab was elected Executive Vice President in January 1990 and had
served as Senior Vice President since December 1984 and Senior Vice President of
Foothill Capital since February 1983. He was elected President of Foothill
Capital in August 1986.
HENRY K. JORDAN -- Senior Vice President, Chief Financial Officer and
Secretary -- Age 38
Mr. Jordan was elected Senior Vice President in January 1994 and has served
as Chief Financial Officer and Secretary since February 1990. He had served as
Vice President and Controller since November 1984. He was elected Senior Vice
President of Foothill Capital in September 1986.
ITEM 11. EXECUTIVE COMPENSATION.
There is incorporated herein by reference the information from the section
entitled "Executive Compensation" on pages 6 to 13 of the Company's definitive
Proxy Statement, dated March 21, 1995, filed with the Securities and Exchange
Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
There is incorporated herein by reference the information from the section
entitled "Voting Securities" on pages 1 to 3 and "Election of Directors" on
pages 3 to 6 of the Company's definitive Proxy Statement, dated March 21, 1995,
filed with the Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There is incorporated herein by reference the information from the section
entitled "Transactions with Management and Others" on pages 15 to 16 of the
Company's definitive Proxy Statement, dated March 21, 1995, filed with the
Securities and Exchange Commission.
4
<PAGE> 7
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1 and 2. Financial Statements and Financial Statement Schedules
The financial statements and schedules listed in the accompanying Index
to Financial Statements and Financial Statement Schedules are filed as
part of this Form 10-K.
3. List of Exhibits
The exhibits listed on the accompanying Index to Exhibits are filed as
part of this Form 10-K. In addition, following is a list of each
executive compensation plan and arrangement required to be filed as an
exhibit.
<TABLE>
<CAPTION>
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
--------------------------------------------------------------------------
<S> <C>
(A) Employment Agreement -- Don L. Gevirtz; Form 10-K for year ended December
31, 1990, Exhibit 10.1.
(B) Employment Agreement -- John F. Nickoll; Form 10-K for year ended December
31, 1990, Exhibit 10.2.
(C) Form of Employment Agreement -- Senior Management; Form 10-K for year
ended December 31, 1990, Exhibit 10.3.
(D) Amended and Restated Top Executive Incentive Compensation Plan, dated July
1, 1992; Form 10-K for year ended December 31, 1992, Exhibit 10.4.
(E) Amended and Restated Employee Stock Option Plan; Proxy Statement dated
March 21, 1988, Exhibit A.
(F) Flexible Premium Life Insurance, Split Dollar Plan; Form 10-K for year
ended December 31, 1990, Exhibit 10.6.
(G) 1990 Foothill Performance and Equity Incentive Plan; Proxy Statement dated
March 8, 1990, Appendix A.
(H) Supplemental Executive Retirement Plan; Form 10-K for year ended December
31, 1990, Exhibit 10.23.
(I) Retirement Plan for Outside Directors; Form 10-K for year ended December
31, 1990; Exhibit 10.24.
(J) Amended and Restated Agreement of Limited Partnership of Foothill
Partners, L.P., a Delaware limited partnership; Form 10-Q for quarter
ended September 30, 1990, Exhibit 10.36.
(K) First Amendment dated June 29, 1992 to Amended and Restated Agreement of
Limited Partnership of Foothill Partners, L.P., a Delaware limited
partnership; Form 10-Q for quarter ended June 30, 1992, Exhibit 10.17(a).
(L) Agreement of Limited Partnership of Foothill Partners II, L.P., a Delaware
limited partnership, dated December 22, 1992; Form 10-K for year ended
December 31, 1992, Exhibit 10.15.
(M) First Amendment to The Foothill Group, Inc. Supplemental Executive
Retirement Plan; Form 10-K for year ended December 31, 1993, Exhibit
10.8(a)
</TABLE>
5
<PAGE> 8
(b) Reports on Form 8-K
During the quarter ended December 31, 1994 and through the date of this
filing, the following reports on Form 8-K were filed:
<TABLE>
<S> <C>
November 16, 1994 -- Item 7: Financial Statements and Exhibits
February 9, 1995 -- Item 7: Financial Statements and Exhibits
</TABLE>
(c) Exhibits
The exhibits listed on the accompanying Index to Exhibits are filed as
part of this Form 10-K.
6
<PAGE> 9
THE FOOTHILL GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(ITEM 14(A))
<TABLE>
<CAPTION>
PAGE REFERENCES
-----------------------------
INCORPORATED BY
REFERENCE FROM
ANNUAL REPORT
FORM 10-K TO STOCKHOLDERS
--------- ---------------
<S> <C> <C>
Report of Ernst & Young, Independent Auditors...................... 41
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1994 and 1993........ 26
Consolidated Statements of Income for the years ended December
31, 1994, 1993 and 1992....................................... 27
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1994, 1993 and 1992........................ 28
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992.............................. 29
Notes to Consolidated Financial Statements....................... 30-40
Financial Statement Schedules:
III -- Condensed Financial Information of Registrant
(unconsolidated).............................................. 8-11
</TABLE>
All other schedules have been omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the Consolidated
Financial Statements and related notes in the Annual Report to Stockholders for
the year ended December 31, 1994.
7
<PAGE> 10
THE FOOTHILL GROUP, INC.
(PARENT COMPANY)
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF
REGISTRANT (UNCONSOLIDATED)
CONDENSED BALANCE SHEETS (UNCONSOLIDATED)
DECEMBER 31, 1994 AND 1993
ASSETS
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Cash and cash equivalents......................................... $ 1,708,0000 $ 5,409,000
Investments....................................................... 12,916,000 7,839,000
Finance receivables, net.......................................... 10,290,000 7,645,000
Investment in Foothill Capital, at equity......................... 132,309,000 114,133,000
Advances to Foothill Capital...................................... 8,750,000 10,500,000
Prepaid income taxes.............................................. 3,288,000 3,232,000
Other assets...................................................... 8,599,000 9,945,000
------------ ------------
$177,860,000 $158,794,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued and other liabilities..................................... $ 5,451,000 $ 6,646,000
Stockholders' equity.............................................. 172,409,000 152,148,000
------------ ------------
$177,860,000 $158,794,000
=========== ===========
</TABLE>
See accompanying notes.
8
<PAGE> 11
THE FOOTHILL GROUP, INC.
(PARENT COMPANY)
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF
REGISTRANT (UNCONSOLIDATED) (CONTINUED)
CONDENSED STATEMENTS OF INCOME (UNCONSOLIDATED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Interest and fees earned............................ $ 2,510,000 $ 2,435,000 $ 1,964,000
Interest expense.................................... 160,000 283,000 2,706,000
----------- ----------- -----------
Net interest revenue (expense)................. 2,350,000 2,152,000 (742,000)
Asset management fees............................... 6,210,000 6,951,000 3,789,000
Gains from asset sales and partnerships............. 10,350,000 5,082,000 3,637,000
Provision for credit losses......................... 104,000 539,000 30,000
General and administrative expense.................. 4,237,000 3,838,000 2,207,000
----------- ----------- -----------
Income from continuing operations before provision
for income taxes and other items below............ 14,569,000 9,808,000 4,447,000
Provision for income taxes.......................... 6,265,000 4,119,000 1,771,000
----------- ----------- -----------
Income from continuing operations................... 8,304,000 5,689,000 2,676,000
Income (loss) from discontinued operations.......... -- (1,579,000) 563,000
----------- ----------- -----------
Income before items below........................... 8,304,000 4,110,000 3,239,000
Equity in income of Foothill Capital before
extraordinary items............................... 22,772,000 15,134,000 9,458,000
Extraordinary items, net............................ -- (561,000) (552,000)
----------- ----------- -----------
Net income.......................................... $31,076,000 $18,683,000 $12,145,000
========== ========== ==========
Cash dividends from Foothill Capital................ $ -- $ -- $ --
========== ========== ==========
</TABLE>
See accompanying notes.
9
<PAGE> 12
THE FOOTHILL GROUP, INC.
(PARENT COMPANY)
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF
REGISTRANT (UNCONSOLIDATED) (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS (UNCONSOLIDATED)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Income from continuing operations before
extraordinary items............................. $ 31,076,000 $ 19,244,000 $ 12,697,000
Adjustments to reconcile income from continuing
operations before extraordinary items to net
cash provided by operating activities:
Equity in undistributed income of Foothill
Capital before extraordinary items............ (22,772,000) (15,134,000) (9,458,000)
Net (income) loss from discontinued
operations.................................... -- 1,579,000 (563,000)
Provision for credit losses..................... 104,000 539,000 30,000
Amortization of deferred fund and debt issuance
costs......................................... 1,695,000 1,545,000 929,000
Increase (decrease) in accrued and other
liabilities................................... (1,354,000) 2,507,000 (744,000)
Decrease in prepaid income taxes................ 35,000 12,000 1,081,000
Other........................................... (1,281,000) (984,000) (190,000)
------------ ------------ ------------
Net cash provided by operating
activities............................... 7,503,000 9,308,000 3,782,000
------------ ------------ ------------
Cash flows from investing activities:
Net proceeds from investment sales and partnership
distributions................................... 1,159,000 4,448,000 1,446,000
Contributions made to partnerships and purchases of
investments..................................... (5,707,000) (3,950,000) (2,125,000)
Proceeds received from net finance receivables..... 36,132,000 16,063,000 2,099,000
Disbursements made for net finance receivables..... (38,881,000) (22,883,000) (2,700,000)
Advances (to) from discontinued operations......... -- 1,000,000 (1,000,000)
Proceeds from repayments of advances to Foothill
Capital......................................... 1,750,000 1,750,000 1,750,000
------------ ------------ ------------
Net cash used in investing activities...... (5,547,000) (3,572,000) (530,000)
------------ ------------ ------------
Cash flows from financing activities:
Net (increase) decrease in deferred costs.......... 326,000 (4,191,000) (1,156,000)
Payments on senior notes payable................... -- -- (23,682,000)
Payments on and retirements of subordinated notes
and debentures.................................. -- -- (6,376,000)
Dividends paid on preferred stock.................. (270,000) (270,000) (415,000)
Issuance of common stock, net of related costs..... 1,487,000 2,276,000 29,293,000
Repurchase and retirement of common stock.......... (3,724,000) -- --
Dividends paid per common share ($.21 in 1994, $.09
in 1993)........................................ (3,476,000) (1,396,000) --
------------ ------------ ------------
Net cash used in financing activities...... (5,657,000) (3,581,000) (2,336,000)
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents........................................ (3,701,000) 2,155,000 916,000
Cash and cash equivalents at beginning of year....... 5,409,000 3,254,000 2,338,000
------------ ------------ ------------
Cash and cash equivalents at end of year............. $ 1,708,000 $ 5,409,000 $ 3,254,000
=========== =========== ===========
Cash paid during the year for:
Interest expense................................... $ 158,000 $ 278,000 $ 3,314,000
Income taxes....................................... $ 24,463,000 $ 14,978,000 $ 12,140,000
</TABLE>
See accompanying notes.
10
<PAGE> 13
THE FOOTHILL GROUP, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNCONSOLIDATED)
NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES
For financial reporting purposes, Foothill Capital's provision for income
taxes is determined on a separate company basis. Foothill Capital's tax benefits
are not limited by the consolidated group's ability to utilize these tax
benefits. The difference between the provision of Foothill Capital and the
consolidated provision is accounted for by the parent company.
The presentation of certain prior year amounts has been conformed to the
1994 presentation.
All previously reported financial results of Foothill Thrift and Loan are
classified as discontinued operations.
For information concerning other significant accounting policies followed,
restrictions on investments in subsidiaries and extraordinary items, reference
is made to Notes to Consolidated Financial Statements in the Annual Report to
Stockholders for the year ended December 31, 1994.
NOTE 2 -- INDEBTEDNESS
See Notes 4 and 5 of Notes to Consolidated Financial Statements in the
Annual Report to Stockholders for the year ended December 31, 1994.
NOTE 3 -- CONTINGENCIES
See Note 10 of Notes to Consolidated Financial Statements in the Annual
Report to Stockholders for the year ended December 31, 1994.
11
<PAGE> 14
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.
THE FOOTHILL GROUP, INC.
By: /s/ DON L. GEVIRTZ
------------------------------------
Don L. Gevirtz
Chief Executive Officer
Date: March 21, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------- ---------------
<S> <C> <C>
DON L. GEVIRTZ Chairman of the Board and Chief March 21, 1995
- --------------------------------------------- Executive Officer
Don L. Gevirtz
JOHN F. NICKOLL President, Vice Chairman of the March 21, 1995
- --------------------------------------------- Board, Co-Chief Executive
John F. Nickoll Officer and Chief Operating
Officer
HENRY K. JORDAN Senior Vice President, Chief March 21, 1995
- --------------------------------------------- Financial Officer and Secretary
Henry K. Jordan
WARREN BENNIS Director March 21, 1995
- ---------------------------------------------
Warren Bennis
JOSEPH J. FINN-EGAN Director March 21, 1995
- ---------------------------------------------
Joseph J. Finn-Egan
JEFFREY A. LIPKIN Director March 21, 1995
- ---------------------------------------------
Jeffrey A. Lipkin
ARTHUR MALIN Director March 21, 1995
- ---------------------------------------------
Arthur Malin
STEVEN L. VOLLA Director March 21, 1995
- ---------------------------------------------
Steven L. Volla
</TABLE>
12
<PAGE> 15
THE FOOTHILL GROUP, INC.
INDEX TO EXHIBITS
(ITEM 14(C))
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ --------------------------------------------------------------------- ------------
<S> <C> <C>
3.1 Certificate of Incorporation (as amended)(18)........................
3.2 By-Laws as amended(18)...............................................
3.2 (a) Amendment to By-Laws dated February 1, 1991(18)......................
4.1 Preferred Stock Purchase Agreement including exhibits dated May 10,
1991 by and between the Registrant and Recovery Equity Investors,
L.P.(12).............................................................
10.1 Employment Agreement -- Don L. Gevirtz(14)...........................
10.2 Employment Agreement -- John F. Nickoll(14)..........................
10.3 Form of Employment Agreement -- Senior Management(14)................
10.4 Amended and Restated Top Executive Incentive Compensation Plan dated
July 1, 1992(21).....................................................
10.5 Amended and Restated Employee Stock Option Plan(5)...................
10.6 Flexible Premium Life Insurance, Split Dollar Plan(14)...............
10.7 1990 Foothill Performance and Equity Incentive Plan(11)..............
10.8 Supplemental Executive Retirement Plan(14)...........................
10.8 (a) First Amendment to The Foothill Group, Inc. Supplemental Executive
Retirement Plan(22)..................................................
10.9 Retirement Plan for Outside Directors(14)............................
10.10 Agreement of Foothill Managers Limited, a California Limited
Partnership, as amended(4)...........................................
10.11 Agreement of Foothill Managers Limited II, a California Limited
Partnership(7).......................................................
10.12 Agreement of Limited Partnership of The Foothill Fund, a California
Limited Partnership(6)...............................................
10.12(a) First Amendment to Agreement of Limited Partnership of The Foothill
Fund(6)..............................................................
10.12(b) Second Amendment to Agreement of Limited Partnership of The Foothill
Fund(7)..............................................................
10.12(c) Third Amendment to Agreement of Limited Partnership of The Foothill
Fund(8)..............................................................
10.13 Agreement of Limited Partnership of Foothill Recovery Fund, a
California Limited Partnership(7)....................................
10.13(a) First Amendment to Agreement of Limited Partnership of Foothill
Recovery Fund, a California Limited Partnership(8)...................
10.13(b) Second Amendment to Agreement of Limited Partnership of Foothill
Recovery Fund, a California Limited Partnership(8)...................
10.14 Amended and Restated Agreement of Limited Partnership of Foothill
Partners, L.P., a Delaware Limited Partnership(10)...................
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ --------------------------------------------------------------------- ------------
<S> <C> <C>
10.14(a) First Amendment dated June 29, 1992 to Amended and Restated Agreement
of Limited Partnership of Foothill Partners, L.P., a Delaware Limited
Partnership(17)......................................................
10.15 Agreement of Limited Partnership of Foothill Partners II, L.P., a
Delaware Limited Partnership dated December 22, 1992(21).............
10.16 Loan Agreement dated November 10, 1980 by and between Foothill
Capital Corporation and Connecticut General Life Insurance
Company(4)...........................................................
10.16(a) First Amendment to Loan Agreement dated March 16, 1981 between
Foothill Capital Corporation and Connecticut General Life Insurance
Company(4)...........................................................
10.17 Loan Agreement dated January 23, 1990 by and between Foothill Capital
Corporation and various lenders as noted in the loan agreement(15)...
10.17(a) First Amendment dated May 30, 1991 to Loan Agreement dated January
23, 1990 by and between Foothill Capital Corporation and various
lenders as noted in the amendment(13)................................
10.18 Loan Agreement dated June 15, 1990 by and between Foothill Capital
Corporation and various lenders as noted in the loan agreement(9)....
10.18(a) First Amendment dated May 30, 1991 to Loan Agreement dated June 15,
1990 by and between Foothill Capital Corporation and various lenders
as noted in the amendment(13)........................................
10.19 Loan Agreement dated May 8, 1991 by and between Foothill Capital
Corporation and various lenders as noted in the loan agreement(12)...
10.20 Loan Agreement dated January 31, 1992 by and between Foothill Capital
Corporation and various lenders as noted in the loan agreement(18)...
10.21 Loan Agreement dated as of April 29, 1992 by and between Foothill
Capital Corporation and various lenders as noted in the loan
agreement(19)........................................................
10.22 Omnibus Amendment dated October 1, 1992 to Loan Agreements dated
November 10, 1980, January 23, 1990, June 15, 1990, May 8, 1991,
January 31, 1992 and April 29, 1992 by and between Foothill Capital
Corporation and various lenders as noted in the amendment(21)........
10.23 Note Agreement dated November 1, 1992 by and between Foothill Capital
Corporation and various lenders as noted in the note agreement(21)...
10.24 Note Agreement dated October 1, 1993 by and between Foothill Capital
Corporation and various lenders as noted in the note agreement(22)...
10.25 Note agreement dated November 1, 1994 by and between Foothill Capital
Corporation and Principal Mutual Life Insurance Company(1)...........
10.26 Floating Rate Note with a principal amount of $10,000,000 due
September 14, 1995(24)...............................................
10.27 Floating Rate Note with a principal amount of $10,000,000 due
September 28, 1995(24)...............................................
10.28 Floating Rate Note with a principal amount of $5,000,000 due
September 15, 1995(24)...............................................
10.29 Floating Rate Note with a principal amount of $5,000,000 due
September 16, 1996(24)...............................................
10.30 Floating Rate Note with a principal amount of $10,000,000 due
November 21, 1995(1).................................................
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ --------------------------------------------------------------------- ------------
<S> <C> <C>
10.31 ISDA Interest Rate Swap Agreement dated May 17, 1990 by and between
Foothill Capital Corporation and Continental Bank N.A.(9)............
10.31(a) First Amendment dated as of March 13, 1992 to ISDA Interest Rate Swap
Agreement dated May 17, 1990 by and between Foothill Capital
Corporation and Continental Bank N.A.(16)............................
10.32 ISDA Interest Rate Swap Agreement dated May 21, 1990 by and between
Foothill Capital Corporation and Commonwealth Bank of Australia(9)...
10.33 ISDA Interest Rate and Currency Exchange Agreement dated March 4,
1992 between Foothill Capital Corporation and Sanwa Bank
California(16).......................................................
10.34 ISDA Interest Rate Swap Agreement dated March 12, 1992 between
Foothill Capital Corporation and National Westminster Bank USA(16)...
10.35 ISDA Master Agreement dated as of August 24, 1993 between Foothill
Capital Corporation and Bank of America NT&SA(20)....................
10.36 ISDA Interest Rate and Currency Exchange Agreement dated as of July
19, 1993 between Foothill Capital Corporation and Westdeutche
Landesbank Girozentrale(20)..........................................
10.37 ISDA Interest Rate Swap Agreement dated as of February 23, 1994 by
and between Foothill Capital Corporation and National Bank of
Canada(23)...........................................................
10.38 ISDA Interest Rate Swap Agreement dated July 12, 1994 by and between
Foothill Capital Corporation and The Industrial Bank of Japan,
Limited(24)..........................................................
10.39 Revolving Credit Agreement dated as of June 30, 1994 among Foothill
Capital Corporation, Bank of America NT&SA as agent, and other banks
named in the loan agreement(23)......................................
10.40 Multiyear Credit Agreement dated as of June 30, 1994 among Foothill
Capital Corporation, Bank of America, NT&SA as agent, and other banks
in the loan agreement(23)............................................
10.40(a) Amendment Number One dated February 1, 1995 to the Multiyear Credit
Agreement among Foothill Capital Corporation, Bank of America NT&SA
as agent and other banks named in the loan agreement(1)..............
10.41 Third Amended and Restated Letter of Credit and Guaranty Agreement
dated as of August 1, 1994 among Foothill Capital Corporation, Union
Bank as agent and issuing bank(24)...................................
10.42 Amended and Restated Letter of Credit and Guaranty Agreement dated as
of August 1, 1994 among Foothill Capital Corporation, Bank of America
NT&SA as Agent and Issuing Bank and other banks named in the
agreement(1).........................................................
11.1 Computation of Earnings Per Common Share(1)..........................
13.1 Annual Report to Stockholders for the year ended
December 31, 1994(1 and 2)...........................................
22.1 Subsidiaries of the Registrant(1)....................................
23.1 Consent of Independent Auditors(1)...................................
27 Financial Data Schedule for Commercial and Industrial Companies(1)...
28 Consolidated Financial Statements of Foothill Capital Corporation for
the year ended December 31, 1994(1)..................................
</TABLE>
- ---------------
(1) Filed herewith.
<PAGE> 18
(2) Except for the portions thereof which are expressly incorporated by
reference into this Form 10-K, such Annual Report to Stockholders is not
deemed filed as part of this report.
(3) Incorporated herein by reference from Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1987.
(4) Incorporated herein by reference from Registrant's Annual Report on Form
10-K for its year ended December 31, 1986.
(5) Incorporated herein by reference from Exhibit A of Registrant's 1988 proxy
statement dated March 21, 1988.
(6) Incorporated herein by reference from Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1988.
(7) Incorporated herein by reference from Registrant's Annual Report on Form
10-K for its year ended December 31, 1988.
(8) Incorporated herein by reference from Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1989.
(9) Incorporated herein by reference from Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1990.
(10) Incorporated herein by reference from Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1990.
(11) Incorporated herein by reference from Appendix A of Registrant's 1990 proxy
statement dated March 8, 1990.
(12) Incorporated herein by reference from Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1991.
(13) Incorporated herein by reference from Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1991.
(14) Incorporated herein by reference from Registrant's Annual Report on Form
10-K for its year ended December 31, 1990.
(15) Incorporated herein by reference from Registrant's Annual Report on Form
10-K for its year ended December 31, 1989.
(16) Incorporated herein by reference from Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1992.
(17) Incorporated herein by reference from Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1992.
(18) Incorporated herein by reference from Registrant's Annual Report on Form
10-K for its year ended December 31, 1991.
(19) Incorporated herein by reference from Exhibit 10.34 to Registrant's
Amendment No. 2 to Form S-2 Registration Statement No. 33-46673.
(20) Incorporated herein by reference from Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993.
(21) Incorporated herein by reference from Registrant's Annual Report on Form
10-K for its year ended December 31, 1992.
(22) Incorporated herein by reference from Registrant's Annual Report on Form
10-K for its year ended December 31, 1993.
(23) Incorporated herein by reference from Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994.
(24) Incorporated herein by reference from Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994.
<PAGE> 1
[CONFORMED COPY]
EXHIBIT 10.25
FOOTHILL CAPITAL CORPORATION
NOTE AGREEMENT
Dated as of November 1, 1994
Re: $20,000,000 8.06% Senior Notes,
Due May 15, 1997
<PAGE> 2
TABLE OF CONTENTS
(Not a part of the Agreement)
<TABLE>
<CAPTION>
SECTION HEADING PAGE
<S> <C> <C>
SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Description of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Commitment, Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. PREPAYMENT OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.1. Required Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.2. Optional Prepayment with Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.3. Prepayment of Notes Upon a Change of Control . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.4. Notice of Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.5. Application of Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.6. Direct Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 3. REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.1. Representations of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.2. Representations of the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 4. CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.1. Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.2. Waiver of Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 5. FINANCIAL STATEMENTS AND OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 6. INSPECTION OF PROPERTIES AND BOOKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 7. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.1. Books of Record and Account; Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.2. Payment of Taxes; Corporate Existence; Maintenance of Properties;
Compliance with Statutes, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 7.3. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 7.4. Payment of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 7.5. Prohibition on Indebtedness Having Priority Rights . . . . . . . . . . . . . . . . . . . 16
Section 7.6. Limitations on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.7. Limitation on Liens or Subordination of Rights . . . . . . . . . . . . . . . . . . . . . 17
Section 7.8. Prohibition on Sales and Lease-Backs . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.9. Limitation on Investments and Guarantees . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7.10. Limitations on Dividends and Other Restricted Payments . . . . . . . . . . . . . . . . . 21
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 7.11. Minimum Adjusted Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 7.12. Limitation on Issuance of Shares of Restricted Subsidiaries; Disposition
of Shares and Indebtedness of Restricted Subsidiaries; Ownership by
Unrestricted Subsidiary of Shares or Indebtedness of a Restricted Subsidiary;
Limitation on Purchase of Shares or Subordinated Indebtedness of the Company
by a Restricted Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 7.13. Limitation on Restricted Subsidiary's or Company's Consolidation, Merger or
Disposition of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.14. Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 7.15. Permitted Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.16. Limitation on Sale of Receivables with Recourse or at Discount . . . . . . . . . . . . . . 26
Section 7.17. Limitation on Nonperforming Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.18. Limitation on Discount Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 7.19. Limitation on Borrower Concentration . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 8. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8.1. Definitions of Capitalized Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8.2. Other Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 8.3. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 9. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 9.1. Events of Default Defined; Acceleration of Maturity . . . . . . . . . . . . . . . . . . . . 46
Section 9.2. Suits for Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 9.3. Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 9.4. Remedies Not Waived . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 9.5. Notice by the Company of Acceleration and Certain Other Action . . . . . . . . . . . . . . 49
SECTION 10. AMENDMENTS, WAIVERS AND CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.1. Consent Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.2. Solicitation of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.3. Effect of Amendment or Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 11.1. Registered Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 11.2. Exchange of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 11.3. Loss, Theft, Etc. of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 11.4. Expenses, Stamp Tax Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.5. Powers and Rights Not Waived; Remedies Cumulative; Waiver of Jury Trial . . . . . . . . . . 51
Section 11.6. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.7. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 11.8. Survival of Covenants and Representations . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 11.9. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 11.10. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 11.11. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
-iii-
<PAGE> 5
ATTACHMENTS TO NOTE AGREEMENT:
<TABLE>
<S> <C> <C>
Schedule I -- Name and Address of Purchaser and Amount of Commitment
Schedule II -- Description of Indebtedness for Borrowed Money, Leases and Liens
Schedule III -- Subsidiaries of the Company
Exhibit A -- Form of 8.06% Senior Notes, due May 15, 1997
Exhibit B -- Representations and Warranties of the Company
Exhibit C -- Description of Special Counsel's Closing Opinion
Exhibit D -- Description of Closing Opinion of Independent Counsel for the Company
</TABLE>
-iv-
<PAGE> 6
FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025
NOTE AGREEMENT
Re: $20,000,000 8.06% Senior Notes,
Due May 15, 1997
Dated as of
November 1, 1994
To the Purchaser named in Schedule I
hereto which is a signatory of this
Agreement
Ladies and Gentlemen:
The undersigned, Foothill Capital Corporation, a California
corporation (the "Company"), agrees with you as follows:
SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT.
Section 1.1. Description of Notes. The Company has authorized
the issue and sale of $20,000,000 aggregate principal amount of its 8.06%
Senior Notes, due May 15, 1997 (the "Notes") to be dated the date of issue, to
bear interest from such date at the rate of 8.06% per annum, payable
semiannually on the fifteenth day of each May and November in each year
(commencing on the first such day after the date of issue) and at maturity and
to bear interest on overdue principal (including any overdue required or
optional prepayment of principal) and premium (if any) and (to the extent
legally enforceable) on any overdue installment of interest at the rate of
10.06% per annum after the date due, whether by acceleration or otherwise,
until paid, to be expressed to mature on May 15, 1997, and to be substantially
in the form attached hereto as Exhibit A. Interest on the Notes shall be
computed on the basis of a 360-day year of twelve 30-day months. The Notes are
not subject to prepayment or redemption at the option of the Company prior to
their expressed maturity dates except on the terms and conditions and in the
amounts and with the premium (if any) set forth in SECTION 2 of this Agreement.
The terms which are capitalized herein shall have the meanings set forth in
SECTION 8.1 unless the context shall otherwise require.
Section 1.2. Commitment, Closing Date. Subject to the terms and
conditions hereof and on the basis of the representations and warranties
hereinafter set forth, the Company agrees to issue and sell to you, and you
agree to purchase from the Company, Notes in the
<PAGE> 7
principal amount set forth opposite your name on Schedule I hereto at a price
of 100% of the principal amount thereof on the Closing Date hereafter
mentioned.
Delivery of the Notes will be made at the offices of Chapman and
Cutler, 111 West Monroe Street, Chicago, Illinois 60603, against payment
therefor in Federal Reserve or other funds current and immediately available at
the principal office of Chemical Bank. in the amount of the purchase price at
10:00 A.M., Chicago, Illinois, on November 14, 1994 or such later date (not
later than November 15, 1994) as the Company shall specify by not less than
three Business Days prior written notice to you (the "Closing Date"). The
Notes delivered to you on the Closing Date will be delivered to you in the form
of a single registered Note for the full amount of your purchase (unless
different denominations are specified by you), registered in your name or in
the name of such nominee, as may be specified in Schedule I attached hereto and
in substantially the form attached hereto as Exhibit A.
SECTION 2. PREPAYMENT OF NOTES.
No prepayment of the Notes may be made except to the extent and in the
manner expressly provided in this Agreement.
Section 2.1. Required Prepayments. No prepayments shall be
required with respect to the Notes. In the event that the Company shall prepay
less than all of the Notes pursuant to SECTION 2.2 hereof, such prepayments
shall be credited in each case first, against the final maturities of the
Notes being prepaid.
Section 2.2. Optional Prepayment with Premium. Upon compliance
with $2.4, the Company shall have the privilege, at any time and from time to
time, of prepaying the outstanding Notes, either in whole or in part (but if in
part then in a minimum principal amount of $1,000,000) by payment of the
principal amount of the Notes, or portion thereof to be prepaid, and accrued
interest thereon to the date of such prepayment, together with a premium equal
to the Make-Whole Amount, determined as of the prepayment date and calculated
two Business Days prior to the date of such prepayment pursuant to this $2.2.
Section 2.3. Prepayment of Notes Upon a Change of Control. (a)
In the event that any Change of Control shall occur or the Company shall have
actual knowledge of any impending Change of Control, the Company will give
written notice (the "Company Notice") of such fact by overnight courier in the
manner provided in SECTION 11.6 hereof to the holders of the Notes. The Company
Notice shall be sent promptly upon receipt of such knowledge by the Company and
in any event no later than three days following the occurrence of a Change of
Control. The Company Notice shall (1) be dated the date such Company Notice is
sent by overnight courier in the manner provided in SECTION 11.6 hereof, (2)
describe the facts and circumstances of such Change of Control in reasonable
detail, (3) make reference to this SECTION 2.3(A) and the right of the holders
of the Notes to require payment on the terms and conditions provided for in
this SECTION 2.3(A), (4) offer in writing to prepay the outstanding Notes,
together with accrued interest to the date of prepayment and a premium equal
to the then applicable Make-Whole Amount, (5) specify a date for such
prepayment (the "Change of Control Prepayment Date") which Change of Control
Prepayment Date shall be the later of (i)
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<PAGE> 8
the date of such Change of Control or (ii) a date not more than 60 days nor
less than 30 days following the date of such Company Notice and (6) set forth a
sample computation of the Make-Whole Amount. Each holder of the then
outstanding Notes shall have the right to accept such offer and require
prepayment of the Notes held by such holder by written notice to the Company (a
"Noteholder Notice") sent by overnight courier in the manner provided in
SECTION 11.6 hereof not later than 25 days after the date of the Company
Notice. Not later than two Business Days prior to the Change of Control
Prepayment Date, the Company shall provide each holder of a Note which has so
accepted such offer of prepayment written notice of the premium, if any,
payable in connection with such prepayment and, whether or not any premium is
payable, a reasonably detailed computation of the Make-Whole Amount certified
as true and correct by a Responsible Officer of the Company. The Company shall
on the Change of Control Prepayment Date prepay all, but not less than all,
Notes held by holders which have so accepted such offer of prepayment. The
prepayment price of the Notes payable upon the occurrence of a Change of
Control shall be an amount equal to 100% of the outstanding principal amount of
the Notes so to be prepaid and accrued interest thereon to the date of such
prepayment, together with a premium equal to the then applicable Make-Whole
Amount determined as of the Change of Control Prepayment Date and calculated
two Business Days prior to the date of such prepayment pursuant to this SECTION
2.3(A).
(b) In the event that the holder of any Note shall have delivered
to the Company a Noteholder Notice pursuant to SECTION 2.3(A), then the
Company shall promptly, and in any event within 5 days after receipt of such
Noteholder Notice, deliver by overnight courier in the manner provided in
SECTION 11.6 hereof written notice (which notice shall be dated the date such
notice is sent by overnight courier in the manner provided in SECTION 11.6
hereof) of such Noteholder Notice to each other holder of the Notes and,
notwithstanding the provisions of SECTION 2.3(A), the right of each such other
holder to accept the offer of prepayment and require prepayment of the Notes
shall remain in effect until the later to occur of (1) 30 days after the date
of the Company Notice and (2) 15 days after the date of the notice required to
be delivered pursuant to this SECTION 2.3(B); provided, however, that the
provisions of this clause (2) shall only apply with respect to notices required
to be sent pursuant to this SECTION 2.3(B) to the extent that such notices
relate to Noteholder Notices made prior to the expiration of the period
specified in SECTION 2.3(A).
(c) Without limiting the foregoing, notwithstanding any failure on
the part of the Company to give the Company Notice herein required as a result
of the occurrence of a Change of Control, each holder of the Notes shall have
the right to require the Company to prepay, and the Company will prepay, such
holder's Notes in full, together with accrued interest thereon to the date of
prepayment and a premium equal to the then applicable Make-Whole Amount;
provided that each holder of the Notes shall so notify the Company of its
election to require the Company to prepay its Notes in accordance with this
SECTION 2.3(C) after such holder has actual knowledge of any such
Change of Control by overnight courier in the manner provided in SECTION 11.6
hereof. Notice of any required prepayment pursuant to this SECTION 2.3(C)
shall be delivered by a holder of the Notes (which was entitled to, but did not
receive, such Company Notice) to the Company after such holder has actual
knowledge of such Change of Control. On the date (the "Change of Control
Delayed Prepayment Date") designated in such holder's notice (which shall be
not more than 60 days nor less than 30 days following the date of such holder's
notice), the Company shall prepay in full all the Notes held by such holder,
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<PAGE> 9
together with accrued interest thereon to the date of prepayment and a premium
equal to the then applicable Make-Whole Amount. If the holder of any Note
gives any notice pursuant to this SECTION 2.3(C), the Company shall give
a Company Notice within three days of receipt of such notice and identify
the Change of Control Delayed Prepayment Date to all other holders of the Notes
and each of such holders shall then and thereupon have the right to accept the
Company's offer to prepay the Notes held by such holder and require prepayment
of such Notes by delivery of a Noteholder Notice within 21 days of the date of
such Company Notice; provided only that any date for prepayment of such Notes
shall be the Change of Control Delayed Prepayment Date. Not later than two
Business Days prior to the Change of Control Delayed Prepayment Date, the
Company shall provide each holder of a Note which has so accepted such offer of
prepayment written notice of the premium, if any, payable in connection with
such prepayment and, whether or not any premium is payable, a reasonably
detailed computation of the Make-Whole Amount certified as true and correct by
a Responsible Officer of the Company. On the Change of Control Delayed
Prepayment Date, the Company shall prepay in full the Notes of each holder
thereof which has accepted such offer of prepayment at a prepayment price of
100% of the outstanding principal amount of the Notes so to be prepaid and
accrued interest thereon to the date of such prepayment, together with a
premium equal to the applicable Make-Whole Amount determined as of the Change
of Control Delayed Prepayment Date and calculated two Business Days prior to
the date of such prepayment pursuant to this SECTION 2.3(C).
(d) For purposes of this SECTION 2.3, the term "Change of Control"
shall have the following meaning:
(1) In the case of the Company,
(i) an issuance by the Company of, or a binding
written commitment by the Company to issue, its voting Shares,
or a sale or other disposition of, or binding written
commitment to sell or otherwise dispose of, voting Shares of
the Company, whether by the Company, The Foothill Group, Inc.,
any other Subsidiary of The Foothill Group, Inc., or any other
Person, which issuance, sale or other disposition, or
commitment to issue, sell or otherwise dispose of, has not
been consented to in writing by the holder or holders of 100%
of the then outstanding Notes, and which either
(A) results or will result in The
Foothill Group, Inc., directly or through one or more
of its Subsidiaries, owning or controlling less than
51% of the then outstanding voting Shares of the
Company (calculated by number of votes), or
(B) occurs or will occur during any
period in which The Foothill Group, Inc., directly or
through one or more of its Subsidiaries, owns or
controls less than 51% of the then outstanding voting
Shares of the Company (calculated by number of votes)
and does not result in an increase in the percentage
of such voting Shares so owned and controlled by The
Foothill Group, Inc.; or
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<PAGE> 10
(ii) the election of a majority of the members of
the Board against the recommendation of the management of the
Company or Board which was incumbent immediately prior to such
election; or
(iii) the ceasing of continuous and active
participation in the Company's operations (which shall be
deemed to include a material reduction in such Person's
responsibilities relative to those performed as of the date
hereof) by any two of the following: John F. Nickoll, David
C. Hilton and Peter E. Schwab; provided, however, that if the
Person or Persons assuming the responsibilities of John F.
Nickoll, David C. Hilton or Peter E. Schwab shall be
satisfactory to 66-2/3% of the holders of the then outstanding
Notes, as evidenced by a written confirmation thereof, such
event shall not constitute a Change of Control; and
(2) In the case of The Foothill Group, Inc.,
(i) the acquisition by any Person (other than The
Foothill Group, Inc.), or by any two or more Persons acting in
concert (which group will be deemed a "Person" for purposes of
this definition), of 50% or more of the then outstanding
voting Shares of The Foothill Group, Inc. (calculated by
number of votes), which acquisition has not been consented to
in writing by the holder or holders of 100% of the then
outstanding Notes; or
(ii) the election of a majority of the members of
the board of directors of The Foothill Group, Inc. against the
recommendation of the management or board of directors of The
Foothill Group, Inc. which was incumbent immediately prior to
such election.
For purposes hereof, in any case where voting Shares of the Company
are owned or controlled by a Subsidiary of The Foothill Group, Inc., the
percentage of voting Shares of the Company deemed to be owned or controlled by
The Foothill Group, Inc. as a result of such Subsidiary's ownership or control
shall be determined by multiplying the percentage of the voting Shares of such
Subsidiary which are owned and controlled by The Foothill Group, Inc. by the
percentage of the voting Shares of the Company which are owned and controlled
by such Subsidiary.
In the case of a Change of Control event described in Clause (2)(i) of
this definition, if all of the then outstanding unsecured senior debt
securities of the Person acquiring the voting Shares are of Investment Grade
Rating, the consent of the holders of the then outstanding Notes described in
such clause to such event shall not unreasonably be withheld. Notwithstanding
the consent of the holders of Notes to a Change of Control event described in
Clause (2)(i) of this definition, if within six months immediately following
any such event the rating of any of the then outstanding senior debt securities
of the Person having acquired the voting Shares is or becomes lower than
Investment Grade Rating, such occurrence shall be deemed a separate Change of
Control event. For purposes hereof, an "Investment Grade Rating" means (i) a
rating equal to or higher than "BBB" by Standard & Poor's Corporation or any
successor thereto ("S&P") and equal to or higher than "Baa2" by Moody's
Investors
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<PAGE> 11
Service, Inc. or any successor thereto ("Moody's"), or (ii) in the event the
applicable senior debt securities are not rated by both S&P and Moody's, (A)
the rating described in (i) for either S&P or Moody's, and (B) a rating equal
to or higher than "BBB" by Duff & Phelps Inc. or any successor thereto or by
Fitch Investors Service, Inc. or any successor thereto, or a comparable rating
by another nationally recognized rating organization, which rating and
organization are approved by all of the holders of the then outstanding Notes.
Section 2.4. Notice of Optional Prepayments. The Company will
give notice of any prepayment of the Notes then to be prepaid pursuant to
SECTION 2.2 to each holder thereof not less than 30 days nor more than
60 days before the date fixed for such optional prepayment specifying (a) such
date, (b) the principal amount of the holder's Notes to be prepaid on such
date, (c) that a premium may be payable, (d) the date when such premium will be
calculated, (e) the estimated premium, and (f) the accrued interest applicable
to the prepayment. Such notice of prepayment shall also certify all facts (if
any) which are conditions precedent to any such prepayment. Notice of
prepayment having been so given, the aggregate principal amount of the Notes
specified in such notice, together with accrued interest thereon and the
premium (if any) payable with respect thereto shall become due and payable on
the prepayment date specified in said notice. Two Business Days prior to the
prepayment date specified in such notice, the Company shall provide each holder
of a Note then to be prepaid written notice of the premium (if any) payable in
connection with such prepayment and, whether or not any premium is payable, a
reasonably detailed computation of the Make-Whole Amount.
The Company will give notice of any prepayment of the Notes then to be
prepaid pursuant to SECTION 2.2 to each other holder of the Notes not
less than 30 nor more than 60 days before the date fixed for such optional
prepayment.
Section 2.5. Application of Prepayments. All partial
prepayments (including, without limitation, optional prepayments under
SECTION 2.2 but excluding prepayments pursuant to SECTION 2.3) shall be applied
on all outstanding Notes ratably in accordance with the unpaid principal amount
thereof.
Section 2.6. Direct Payment. Notwithstanding anything to the
contrary contained in this Agreement or the Notes, in the case of any
Note owned by you or your nominee or owned by any subsequent Institutional
Holder which has given written notice to the Company requesting that the
provisions of this SECTION 2.6 shall apply, the Company will punctually, and in
any event not later than 12:00 noon New York, New York time, pay when due the
principal thereof, interest thereon and premium (if any) due with respect to
said principal, without any presentment thereof, directly to you, to your
nominee or to such subsequent Institutional Holder at your address or your
nominee's address set forth in Schedule I hereto or such other address as you,
your nominee or such subsequent Institutional Holder may from time to time
designate in writing to the Company or, if a bank account with a United States
bank is designated for you or your nominee on Schedule I hereto or in any
written notice to the Company from you, from your nominee or from any such
subsequent Institutional Holder, the Company will make such payments in
immediately available Federal funds to such bank account, marked for attention
as indicated, or in such other manner or to such other account in any United
States bank as you, your nominee or any such subsequent Institutional Holder
may
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<PAGE> 12
from time to time direct in writing. In the event any payment is received
after 12:00 noon New York, New York time on any payment date, such payment
shall be deemed to have been received on the Business Day next succeeding the
date of such payment.
SECTION 3. REPRESENTATIONS.
Section 3.1. Representations of the Company. The Company
represents and warrants that all representations and warranties set forth in
Exhibit B are true and correct as of the date hereof and are incorporated
herein by reference with the same force and effect as though herein set forth
in full.
Section 3.2. Representations of the Purchaser. (a) You
represent, and in entering into this Agreement the Company understands, that
you are acquiring the Notes for the purpose of investment and not with a view
to the distribution thereof, and that you have no present intention of selling,
negotiating or otherwise disposing of the Notes; it being understood, however,
that the disposition of your property shall at all times be and remain within
your control.
(b) You further represent that: (1) you are acquiring all or a
portion of the Notes with assets from your general account and not with the
assets of any separate account in which any employee benefit plan has any
interest; or (2) no part of the funds to be used by you to purchase the Notes
constitutes assets allocated to any separate account maintained by you such
that the application of such funds constitutes a prohibited transaction under
Section 406 of ERISA; or (3) all or a part of such funds constitute assets of
one or more separate accounts, trusts or a commingled pension trust maintained
by you, and you have disclosed to the Company the names of such employee
benefit plans whose assets in such separate account or accounts or pension
trusts exceed 10% of the total assets or are expected to exceed 10% of the
total assets of such account or accounts or trusts as of the date of such
purchase and the Company has advised you in writing (and in making the
representations set forth in this clause (3) you are relying on such advice)
that the Company is not a party-in-interest nor are the Notes employer
securities with respect to the particular employee benefit plan disclosed to
the Company by you as aforesaid (for the purpose of this clause (3), all
employee benefit plans maintained by the same employer or employee organization
are deemed to be a single plan). As used in this SECTION 3.2(B), the terms
"separate account," "party-in-interest," "employer securities," and "employee
benefit plan" shall have the respective meanings assigned to it in Department
of Labor Regulation 29 C.F.R. 2510.3-101.
SECTION 4. CLOSING CONDITIONS.
Section 4.1. Conditions. Your obligation to purchase the Notes
on the Closing Date shall be subject to the performance by the Company of its
agreements hereunder which by the terms hereof are to be performed at or prior
to the time of delivery of the Notes and to the following further conditions
precedent:
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<PAGE> 13
(a) Closing Certificate. You shall have received a
certificate dated the Closing Date, signed by the President, an
Executive Vice President or a Senior Vice President of the Company,
the truth and accuracy of which shall be a condition to your
obligation to purchase the Notes proposed to be sold to you and to the
effect that (1) the representations and warranties of the Company set
forth in Exhibit B hereto are true and correct on and with respect to
the Closing Date, (2) the Company has performed all of its obligations
hereunder which are to be performed on or prior to the Closing Date,
(3) no Event of Default or event which with the lapse of time or
notice and lapse of time would become an Event of Default has occurred
and is continuing, and (4) no Change of Control has occurred and the
Company does not have actual knowledge of any impending Change of
Control.
(b) Legal Opinions. You shall have received from Chapman
and Cutler, who are acting as your special counsel in this
transaction, from Buchalter, Nemer, Fields & Younger, a Professional
Corporation, independent counsel for the Company, their respective
opinions dated the Closing Date, in form and substance satisfactory to
you, and covering the matters set forth in Exhibits C and D
respectively, hereto.
(c) Company's Existence and Authority. On or prior to
the Closing Date, you shall have received, in form and substance
reasonably satisfactory to you and your special counsel, such
documents and evidence with respect to the Company as you may
reasonably request in order to establish the existence and good
standing of the Company and the authorization of the transactions
contemplated by this Agreement.
(d) Amendments, Waivers or Consents. The Company shall
have obtained any consents or approvals required to be obtained from
any holder or holders of any outstanding security of the Company and
any amendments of agreements pursuant to which any security may have
been issued which shall be necessary to permit the consummation of the
transactions contemplated by this Agreement.
(e) Private Placement Number. On or prior to the Closing
Date, the Company shall have (1) duly made the appropriate filings
with Standard & Poor's CUSIP Services Bureau, as agent for the
National Association of Insurance Commissioners, in order to obtain
the private placement number for the Notes and (2) provided evidence
that such private placement number has been obtained to you in a form
satisfactory to you and your special counsel.
(f) Funding Instructions. At least three Business Days
prior to the Closing Date, you shall have received written
instructions executed by a Responsible Officer of the Company
directing the manner of the payment of funds and setting forth (1) the
name and address of the transferee bank, (2) such transferee bank's
ABA number, (3) the account name and number into which the purchase
price for the Notes is to be deposited, and (4) the name and telephone
number of the account representative responsible for verifying receipt
of such funds.
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<PAGE> 14
(g) Legality of Investment. The Notes to be purchased by
you shall be a legal investment for you under the laws of each
jurisdiction to which you may be subject (without resort to any
so-called "basket provisions" to such laws).
(h) Payment of Special Counsel Fees and Expenses. On the
Closing Date, the Company shall have paid all reasonable fees and
disbursements of special counsel to the Purchaser incident to the
transactions contemplated hereby through the Closing Date, as
reflected in the statements of such special counsel delivered to the
Company prior to or on the Closing Date. Such payment shall in no way
limit the obligation of the Company under SECTION 11.4 to pay the
remaining fees and disbursements of such special counsel as reflected
in any statement delivered to the Company after the Closing Date.
(i) Satisfactory Proceedings. All proceedings taken in
connection with the transactions contemplated by this Agreement, and
all documents necessary to the consummation thereof, shall be
satisfactory in form and substance to you and your special counsel,
and you shall have received a copy (executed or certified as may be
appropriate) of all legal documents or proceedings taken in connection
with the consummation of said transactions.
Section 4.2. Waiver of Conditions. If on the Closing Date the
Company fails to tender to you the Notes to be issued to you on such date or if
the conditions specified in SECTION 4.1 have not been fulfilled, you may
thereupon elect to be relieved of all further obligations under this
Agreement. Without limiting the foregoing, if the conditions specified in
SECTION 4.1 have not been fulfilled, you may waive compliance by the Company
with any such condition to such extent as you may in your sole discretion
determine. Nothing in this SECTION 4.2 shall operate to relieve the Company
of any of its obligations hereunder or to waive any of your rights against
the Company.
SECTION 5. FINANCIAL STATEMENTS AND OTHER INFORMATION.
The Company will furnish to you in duplicate, so long as you shall
hold any of the Notes and to each other Institutional Holder of the then
outstanding Notes, and in the case of the financial statements delivered
pursuant to subsection (b)(1) of this SECTION 5 to the Securities Valuation
Office, National Association of Insurance Commissioners, 195 Broadway,
New York, New York 10007:
(a) as soon as available and in any event within 45 days
after the end of the first, second and third quarterly accounting
periods in each fiscal year of the Company,
(1) copies of consolidated and consolidating
balance sheets of the Company and its Restricted Subsidiaries
(if any) as of the end of such accounting period and of the
related consolidated and consolidating statements of income,
consolidated statements of income and retained earnings and
consolidated statements of cash flows of the Company and its
Restricted Subsidiaries (if any) for such quarterly accounting
period and for the portion of the fiscal year ended with the
last day of such quarterly accounting period, all in
reasonable detail and
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<PAGE> 15
stating in comparative form the respective consolidated
figures for the corresponding date and period in the previous
fiscal year and all certified by the principal financial
officer of the Company to present fairly the information
contained therein, subject to year-end and audit adjustments,
and
(2) a written statement of such financial officer
of the Company setting forth computations in reasonable detail
showing as at the end of such quarterly accounting period:
(i) the maximum amount of additional
Senior Indebtedness, and the maximum amounts of
Subordinated Indebtedness, Senior Subordinated
Indebtedness and Junior Subordinated Indebtedness
which the Company could have incurred without
violation of SECTIONS 7.6(A), 7.6(B) and 7.6(C),
respectively,
(ii) the maximum amount of cash dividends
which the Company could have declared on any of its
Shares without violation of SECTION 7.10(A),
(iii) whether or not there was compliance
with the financial conditions required by SECTION
7.11,
(iv) the maximum amount of transactions
with Affiliates which could have been engaged in by
the Company or by any Restricted Subsidiary, and the
maximum amount of management fees or similar charges
which the Company or any Restricted Subsidiary could
have paid to The Foothill Group, Inc. or any other
Affiliate without violation of SECTION7.14, and
(v) whether or not there was compliance
with SECTION 7.17, SECTION 7.18 and SECTION 7.19, and
(b) as soon as available and in any event within 90 days
after the end of each fiscal year of the Company,
(1) copies of consolidated and consolidating
balance sheets of the Company and its Restricted Subsidiaries
(if any) as of the end of such fiscal year and of the related
consolidated and consolidating statements of income,
consolidated statements of income and retained earnings and
consolidated statements of cash flows of the Company and its
Restricted Subsidiaries (if any) for such fiscal year, all in
reasonable detail and stating in comparative form the
respective consolidated figures as of the end of and for the
previous fiscal year and all accompanied by a report thereon
of Ernst & Young, or other independent public accountants of
recognized national standing selected by the Company,
containing an opinion unqualified as to scope limitations
imposed by the Company, unqualified as to the Company being a
going concern and otherwise without qualification except as
therein noted, to the effect that the consolidated
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<PAGE> 16
financial statements present fairly, in all material respects,
the consolidated financial position of the Company and its
Restricted Subsidiaries as of the end of the fiscal year being
reported on and that the consolidated results of the
operations and cash flows for said year are in conformity with
generally accepted accounting principles and that the
examination of such accountants in connection with such
financial statements has been conducted in accordance with
generally accepted auditing standards and included such tests
of the accounting records and such other auditing procedures
as said accountants deemed necessary in the circumstances,
(2) a written statement of the principal
financial officer of the Company showing:
(i) as at the end of such fiscal year
the information required to be shown as at the end of
quarterly accounting periods pursuant to Subdivision
(i), (ii) and (iv) of subsection (A)(2) of this
SECTION 5,
(ii) a written statement of the
accountants referred to in clause (1) above:
(A) setting forth computations in
reasonable detail showing the maximum amount
of cash dividends which the Company could
have declared on any of its Shares at the end
of such fiscal year without violation of
SECTION 7.10(A),
(B) setting forth computations in
reasonable detail showing whether or not at
the end of such fiscal year there was
compliance with the financial conditions
required by SECTION 7.11, and
(C) stating that in making the
examination necessary for their report on
such financial statements they obtained no
knowledge of any default by the Company or
any of its Restricted Subsidiaries in the
observance of any of the covenants of
SECTIONS 7.1, 7.2(A) and 7.4 to 7.19,
inclusive, or, if such accountants shall
have obtained knowledge of any such default,
specifying all such defaults and the nature
and status thereof;
(c) concurrently with the financial statements for each
quarterly accounting period and for each fiscal year of the Company,
furnished pursuant to subsections (a) and (b) of this SECTION 5, a
certificate of the President or an Executive Vice President or a
Senior Vice President of the Company stating that, based upon such
examination or investigation and review of this Agreement as in the
opinion of the signer is necessary to enable the signer to express an
informed opinion with respect thereto, neither the Company nor any of
its Restricted Subsidiaries is, in the opinion of the signer, or has
to the best knowledge of the signer during such period been, in
default in the performance or observance of any of the terms,
covenants or conditions hereof, or, if the Company or
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<PAGE> 17
any of its Restricted Subsidiaries shall to the best knowledge of the
signer have been, or shall in the opinion of the signer be, in
default, specifying all such defaults, and the nature and period of
existence thereof, of which the signer of such certificate may have
knowledge, and what action the Company has taken, is taking or
proposes to take with respect thereto;
(d) promptly after the receipt thereof by the Company,
(1) copies of any written report pertaining to material (as defined in
Statement of Auditing Standards Number 1) items in respect of the
internal control matters of the Company and its Subsidiaries or The
Foothill Group, Inc. submitted by independent public accountants in
connection with each annual or interim special audit of the financial
condition of the Company and its Subsidiaries or The Foothill Group,
Inc., made by such independent public accountants, and (2) copies of
any audited annual, interim or special financial statements of the
Company or of the Company and its Subsidiaries;
(e) promptly after the same are available, copies of all
such proxy statements, financial statements and reports as the Company
or The Foothill Group, Inc. shall send or make available generally to
any of their security holders or as any Restricted Subsidiary shall
send or make available generally to any of its security holders other
than the Company or another Restricted Subsidiary or The Foothill
Group, Inc., and copies of all regular and periodic reports and of all
registration statements (other than on Form S-8 or a similar form)
which the Company, The Foothill Group, Inc. or any Restricted
Subsidiary may file with the SEC or with any securities exchange;
(f) promptly after any officer of the Company obtains
knowledge of any Event of Default, or of any event which with lapse of
time or notice and lapse of time would become an Event of Default, an
officer's certificate describing such event in reasonable detail, and
stating what action the Company has taken, is taking or proposes to
take with respect thereto;
(g) concurrently with the financial statements for each
quarterly accounting period and for each fiscal year of the Company,
furnished pursuant to subsections (a) and (b) of this SECTION 5, a
list of all the Discount Receivables owned by the Company and its
Restricted Subsidiaries (other than Discount Receivables of the same
class or issue for which the aggregate purchase price of the Company
and its Restricted Subsidiaries did not exceed $2,000,000) (if any) on
the last day of the applicable accounting period or fiscal year,
reporting the year of purchase and purchase price for each such
Discount Receivable and the Company's estimate in good faith of the
market value of each such Discount Receivable (if materially different
from the purchase price for such Discount Receivable); and
(h) with reasonable promptness, such other information,
including financial statements and computations, relating to the
performance of the provisions of this Agreement and the affairs of the
Company and any of its Subsidiaries as any holder of the Notes may
from time to time reasonably request.
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<PAGE> 18
The Company will keep at its principal executive office a true copy of
this Agreement (as at the time in effect), and cause the same to be available
for inspection at said office during normal business hours by any holder of a
Note or any prospective purchaser of a Note designated by a holder thereof.
SECTION 6. INSPECTION OF PROPERTIES AND BOOKS.
So long as you shall be a holder of any of the Notes and each
Institutional Holder of the then outstanding Notes (or such Persons as either
you or such Institutional Holder may designate), you and such Institutional
Holder shall have the right to visit and inspect any of the properties of the
Company and of its Restricted Subsidiaries (if any) to examine the books of
account and records of the Company and of its Restricted Subsidiaries (if any)
to make copies and extracts therefrom, to discuss the affairs, finances and
accounts of the Company and of its Restricted Subsidiaries (if any) with, and
to be advised as to the same by, its and their officers and employees and its
and their independent public accountants (and by this provision the Company
authorizes said accountants, upon prior notice to the Company, to discuss with
you or such Institutional Holder the finances and affairs of the Company and
its Restricted Subsidiaries), all at such reasonable times and intervals as you
or such holder may desire. The Company will likewise afford you and each
Institutional Holder of the then outstanding Notes the opportunity to obtain
any information, to the extent the Company possesses such information or can
acquire it without unreasonable effort or expense, necessary to verify the
accuracy of any of the representations and warranties made by the Company
hereunder. Any visitation shall be at your sole expense or the sole expense of
such Institutional Holder unless an Event of Default or an event which with the
lapse of time or giving of notice and lapse of time would become an Event of
Default shall have occurred and be continuing, in which case, any such
visitation or inspection shall be at the sole expense of the Company.
SECTION 7. COVENANTS.
So long as any of the Notes remain outstanding, the Company shall duly
perform and observe each and all of the covenants and agreements hereinafter
set forth, which shall be construed as if made on the Closing Date.
The following covenants shall apply to the Company, the Company and
its Wholly Owned Restricted Subsidiaries, the Company and its Restricted
Subsidiaries, or the Company and its Subsidiaries, as the case may be, as
hereinafter set forth.
Section 7.1. The Company will, and will cause each Restricted
Subsidiary to,
(a) at all times keep proper books of record and account
in which proper entries will be made in accordance with generally
accepted accounting principles; and
(b) set aside on its books for the fiscal year ending
December 31, 1994, and for each fiscal year thereafter, reserves for
depreciation, depletion, obsolescence and
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amortization of its properties during such year, determined in
accordance with generally accepted accounting principles, and all
other proper reserves, similarly determined, which should be set aside
in connection with its business.
Section 7.2. Payment of Taxes; Corporate Existence, Maintenance of
Properties; Compliance with Statutes, Etc. The Company will, and will cause
each Subsidiary (with respect to subsections (a) and (d)) and each Restricted
Subsidiary (with respect to subsections (b) and (c)), to,
(a) pay and discharge promptly all taxes, assessments and
other governmental charges or levies imposed upon it or upon its
income or upon any of its property, as well as all claims and
liabilities of any kind (including claims and liabilities for labor,
materials and supplies) which, if unpaid, might by law become a lien
or charge upon any of its property; provided, however, that neither
the Company nor any Subsidiary shall be required to pay any such tax,
assessment, charge, levy, claim or liability if the amount,
applicability or validity thereof shall currently be contested in good
faith by appropriate proceedings and if the Company or such
Subsidiary, as the case may be, shall have set aside on its books
reserves (segregated to the extent required by generally accepted
accounting principles) deemed by it to be adequate with respect
thereto;
(b) except as otherwise specifically permitted in this
Agreement, do all things necessary to preserve and keep in full
force and effect its corporate existence, rights and franchises;
provided, however, that nothing in this SECTION 7.2(B) shall prevent
the abandonment or termination of the Company's authority to do
business in any foreign jurisdiction or the corporate existence,
rights and franchises of any Restricted Subsidiary, if such
abandonment or termination is in the interest of the Company and not
disadvantageous in any material respect to the holders of the Notes;
(c) maintain and keep all properties owned or held under
lease by it in good repair, working order and condition, and
from time to time make all needful and proper repairs, renewals and
replacements, so that the business carried on in connection therewith
may be properly and advantageously conducted at all times; and
(d) comply with all applicable statutes, regulations and
Orders of, and restrictions imposed by, all Governmental
Bodies, including those relating to environmental, occupational safety
and health, ERISA and equal employment opportunity standards and
controls, except to the extent that a failure to so comply would not
have a material adverse effect on the business, operations or
financial condition of the Company or any such Subsidiary; and
provided further that neither the Company nor any such Subsidiary
shall be required to comply with any such standards or controls if the
applicability or validity thereof shall currently be contested in good
faith by appropriate proceedings and if the Company or such
Subsidiary, as the case may be, shall have set aside on its books
reserves (segregated to the extent required by generally accepted
accounting principles) deemed by it to be adequate with respect
thereto.
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Section 7.3. Insurance. The Company will, and will cause each
Restricted Subsidiary to,
(a) keep or cause to be kept all its insurable properties
owned or held under lease insured against loss or damage by fire,
lightning, windstorm, hail, explosion and smoke, in amounts sufficient
to prevent the Company or such Restricted Subsidiary, as the case may
be, from becoming a coinsurer within the terms of the policies in
question, but in any event in amounts not less than 80% of the then
full insurable value thereof;
(b) keep all its insurable properties owned or held under
lease insured against war risk, as and when such insurance is
obtainable from the United States of America or any agency thereof, or
from a government in a jurisdiction wherein such properties are
located or from an agency of such a government, in such amounts and to
such extent (if any) as such insurance is usually carried by Persons
of established reputations possessing or operating like properties in
the localities where the properties are located;
(c) keep all its insurable properties insured against all
other risks usually insured against by Persons of established
reputations possessing or operating like or similar properties in the
localities where the properties are located;
(d) maintain public liability insurance against claims
for personal injury, death or property damage suffered by others upon
or in or about any premises occupied by it or occurring as a result of
its ownership, maintenance or operation of any automobiles, trucks or
other vehicles, aircraft or other facilities or as a result of the use
of products manufactured, constructed or sold by it or services
rendered by it; and
(e) maintain all such workers' compensation or similar
insurance as may be required under the laws of any jurisdiction.
All insurance specified in this SECTION 7.3 shall be maintained to at
least such extent and in at least such amounts (and all insurance specified in
subsections (a) through (d) of this SECTION 7.3 may be with such deductibles) as
such insurance is usually carried by Persons of established reputations engaged
in a business subject to the same or similar hazards; and all insurance herein
specified shall be effected under a valid and enforceable policy or policies
issued by financially sound and reputable insurers of recognized
responsibility, except that the Company or any Restricted Subsidiary may effect
workers' compensation or similar insurance in respect of operations in any
jurisdiction either through an insurance fund operated by such jurisdiction or
by causing to be maintained a system or systems of self-insurance which shall
be in accord with applicable laws.
Section 7.4. Payment of Indebtedness. The Company will, and
will cause each Restricted Subsidiary (but only to the extent that such
Restricted Subsidiary's assets shall be sufficient for the purpose) to,
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(a) pay the principal, premium (if any) and interest on
all Indebtedness heretofore or hereafter incurred or assumed by it
when and as the same shall become due and payable, unless such
Indebtedness be renewed or extended; and
(b) faithfully perform, observe and discharge all the
covenants, conditions and obligations which are imposed on it by any
and all indentures and other agreements securing or evidencing
Indebtedness for Money Borrowed or pursuant to which such Indebtedness
is issued, and not permit the occurrence of any act or omission which
is or may be declared to be a default thereunder.
Notwithstanding the foregoing, neither the Company nor any Restricted
Subsidiary shall be required by reason of this SECTION 7.4 to make any payment
or to take any other action with respect to any Indebtedness described in
subsection (c) or (d) of the definition of "Indebtedness" in SECTION 8.1 or
with respect to any other Indebtedness at any time while it shall be contesting
in good faith by appropriate proceedings its obligation so to do, if it shall
have set aside on its books reserves (segregated to the extent required by
generally accepted accounting principles) deemed by it to be adequate with
respect thereto.
Section 7.5. Prohibition on Indebtedness Having Priority Rights.
The Company will not, and will not permit any Restricted Subsidiary to, create,
assume, incur or guarantee, or otherwise become or be or remain liable in
respect of, any Indebtedness for Money Borrowed, or Indebtedness for advances
made or goods purchased, if the lender of such money or the Person making such
advances or the vendor of such goods (or any Person who guarantees or becomes
surety for all or any part of such Indebtedness or acquires any right or incurs
any obligation to become, either immediately or upon the occurrence of some
future contingency, the owner of all or any part thereof) shall have, either
immediately or upon the occurrence of insolvency or some other contingency, any
right, by reason of any statute (including, without limitation, 31 U.S.C.
Section 3713(a)) or otherwise, to have any claim in respect of such Indebtedness
first satisfied out of the general assets of the Company or such Restricted
Subsidiary in priority to the claims of its general creditors.
Section 7.6. Limitations on Indebtedness. The Company will not,
and will not permit any Subsidiary to, create, assume, incur or guarantee, or
otherwise become or be or remain liable in respect of, any Indebtedness for
Money Borrowed (other than the Notes and current liabilities incurred in the
normal course of business and not related to borrowing), except for the
following:
(a) in the case of the Company, Senior Indebtedness
(including, without limitation, reimbursement obligations with respect
to guarantees and letters of credit but otherwise excluding guarantees
and letters of credit described in SECTION 7.9(B)) not otherwise
permitted under this SECTION 7.6, provided that the aggregate amount
thereof at any one time outstanding shall not exceed 375% of the
Senior Borrowing Base;
(b) in the case of the Company, Subordinated
Indebtedness, provided that the aggregate amount thereof at any one
time outstanding shall not exceed 125% of Adjusted Consolidated Net
Worth, and provided further that the aggregate amount of
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Senior Subordinated Indebtedness at any one time outstanding shall not
exceed 65% of the sum of (1) Junior Subordinated Indebtedness and (2)
Adjusted Consolidated Net Worth;
(c) in the case of the Company, guarantees and letters of
credit described in SECTION 7.9(B), provided the aggregate amount
thereof at any one time outstanding shall not exceed 125% of
Consolidated Net Worth;
(d) in the case of the Company, subject to the
limitations provided in SECTIONS 7.6(A) and (B), Indebtedness secured
by mortgages, liens or other security interests which the Company is
entitled to create, incur or suffer to exist pursuant to SECTION 7.7;
and
(e) in the case of a Restricted Subsidiary, Indebtedness
to the Company.
For the purposes of this SECTION 7.6:
(i) in case any corporation becomes a successor or
transferee of the Company in the manner prescribed in SECTION 7.13,
such corporation shall be deemed to have incurred at the time it
becomes such successor or transferee all Indebtedness, direct or
contingent, secured or unsecured, of such corporation outstanding
immediately after it becomes such successor or transferee other than
Indebtedness of the Company which was outstanding immediately prior
thereto;
(ii) in case any Indebtedness, direct or indirect, secured
or unsecured, of the Company owned by a Restricted Subsidiary ceases
to be so owned by reason of such Subsidiary ceasing to be a Restricted
Subsidiary or otherwise, such Indebtedness (unless it thereupon is
acquired by another Restricted Subsidiary) shall be deemed to have
been incurred by the Company concurrently with such Indebtedness
ceasing to be so owned; and
(iii) in case any corporation becomes a Restricted
Subsidiary, such corporation shall be deemed to have incurred at the
time it becomes a Restricted Subsidiary all Indebtedness, direct or
indirect, secured or unsecured, of such corporation outstanding
immediately after it becomes a Restricted Subsidiary.
Section 7.7. Limitation on Liens or Subordination of Rights.
The Company will not, and will not permit any Restricted Subsidiary to, (a)
create, assume, incur or suffer to be created, assumed, or incurred or to exist
any mortgage, lien, pledge, charge, security interest or other encumbrance of
any kind (including for all purposes of this SECTION 7.7 any deed of trust,
title retention agreement or any Capital Lease) in respect of any property of
any character of the Company or such Subsidiary (whether held on the date
hereof or hereafter acquired) or (b) except, in the case of the Company, in
connection with transactions in the ordinary course of its secured financing
business, give its consent to the subordination of any right or claim of the
Company or such Restricted Subsidiary to any right or claim of any other
Person; except that these restrictions will not apply to:
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(a) liens for property taxes and assessments or
governmental charges or levies and liens securing claims or demands of
mechanics and materialmen, provided that payment thereof is not at the
time required by SECTION 7.2(A);
(b) attachment, judgment and similar liens arising in
connection with court proceedings, the time for the appeal or petition
for rehearing of which shall not have expired, or in respect of which
the Company or a Restricted Subsidiary, as the case may be, shall at
any time in good faith be diligently prosecuting an appeal or
proceeding for a review and in respect of which a stay of execution
pending such appeal or proceeding for review shall have been secured,
and the Company or such Restricted Subsidiary, as the case may be,
shall have set aside on its books reserves (segregated to the extent
required by generally accepted accounting principles) deemed by it to
be adequate with respect thereto;
(c) mortgages, liens or security interests on property of
the Company or any Restricted Subsidiary securing Indebtedness not in
excess of $100,000 in the aggregate existing on September 30, 1994 and
reflected in Schedule II attached hereto;
(d) liens, charges and encumbrances incidental to the
conduct of business or the ownership of properties and assets
(including liens in connection with workers' compensation,
unemployment insurance and other like laws, warehousemen's and
attorneys' liens or statutory landlords' liens) and deposits, pledges
or liens to secure the performance of bids, tenders or trade
contracts, or to secure statutory obligations, surety or appeal bonds
or other liens of like general nature incurred in the ordinary course
of business and not in connection with the borrowing of money,
provided (1) such liens, charges and encumbrances do not in any event,
in the aggregate, materially detract from the value of such properties
and assets or materially impair the use of such properties and assets
in the operation of the business of the Company and its Restricted
Subsidiaries and (2) in each case, the obligation secured is not
overdue, or, if overdue, is being contested in good faith by
appropriate actions or proceedings;
(e) minor survey exceptions or minor encumbrances,
easements or reservations, or rights of others or rights-of-way,
utilities and other similar purposes, or zoning or other restrictions
as to the use of real properties, which are necessary for the conduct
of the activities of the Company and its Restricted Subsidiaries or
which customarily exist on properties of corporations engaged in
similar activities and similarly situated and which do not in any
event, in the aggregate, materially detract from the value of such
real properties or materially impair their use in the operation of the
business of the Company and its Restricted Subsidiaries;
(f) mortgages, liens or security interests securing
receivables of the Company in the process of foreclosure or assets
acquired by the Company pursuant to foreclosure proceedings and held
by the Company or a Restricted Subsidiary for resale, provided such
mortgages, liens and security interests (1) are confined solely to the
assets foreclosed upon and (2) existed immediately following the
foreclosure upon such assets;
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(g) in the case of the Company, purchase money liens on
tangible personal property of the Company securing all or part of the
purchase price thereof to the Company, and liens existing on tangible
personal property at the time of purchase thereof by the Company;
provided that (1) each such lien is confined solely to the tangible
personal property so purchased, improvements thereto and proceeds
thereof and (2) all such Indebtedness shall have been incurred within
the applicable limitations provided in SECTION 7.6(A);
(h) mortgages, liens or security interests created or
incurred after the Closing Date given to secure Indebtedness of the
Company in addition to the mortgages, liens or security interests
permitted by the preceding subsections (a) through (h) hereof;
provided (1) that the aggregate amount of principal, interest and
other sums due and owing on such Indebtedness in any fiscal year of
the Company shall not exceed $100,000 in the aggregate and (2) all of
such Indebtedness shall have been incurred within the applicable
limitations provided in SECTION 7.6(A); or
(i) any extension, renewal or replacement of any
mortgage, lien or security interest permitted by the preceding clause
(d) hereof in respect of the same property theretofore subject to such
lien in connection with the extension, renewal or refunding of the
Indebtedness secured thereby; provided that: (1) such mortgage, lien
or security interest shall attach solely to the same such property and
(2) such extension, renewal or refunding of such Indebtedness shall be
without increase in the principal remaining unpaid as of the date of
such extension, renewal or refunding.
The Company will not, and will not permit any Restricted Subsidiary
to, sign or file in any jurisdiction a financing statement under the Uniform
Commercial Code which names the Company or such Restricted Subsidiary as
debtor, or sign any security agreement authorizing any secured party thereunder
to file any such financing statement, except, in any such case, a financing
statement filed or to be filed to perfect or protect a security interest which
the Company or such Restricted Subsidiary is entitled to create, assume or
incur, or permit to exist, under the foregoing provisions of this SECTION 7.7
or to evidence a lessor's interest in property leased to the Company or any such
Restricted Subsidiary.
Section 7.8. Prohibition on Sales and Lease-Backs. The Company
will not sell to any Person, and will not permit any Restricted Subsidiary to
sell to any Person, any plant or facilities owned by the Company or such
Restricted Subsidiary on the Closing Date or subsequently acquired if, as part
of the same transaction or a series of transactions, the Company or any
Subsidiary shall then or thereafter rent or lease, as lessee, or similarly
acquire the right to possession or use of, such plant or facilities, or one or
more other plants or facilities which it intends to use for substantially the
same purpose or purposes, under any lease, agreement or other arrangement which
obligates the Company or such Subsidiary to pay rent as lessee or make any
other payments for such possession or use, provided that the Company or a
Restricted Subsidiary may enter into any such transaction which involves a
lease or right to possession or use for a temporary period not in excess of one
year following a sale, by the end of which it is intended that the use of such
plant or facilities by the lessee will be discontinued.
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Section 7.9. Limitation on Investments and Guarantees. The
Company will not, and will not permit any Restricted Subsidiary to, make,
acquire or suffer to exist any Investment in any Person (including any
guarantee or other contingent liability in respect of any obligation of any
Person) other than:
(a) Investments in (1) marketable obligations issued or
guaranteed by the United States of America or by an instrumentality or
agency thereof and backed by the full faith and credit of the United
States of America, maturing not more than one year after the date of
acquisition thereof, (2) certificates of deposit or other obligations
maturing not more than one year after the date of acquisition thereof
issued by a bank or trust company incorporated under the laws of the
United States or a state thereof and having capital, surplus and
undivided profits of at least $100,000,000, and (3) open market
commercial paper with a maturity not in excess of 270 days from the
date of acquisition thereof which on said date has one of the two
highest credit ratings by either Standard & Poor's Corporation or
Moody's Investors Service, Inc.;
(b) In the case of the Company, guarantees or other
contingent liabilities represented by endorsements of negotiable
instruments for collection in the ordinary course of business, letters
of credit or guarantees thereof issued or made in the ordinary course
of business as financial accommodations to clients of the Company
pursuant to agreements with such clients under which the Company has
agreed, prior to the issuance of such letters of credit or the making
of such guarantees, to lend money or extend credit to such clients for
the financing of substantially the same property as is covered by the
letters of credit so issued or guaranteed, in an aggregate amount not
less than the aggregate amount of the obligations of such clients
which are the subject of such letters of credit or guarantees and
guarantees and letters of credit issued for the account of the Company
securing the Company's obligations under Interest Rate Protection
Agreements entered into in the ordinary course of business and for the
purpose of reducing the Company's exposure to fluctuations in interest
rates; provided that all such guarantees and letters of credit shall
have been incurred within the applicable limitations provided in
SECTION 7.6(C);
(c) Investments in any corporation which is, or upon the
making of such Investment becomes, a Wholly Owned Restricted
Subsidiary; and
(d) Investments in (including guarantees or other
contingent liabilities in respect of Indebtedness of) any Persons, in
addition to Investments specified in subsections (a) through (c),
inclusive, of this SECTION 7.9, provided that neither the
Company nor any Restricted Subsidiary shall make or acquire nor commit
to make or acquire any Investment pursuant to this SECTION 7.9(D),
unless on the date on which the Company or such Restricted Subsidiary
makes or acquires or commits to make or acquire such Investment, and
after giving effect thereto, the Company shall be entitled to declare
a cash dividend on any of its Shares in an aggregate amount of at
least $1.00, provided, however, that the aggregate amount (measured in
book value) of Investments of the Company and its Restricted
Subsidiaries, whether of record or as beneficial owner, in
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"margin stock" (as such term is used in Regulation G of the
Board of Governors of the Federal Reserve System, 12 C.F.R. Section
207), shall not exceed 7-1/2% of Eligible Assets.
For the purposes of this SECTION 7.9:
(1) in case any corporation becomes a Wholly
Owned Restricted Subsidiary, any Investments of the Company or
of another Restricted Subsidiary in such corporation which
previously were made or acquired pursuant to subsection (d) of
this SECTION 7.9 shall thereafter be deemed subject only to
subsection (c) of this SECTION 7.9 and shall be
excluded from any computation of Investments for the purposes
of SECTION 7.10(A)(1)(C);
(2) in case any corporation becomes a Restricted
Subsidiary as a result of an acquisition of its Shares such
corporation shall be deemed to have made at the time it
becomes a Restricted Subsidiary all Investments of such
corporation existing immediately after it becomes a Restricted
Subsidiary;
(3) in case any corporation which becomes a
successor or transferee of the Company in the manner
prescribed in SECTION 7.13 or which becomes a
Restricted Subsidiary shall have made any Investments in
contemplation of its becoming such successor or transferee or
Restricted Subsidiary, all such Investments shall be deemed to
have been made at the time it becomes such successor or
transferee or Restricted Subsidiary;
(4) in case any corporation which is a Restricted
Subsidiary ceases to be a Restricted Subsidiary, any
Investments of the Company or of any other Restricted
Subsidiary in such corporation which then remain in existence
shall be deemed to have been made at the time it ceases to be
a Restricted Subsidiary; and
(5) the Company or a Restricted Subsidiary may,
without regard to the restriction of subsection (d) of this
SECTION 7.9, make any payment required on account of a
guarantee or other contingent liability permitted by
subsection (b) of this SECTION 7.9, but any direct Investment
resulting from such payment shall be included in any
subsequent computation of existing Investments for the
purposes of SECTION 7.10(A)(1)(C) (unless at the time
permitted under another subsection of this SECTION 7.9).
Notwithstanding any of the foregoing provisions of this SECTION 7.9,
the Company will not, and will not permit any Restricted Subsidiary to, make or
suffer to exist any guarantee or other contingent liability of the type
specified in subsection (b)(3) of the definition of "Indebtedness" in $8.1 in
respect of any Person except a Wholly Owned Restricted Subsidiary unless such
guarantee or other contingent liability is expressly limited to a stated dollar
amount.
Section 7.10. Limitations on Dividends and Other Restricted
Payments. (a) The Company will not declare any dividend on any of its Shares
(other than a dividend payable
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solely in Common Shares of the Company), or make or commit to make any other
Restricted Payment in respect thereof or in respect of Subordinated
Indebtedness, unless any such dividend is declared to be payable not more than
90 days after the date of declaration, and unless, after giving effect to the
proposed Restricted Payment, at the date of declaration in the case of a
dividend or at the date of payment or distribution or commitment therefor
(whichever is earlier) in the case of any other proposed Restricted Payment
(each such date, as the case may be, being herein called the "Computation
Date"),
(1) the sum of
(a) the aggregate amount of all dividends (other
than dividends payable solely in Common Shares of the Company)
declared during the period commencing January 1, 1993 and
ending on the Computation Date (herein called the "Computation
Period"), plus
(b) the aggregate amount of all other Restricted
Payments made during the Computation Period (and any
commitments for other Restricted Payments during the
Computation Period and outstanding on the Computation Date),
plus
(c) the aggregate amount of all Investments
(including outstanding commitments to make or acquire
Investments) by the Company and its Restricted Subsidiaries
(other than those specified in subsections (a) to (c),
inclusive, of SECTION 7.9) existing on the Computation Date,
shall not exceed $8,040,000 plus 50% (or, in the case of a
deficit, minus 100%) of Consolidated Net Income for the
Computation Period;
(2) the sum of all such Restricted Payments for the
current fiscal year shall not exceed Consolidated Net Income for the
immediately preceding fiscal year; and
(3) at the time of such Restricted Payment and
immediately after giving effect thereto, no Event of Default, and no
event which with the lapse of time or notice and lapse of time would
become an Event of Default shall have occurred and be continuing.
(b) Notwithstanding the restrictions of subsection (a) of
this SECTION 7.10, the Company may
(1) retire any of its Shares in exchange for, or out of
the proceeds of the substantially concurrent sale of, other of its
Shares, and no such retirement of Shares shall be included in any
computation provided for in said subsection (a),
(2) make any Optional Payment in respect of any
outstanding Subordinated Indebtedness in exchange for, or out of the
proceeds of the substantially concurrent sale of, its Shares or other
Subordinated Indebtedness, and no such Optional Payment shall be
included in any computation provided for in said subsection (a), and
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(3) purchase, redeem or otherwise retire any Preferred
Shares pursuant to any sinking fund or other retirement requirement in
respect thereof, provided that the aggregate amount of all purchases,
redemptions and retirements of Preferred Shares permitted by this
clause during any Computation Period shall be included in any
computation otherwise provided for in said subsection (a).
Section 7.11. Minimum Adjusted Consolidated Net Worth. The
Company will at all times maintain Adjusted Consolidated Net Worth in an amount
at least equal to $60,000,000.
Section 7.12. Limitation on Issuance of Shares of Restricted
Subsidiaries; Disposition of Shares and Indebtedness of Restricted
Subsidiaries; Ownership by Unrestricted Subsidiary of Shares or Indebtedness of
a Restricted Subsidiary; Limitation on Purchase of Shares or Subordinated
Indebtedness of the Company by a Restricted Subsidiary. (a) The Company will
not permit any Restricted Subsidiary to issue, sell or otherwise dispose of
any of its Shares, or any securities convertible into or exchangeable for or
carrying rights to subscribe for its Shares, except (1) to the Company,
(2) to qualify directors, (3) to satisfy preemptive rights, or (4) in
connection with stock splits or stock dividends.
(b) The Company will not permit any Restricted Subsidiary to have
outstanding any Preferred Shares other than Preferred Shares owned by the
Company.
(c) The Company will not sell or otherwise dispose of any Shares
(except to qualify directors) or any Indebtedness of any Restricted Subsidiary
or permit any Restricted Subsidiary to sell or otherwise dispose of (except to
the Company or to qualify directors) any Shares or any Indebtedness of any
other Restricted Subsidiary, unless
(1) simultaneously with such sale or other disposition
all Shares and all Indebtedness of such Restricted Subsidiary at the
time owned by the Company and by every other Restricted Subsidiary are
sold or otherwise disposed of as an entirety,
(2) the Board shall have determined that the retention of
such Shares and Indebtedness is no longer in the best interests of the
Company and the disposition thereof is not disadvantageous to the
holders of the Notes,
(3) such Shares and Indebtedness are sold or otherwise
disposed of for a consideration and upon terms deemed adequate by the
Board,
(4) if such Restricted Subsidiary owns any Shares or any
Indebtedness of any other Restricted Subsidiary of which any other
Shares or any other Indebtedness are at the time also owned by the
Company or another Restricted Subsidiary, simultaneously with such
sale or other disposition all such other Shares and all such other
Indebtedness at the time owned by the Company and all other Restricted
Subsidiaries are sold or otherwise disposed of and the Board shall
have made the determinations specified in the foregoing clauses (2)
and (3) as to the sale or other disposition thereof,
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(5) if the consideration for any such sale or other
disposition includes Shares of any other corporation, immediately
after such transaction either such other corporation shall be a Wholly
Owned Restricted Subsidiary or such other corporation shall not be a
Restricted Subsidiary and the acquisition of such Shares shall be
permitted under SECTION 7.9(D),
(6) if the consideration for any such sale or other
disposition includes obligations of any other Person, the acquisition
of such obligations shall be permitted under SECTIONS 7.9(A) and (D),
and
(7) immediately after the consummation of the transaction
and after giving effect thereto, no Event of Default, and no event
which with lapse of time or notice and lapse of time would become an
Event of Default, shall have occurred and be continuing.
(d) The Company will not permit any Unrestricted Subsidiary to own
any Shares of any Restricted Subsidiary or any Indebtedness of any Restricted
Subsidiary.
(e) The Company will not permit any Restricted Subsidiary to
purchase or otherwise acquire, or at any time hold, any Shares or any
Subordinated Indebtedness of the Company.
Section 7.13. Limitation on Restricted Subsidiary's or Company's
Consolidation, Merger or Disposition of Property. The Company will not, and
will not permit any Restricted Subsidiary to, lease its properties
substantially as an entirety to any Person. The Company will not, and will not
permit any Restricted Subsidiary to, consolidate or merge with or, except as
contemplated in SECTION 7.15 in the case of FCC Holdings Limited, sell or
otherwise (but not by lease) dispose of its properties substantially as an
entirety to, any Persons, except that:
(a) any Restricted Subsidiary may merge into the Company
or a Wholly Owned Restricted Subsidiary or a corporation which, as
part of the transaction, becomes a Wholly Owned Restricted Subsidiary;
and
(b) subject to the provisions of SECTION 2.3, the Company
may consolidate or merge with another corporation if, (1) the
Company is the surviving corporation, or (2) the successor corporation
(i) shall be a solvent corporation organized and existing under the
laws of the United States of America or a state thereof or the
District of Columbia, and (ii) shall expressly assume in writing the
due and punctual payment of the principal of (and premium, if any) and
interest on the Notes according to their terms, and the due and
punctual performance of and compliance with all of the terms,
covenants, agreements and conditions of the Agreement executed in
conjunction with the issuance of the Notes to be performed or observed
by the Company to the same extent as if such successor or transferee
corporation had originally executed the Agreement and the successor
corporation shall furnish the holders of the Notes an opinion of
counsel (which opinion and counsel shall be satisfactory to such
holders) to the effect that the instrument of assumption has been duly
authorized, executed and delivered and constitutes the legal, valid
and binding contract and agreement of the successor corporation
enforceable in accordance with its terms, subject to bankruptcy,
insolvency
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or similar laws affecting creditors' rights generally, and general
principles of equity (regardless of whether the application of such
principles is considered in a proceeding in equity or at law), and (3)
the Company or such successor corporation or transferee corporation,
as the case may be, shall not, immediately after such merger or
consolidation, be in default in the performance of or compliance with
any such term and there shall exist no Event of Default or event which
with lapse of time or notice and lapse of time would become an Event
of Default.
The assumption of the liabilities and obligations of the Company
hereunder and on the Notes by any successor or transferee corporation, in the
manner prescribed in this SECTION 7.13, shall, upon the request of the holder
of any outstanding Note, be evidenced by the endorsing by such successor or
transferee corporation of an appropriate legend upon such Note. Each Note
executed after such assumption by any successor to the Company by merger or
consolidation may be executed in the name of the Company or such successor.
Each Note so executed after such assumption by a transferee corporation, or a
successor to a transferee corporation by consolidation or merger which shall
have become such in the manner prescribed in this SECTION 7.13, shall have an
appropriate legend endorsed thereon by such transferee corporation or successor
thereto. No sale or other disposition of properties permitted by this SECTION
7.13 shall have the effect of releasing the Company (or any successor or
transferee corporation which shall at any time have become such in the manner
prescribed in this SECTION 7.13) from its liability as obligor on any of the
Notes.
Section 7.14. Limitation on Transactions with Affiliates. (a) The
Company will not engage in any transaction with any Affiliate (other than a
Wholly Owned Restricted Subsidiary), and will not permit any Restricted
Subsidiary to engage in any transaction with any Affiliate (other than the
Company or a Wholly Owned Restricted Subsidiary), on terms less favorable to
the Company or such Restricted Subsidiary than would be obtainable at the time
in comparable transactions of the Company or such Restricted Subsidiary in
arm's-length dealings with Persons other than such Affiliates, and the
aggregate amount of all such transactions with Affiliates in any fiscal year of
the Company (other than payments to The Foothill Group, Inc. on account of
management fees and income tax liability, which shall be subject to the
limitations set forth in subsection (b) of this SECTION 7.14, and other than
Advances, which shall be subject to the limitations set forth in subsection (c)
of this SECTION 7.14) shall not exceed 5% of Adjusted Consolidated Net Worth as
of the end of the immediately preceding fiscal year.
(b) The Company will not permit the aggregate amount of all
payments made by the Company and its Restricted Subsidiaries to The Foothill
Group, Inc. or any Affiliate in any fiscal year of the Company on account of
management fees or similar charges to exceed 2% of Consolidated Net Revenues
for such fiscal year. The Company will not, and will not permit any Restricted
Subsidiary, to pay to The Foothill Group, Inc. or any other Affiliate with
which the Company or such Restricted Subsidiary files or ever has filed a
consolidated Federal income tax return or a combined state or local income or
franchise tax return, on account of the Federal, state, local or foreign tax
liability of the Company or such Restricted Subsidiary, an amount greater than
the Company's (or, in the case of a payment by a Restricted Subsidiary, such
Restricted Subsidiary's) allocated tax expense under generally accepted
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accounting principles for allocation of taxes between a parent company and its
subsidiaries using the "separate entity" method under which each subsidiary
company's share of consolidated tax liability is determined by its pro rata
share of the aggregate tax liability that would exist if each member of the
consolidated or combined group were operating independently. Notwithstanding
the foregoing, the Company will not, and will not permit any Restricted
Subsidiary to, pay to The Foothill Group, Inc. or any other Affiliate any
management fees or other charges during any period of time in which an Event of
Default, or any event which with lapse of time or notice and lapse of time
would become an Event of Default, shall have occurred and be continuing. For
purposes of this paragraph, any payment of tax (including any interest and
penalties thereon) by the Company or any Restricted Subsidiary to the Internal
Revenue Service or any other taxing authority shall be deemed to be a payment
with respect to taxes to The Foothill Group, Inc.
(c) The Company may from time to time incur indebtedness for money
borrowed from The Foothill Group, Inc. or from one or more Affiliates to be
evidenced by promissory notes of the Company due upon demand by The Foothill
Group, Inc. or by said Affiliates, as the case may be, and bearing interest at
no greater rate and involving fees and other amounts in respect thereof there
are no higher than would at the time be available from unaffiliated Persons
(such borrowings being herein called the "Advances"). The aggregate amount of
the Advances at any one time outstanding may not exceed $5,000,000. The
Company may make payments of principal, interest or fees with respect to
Advances as the same become due and payable provided that no such payments may
be made at any time at which an Event of Default, or an event which with the
lapse of time or notice or both would become an Event of Default, shall have
occurred and be continuing and provided further that no such payment shall be
made if such payment would result, directly or indirectly, in the occurrence of
an Event of Default or an event which with the lapse of time or notice or both
would become an Event of Default.
Section 7.15. Permitted Business. The Company will not, and will
not permit any Restricted Subsidiary to, engage in any business or operation
which is substantially different from the general nature of the business of
commercial secured financing and leasing. Notwithstanding the foregoing, FCC
Holdings Limited shall be permitted to engage in the business of owning,
operating and liquidating repossessed assets. The only assets held by FCC
Holdings Limited shall be those necessary to permit it to engage in such
business.
Section 7.16. Limitation on Sale of Receivables with Recourse or
at Discount. The Company will not, and will not permit any Restricted
Subsidiary to, sell or otherwise dispose of receivables with recourse, or at a
discount, except in connection with participations sold in the ordinary course
of business at the time such receivables are acquired.
Section 7.17. Limitation on Nonperforming Assets. Nonperforming
Assets of the Company and its Restricted Subsidiaries shall at no time exceed
65% of Consolidated Net Worth.
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Section 7.18. Limitation on Discount Receivables. Discount
Receivables of the Company and its Restricted Subsidiaries shall at no time
exceed 25% of Consolidated Total Assets.
Section 7.19. Limitation on Borrower Concentration. The Company
will not, and will not permit any Restricted Subsidiary to, enter into any loan
transaction with any borrower if, immediately after the consummation of such
loan transaction and after given effect thereto, (a) there shall be more than
ten borrowers for which the aggregate principal amount of all loans by the
Company or any Restricted Subsidiary to each such borrower exceeds 10% of
Consolidated Capital Funds or (b) the aggregate principal amount of all loans
by the Company or any Restricted Subsidiary to such borrower would exceed 15%
of Consolidated Capital Funds.
SECTION 8. DEFINITIONS.
Section 8.1. Definitions of Capitalized Terms. The terms
defined in this SECTION 8.1, wherever capitalized in this Agreement, have the
respective meanings hereinafter specified, unless the context otherwise
requires.
"Adjusted Consolidated Net Worth" means Eligible Assets less the
aggregate of all liabilities (including reserves and minority interests, if
any) of the Company and its Restricted Subsidiaries, determined and
consolidated in accordance with generally accepted accounting principles.
"Advances" has the meaning specified in SECTION 7.14(C).
"Affiliate" of any designated Person means any Person which, directly
or indirectly, controls or is controlled by or is under common control with
such designated Person and, without limiting the generality of the foregoing,
includes (a) any Person which beneficially owns or holds 5% or more of any
class of voting securities of such designated Person or 5% or more of the
equity interest in such designated Person and (b) any Person of which such
designated Person beneficially owns or holds 5% or more of any class of voting
securities or in which such designated Person beneficially owns or holds 5% or
more of the equity interest. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.
"Agreement" means this Note Agreement, as the same may from time to
time be amended, supplemented or modified.
"Board" means the Board of Directors of the Company or a committee
consisting of three or more directors of the Company having authority to
exercise, when the Board of Directors is not in session, the powers of the
Board of Directors (subject to any designated limitations) in the management of
the business and affairs of the Company.
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"Business Day" means any day other than a Saturday, Sunday or other
day on which banks in Los Angeles, California or New York, New York are
required by law to close or are customarily closed.
"Capital Lease" means at any time any lease of property, real or
personal, which, in accordance with generally accepted accounting principles,
would at such time be required to be capitalized on a balance sheet of the
lessee or, if not so capitalized, for which the amounts of the asset and
liability (had such lease been capitalized) would at such time be so required
to be disclosed in a note to such a balance sheet; and the term "Capital Lease
Obligation" means at any time the amount of the liability in respect of a
Capital Lease which would at such time be so required to be capitalized on such
a balance sheet or disclosed in such a note.
"Closing Date" has the meaning specified in SECTION 1.2.
"Common Shares," as applied to Shares of any corporation, means Shares
of such corporation other than Preferred Shares.
"Company" means Foothill Capital Corporation, a California
corporation, the issuer of the original Notes, until a successor or transferee
corporation becomes such in the manner prescribed in SECTION 7.13, and
thereafter means such successor or transferee corporation.
"Computation Date" and "Computation Period" have the meanings
specified in SECTION 7.10.
"Consolidated Capital Funds" means Consolidated Net Worth plus
Subordinated Indebtedness of the Company and its Restricted Subsidiaries.
"Consolidated Indebtedness," "Consolidated Indebtedness for Money
Borrowed," "Consolidated Net Revenues" and "Consolidated Senior Indebtedness"
mean the Indebtedness, Indebtedness for Money Borrowed, Net Revenues or Senior
Indebtedness, as the case may be, of the Company and its Restricted
Subsidiaries, all consolidated in accordance with generally accepted accounting
principles and after deducting any outside minority interest in such Restricted
Subsidiaries.
"Consolidated Net Income" means Net Income of the Company and its
Restricted Subsidiaries, computed in accordance with generally accepted
accounting principles and consolidated after deducting any outside minority
interest in such Restricted Subsidiaries; provided, however, that in
determining Consolidated Net Income there shall be excluded without duplication
(1) earnings of any Restricted Subsidiary accrued prior to the date it became a
Restricted Subsidiary, and (2) any portion of the Net Income of any Restricted
Subsidiary which for any reason is unavailable for payment of dividends to the
Company or another Restricted Subsidiary.
"Consolidated Net Worth" means the excess of the assets of the Company
and its Restricted Subsidiaries over their liabilities, determined and
consolidated in accordance with generally accepted accounting principles.
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"Consolidated Total Assets" means the total amount of all assets of
the Company and its Restricted Subsidiaries consolidated in accordance with
generally accepted accounting principles and after deducting any outside
minority interest in such Restricted Subsidiaries.
"Default Premium" shall mean, with respect to any Note, an amount
equal to the greater of (a) the Make-Whole Amount, or (b) 1% of the unpaid
principal amount of such Note.
"Delinquent Accounts" means the full unpaid amount of receivables,
loans, notes, leases and other obligations (excluding Discount Receivables) on
which an installment payment of interest or principal has not been made within
90 days of its due date (including any such obligations relating to property or
assets which are the subject of foreclosure proceedings, whether judicial or
otherwise), and includes the full amount of any such obligations (excluding
Discount Receivables) with respect to which there are such arrearages,
notwithstanding that installment payments of principal or interest are
currently being made.
"Discount Receivables" shall mean finance receivables originating from
a Person other than the Company or one of its Subsidiaries which are acquired
at less than face or par value and, at the time of acquisition, are
contractually in default.
"Eligible Assets" means the following assets of the Company and its
Restricted Subsidiaries, determined and consolidated in accordance with
generally accepted accounting principles:
(a) cash, plus the cash surrender value of life insurance
policies, if any;
(b) Investments permitted pursuant to the provisions of
SECTION 7.9 hereof;
(c) prepaid expenses;
(d) repossessed assets held for resale, at the lower of
cost or estimated net realizable value (as determined in good faith by
the Company or such Restricted Subsidiary); and
(e) finance receivables, less:
(1) unearned finance charges;
(2) an amount equal to the greater of (i)
reserves for losses attributable to finance receivables, or
(ii) 75% of Nonperforming Assets;
(3) the sum of all receivables, loans, notes,
leases and other obligations to the Company and its Restricted
Subsidiaries by any one Person in excess of 25% of
Consolidated Net Worth; and
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(4) loan participations acquired from Affiliates
as permitted by SECTION 7.14, to the extent that said loan
participations exceed 10% of Eligible Assets without regard to
this clause.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, together with
the regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA shall be construed to also refer to any
successor sections.
"ERISA Affiliate" shall mean any corporation, trade or business that
is, along with the Company, a member of a controlled group of corporations or a
controlled group of trades or businesses, as described in section 414(b) and
414(c), respectively, of the Internal Revenue Code of 1986, as amended, or
Section 4001 of ERISA.
"Event of Default" has the meaning specified in SECTION 9.1.
"Governmental Body" means any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign.
"Indebtedness" of any Person means all obligations of such Person
which would in accordance with generally accepted accounting principles be
classified upon a balance sheet of such Person as liabilities of such Person,
but in any event including:
(a) all indebtedness guaranteed, directly or indirectly,
in any manner by such Person or endorsed (otherwise than for
collection or deposit in the ordinary course of business) or
discounted with recourse;
(b) all indebtedness in effect guaranteed, directly or
indirectly, by such Person through an agreement, contingent or
otherwise,
(1) to purchase such indebtedness or to advance
or supply funds for the payment or purchase of such
indebtedness, or
(2) to purchase, sell or lease (as lessee or
lessor) property, products, materials or supplies, or to
purchase or sell transportation or services, primarily for the
purpose of enabling the debtor to make payment of such
indebtedness or to assure the owner of such indebtedness
against loss, regardless of the delivery or nondelivery of the
property, products, materials or supplies or the furnishing or
nonfurnishing of the transportation or services, or
(3) to make any loan, advance, capital
contribution or other Investment in the debtor for the purpose
of assuring a minimum equity, asset base, working capital or
other balance sheet condition for any date, or to provide
funds for the payment of any liability, dividend or stock
liquidation payment, or otherwise to supply funds to or in any
manner invest in the debtor;
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(c) all indebtedness secured by any mortgage, lien,
pledge, charge, security interest or other encumbrance in respect of
property owned by such Person, even though such Person has not assumed
or become liable for the payment of such indebtedness;
(d) all indebtedness of such Person created or arising
under any conditional sale agreement or other title retention
agreement, and all Capital Lease Obligations of such Person, even
though the rights and remedies of the seller or lender or lessor of
the property subject to such agreement or lease in the event of
default are limited to repossession or sale of such property; and
(e) all reimbursement obligations with respect to
letters of credit and guaranties.
For the purpose of computing the Indebtedness of any Person (1) the principal
amount of any Indebtedness shall be the outstanding principal amount of
Indebtedness of the debtor benefited by such guarantee or other contingent
liability, (2) there shall be excluded any particular Indebtedness if, upon or
prior to the maturity thereof, there shall have been deposited with the proper
depositary in trust the necessary funds (or evidences of such Indebtedness, if
permitted by the instrument creating such Indebtedness) for the payment,
redemption or satisfaction of such Indebtedness; and thereafter such funds and
evidences of Indebtedness so deposited shall not be included in any computation
of the assets of such Person, and (3) a reimbursement obligation with respect
to a letter of credit or guaranty shall be deemed to be Indebtedness equal to
the maximum aggregate amount of such letter of credit or guaranty.
"Indebtedness for Money Borrowed" of any Person includes (a) all
Indebtedness of such Person, current or funded, secured or unsecured, incurred
in connection with borrowings (including the sale of debt securities), (b) all
Indebtedness of such Person, secured or unsecured, for the purchase price of
capital assets acquired, other than accounts payable incurred or assumed in the
ordinary course of business, (c) all Capital Lease Obligations of such Person,
(d) any guarantee or other obligation specified in subsection (a) or (b) of the
definition of "Indebtedness" in this SECTION 8.1 in respect of Indebtedness of
any other Person of any of the types specified in the preceding clauses (a), (b)
and (c), and (e) all reimbursement obligations with respect to letters of
credit and guaranties (for purposes of all computations made under this
Agreement, a reimbursement obligation with respect to a letter of credit or
guaranty shall be deemed to be Indebtedness equal to the maximum aggregate
amount of such letter of credit or guaranty).
"Institutional Holder" shall mean any of the following Persons: (a)
any bank, savings and loan association, savings institution, trust company or
national banking association, acting for its own account or in a fiduciary
capacity, (b) any charitable foundation, (c) any insurance company, (d) any
fraternal benefit society, (e) any pension, retirement or profit sharing trust
or fund within the meaning of Title I of ERISA or for which any bank, trust
company, national banking association or investment adviser registered under
the Investment Advisers Act of 1940, as amended, is acting as trustee or agent,
(f) any investment company or business development company, as defined in the
Investment Company Act of 1940, as amended, (g) any small business investment
company licensed under the Small Business Investment Act
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of 1958, as amended, (h) any broker or dealer registered under the Securities
Exchange Act of 1934, as amended, or any investment adviser registered under
the Investment Adviser Act of 1940, as amended, (i) any government, any public
employees' pension or retirement system, or any other government agency
supervising the investment of public funds, (j) any venture capital operating
company as defined in 29 C.F.R. 2510.3-101(d), (k) any other entity all of the
equity owners of which are Institutional Holders or (l) any other Person which
may be within the definition of "qualified institutional buyer" as such term is
used in Rule 144A, as from time to time in effect, promulgated under the
Securities Act of 1933, as amended.
"Interest Rate Protection Agreement" means any agreement, device or
arrangement designed to protect at least one of the parties thereto from the
fluctuations of interest rates, exchange rates or forward rates applicable to
such party's assets, liabilities or exchange transactions, including but not
limited to dollar-denominated or cross-currency interest rate exchange
agreements, forward currency exchange agreements, dollar protection agreements,
interest rate cap agreements, interest rate collar agreements, forward rate
currency or interest rate options, puts and warrants.
"Investment" in any Person means all investments, computed in
accordance with generally accepted accounting principles, made by stock
purchase, capital contribution, loan, advance, guarantee of any Indebtedness of
such Person or creation or assumption of any other contingent liability in
respect of any Indebtedness of such Person, or otherwise; provided, however,
that in computing any Investment in any Person:
(a) all expenditures for such Investment shall be taken
into account at the actual amounts thereof in the case of expenditures
of cash and at the fair value thereof (as determined by the Board) or
net book value thereof (in accordance with generally accepted
accounting principles), whichever is greater, in the case of
expenditures of property;
(b) undistributed earnings of, and interest accrued in
respect of Indebtedness owing by, such Person shall not be included;
(c) there shall not be deducted from the amounts invested
in such Person any amounts received as earnings (in the form of
dividends or interest or otherwise) on the Investment in, or as loans
from, such Person;
(d) there shall be included all notes and accounts
receivable from such Person, other than notes or accounts receivable
payable in U.S. or Canadian dollars and not outstanding more than 90
days, arising from sales to such Person as a customer in the ordinary
course of business;
(e) a guarantee or other contingent liability in respect
of any Indebtedness of such Person shall be deemed an Investment equal
to the principal amount of such Indebtedness; and
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(f) a transfer of property or rendition of service to
such Person for less than the greater of the full agreed price thereof
or the fair value thereof shall be deemed an Investment equal to the
amount of the deficiency.
"Investment Grade Rating" shall have the meaning specified in
SECTION 2.3(D).
"Junior Subordinated Indebtedness" means Subordinated Indebtedness of
the Company which is by its terms subordinate and junior to all Senior
Indebtedness and Senior Subordinated Indebtedness, including without
limitation, the Company's 11.82% Junior Subordinated Notes due December 1999,
the Company's 12.26% Junior Subordinated Notes due April 2000, the Company's
9.93% Junior Subordinated Notes due December 2002, the Company's Subordinated
Promissory Note dated October 25, 1978, in the original principal amount of
$9,590,000, issued pursuant to the Loan Agreement dated as of October 25, 1978
between the Company and The Foothill Group, Inc., the Company's Class 2 Junior
Subordinated Promissory Note dated December 31, 1984, in the original principal
amount of $12,000,000, issued pursuant to the Loan Agreement dated as of
December 31, 1984 between the Company and The Foothill Group, Inc., and any
other Indebtedness (other than Advances to the extent permitted by SECTION
7.14(C) and other than Indebtedness for payments permitted by SECTION 7.14(A)
and (B)) of the Company to The Foothill Group, Inc. or any other Affiliate,
whether heretofore or hereafter created, incurred or assumed, and unsecured
Indebtedness of the Company which
(a) on the date on which the status of such Indebtedness
is determined for any purpose hereof,
(1) has a final maturity not earlier than
November 15, 2003,
(2) has a Weighted Average Life to Maturity at
least as long as the longest remaining Weighted Average Life
to Maturity of the Notes, and
(3) is not subject to principal payment,
redemption or other retirement by means of any installment,
sinking fund, serial maturity or other required payments prior
to November 15, 1998; and
(b) is issued or assumed pursuant to, or evidenced by, an
indenture or other instrument which contains provisions for the
subordination of such Indebtedness (to which appropriate reference
shall be made in the instruments evidencing such Indebtedness if not
contained therein) to the Notes (and, at the option of the Company, if
so provided, to other Indebtedness for Money Borrowed of the Company,
either generally or as specifically designated) substantially as
follows (without limitation as to further, but not inconsistent,
provisions, if so desired):
"Subordination. Anything in this Junior Subordinated
Note to the contrary notwithstanding, the indebtedness
evidenced by this Junior Subordinated Note shall be
subordinate and junior in right of payment, to the extent and
in the
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manner hereinafter set forth, to all indebtedness of the
Company evidenced by its 13-1/8% Senior Notes, 9.80% Senior
Notes, 10.35% Senior Notes, 9.76% Senior Notes, 10.10% Senior
Notes, 8.51% Senior Notes, 8.98% Senior Notes, 9.44% Senior
Notes, 9.25% Senior Notes, 6.77% Series A Senior Notes, 7.31%
Series B Senior Notes, 7.93% Series C Senior Notes, 5.54%
Series A Senior Notes, 5.89% Series B Senior Notes, 6.23%
Series C Senior Notes, 6.56% Series D Senior Notes, 8.06%
Senior Notes, 13- 5/8% Senior Subordinated Notes, 10.60%
Senior Subordinated Notes, 11.26% Senior Subordinated Notes,
8.93% Senior Subordinated Notes and 7.46% Senior Subordinated
Notes from time to time outstanding (whether outstanding at
the date of this Junior Subordinated Note or issued after the
date of this Junior Subordinated Note and as said 13-1/8%
Senior Notes, 9.80% Senior Notes, 10.35% Senior Notes, 9.76%
Senior Notes, 10.10% Senior Notes, 8.51% Senior Notes, 8.98%
Senior Notes, 9.44% Senior Notes, 9.25% Senior Notes, 6.77%
Series A Senior Notes, 7.31% Series B Senior Notes, 7.93%
Series C Senior Notes, 5.54% Series A Senior Notes, 5.89%
Series B Senior Notes, 6.23% Series C Senior Notes, 6.56%
Series D Senior Notes, 8.06% Senior Notes, 13-5/8% Senior
Subordinated Notes, 10.60% Senior Subordinated Notes, 11.26%
Senior Subordinated Notes, 8.93% Senior Subordinated Notes and
7.46% Senior Subordinated Notes may at any time and from time
to time be modified or amended in any respect), and to*
_______________ (all such indebtedness to which this Junior
Subordinated Note is subordinate as aforesaid being sometimes
hereinafter referred to as 'Superior Indebtedness'):
'(i) In the event of any insolvency or
bankruptcy proceedings, and any receivership,
liquidation, reorganization or other similar
proceedings in connection therewith, relative to the
Company or to its creditors, as such, or to its
property, and in the event of any proceedings for
voluntary liquidation, dissolution or other winding
up of the Company, whether or not involving
insolvency or bankruptcy, then the holders of
Superior Indebtedness shall be entitled to receive
payment in full of all principal, premium (if any)
and interest on all Superior Indebtedness (including
interest thereon accruing after the commencement of
any such proceedings) before the holder of this
Junior Subordinated Note shall be entitled to receive
any payment on account of principal, premium (if any)
or interest on this Junior Subordinated Note.
Pursuant to the foregoing (but subject to the power
of a court of competent jurisdiction to make other
equitable provisions reflecting the rights conferred
herein upon Superior Indebtedness and the holders
thereof with respect to the subordinated indebtedness
represented by this Junior Subordinated Note and the
holder hereof by a lawful plan of reorganization
under applicable bankruptcy law) the holders of
Superior Indebtedness (until payment in full of all
principal, premium (if any) and interest on all
Superior Indebtedness, including interest thereon
accruing after the commencement of any such
proceeding)
- ---------------
* Here will be inserted the identification of any other Superior
Indebtedness incurred by the Company after the Closing Date.
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<PAGE> 40
shall be entitled to receive for application in
payment thereof any payment or distribution of any
kind or character, whether in cash or property or
securities, which may be payable or deliverable in
any such proceedings in respect of this Junior
Subordinated Note (including any such payment or
distribution which may be payable or deliverable by
virtue of the provisions of, or any security for, any
securities which are subordinate and junior in right
of payment to this Junior Subordinated Note), except
securities which are subordinate and junior (to at
least the same extent as this Junior Subordinated
Note) in right of payment to the payment of all
Superior Indebtedness then outstanding. The holder
of this Junior Subordinated Note shall not exercise
or attempt to exercise any right of setoff or
counterclaim in respect of any obligations of the
holder of this Junior Subordinated Note to the
Company against the obligations of the Company under
this Junior Subordinated Note if the effect thereof
shall be to reduce the amount of any such payment or
distribution to which the holders of Superior
Indebtedness would be entitled in the absence of such
setoff or counterclaim; and if and to the extent
that, notwithstanding the foregoing, the holder of
this Junior Subordinated Note is required by any
mandatory provision of law to exercise any such right
of setoff or counterclaim, each reduction of the
amount owing on account of the principal of or
premium (if any) or interest on this Junior
Subordinated Note by reason of such setoff or
counterclaim shall be deemed to be a payment by the
Company in a like amount in respect of this Junior
Subordinated Note to which the second sentence of
this paragraph (i) shall apply.
'(ii) In the event that this Junior
Subordinated Note is declared due and payable before
its expressed maturity because of the occurrence of
an event of default hereunder (under circumstances
when the provisions of the foregoing paragraph (i) or
the following paragraph (iii) shall not be
applicable), the holders of Superior Indebtedness
then due or becoming due by acceleration or
otherwise, prior to the expiration of a period of 75
days after the date on which the Company or a holder
of this Junior Subordinated Note gives to the holders
of the Superior Indebtedness the written notice
provided for below in this paragraph (ii), shall be
entitled to receive payment in full of all principal,
premium (if any) and interest on all such Superior
Indebtedness before the holder of this Junior
Subordinated Note shall be entitled to receive any
payment on account of the principal, premium (if any)
or interest on this Junior Subordinated Note other
than any such principal, premium (if any) and
interest due otherwise than by reason of such
declaration. For the purposes of this paragraph (ii)
the Company agrees, for the benefit of the holders of
Superior Indebtedness as well as the holder of this
Junior Subordinated Note, that, if any such
declaration remains unrescinded for 15 days, the
Company will promptly give written notice thereof to
all holders of Superior Indebtedness. If the Company
fails to give such notice, the holder of this Junior
Subordinated
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<PAGE> 41
Note may do so on behalf of the Company. At any time
within 75 days after the date on which such notice is
given, any holder of outstanding Superior
Indebtedness shall have the right to declare all
Superior Indebtedness held by such holder to be due
and payable, whereupon such Superior Indebtedness
shall forthwith become immediately due and payable
regardless of the expressed maturity date thereof.
Nothing herein shall prevent the holder of this
Junior Subordinated Note from seeking any remedy
allowed at law or in equity so long as any judgment
or decree obtained thereby makes provision for
enforcing this paragraph (ii).
'(iii) In the event that any default shall
occur and be continuing with respect to any Superior
Indebtedness permitting the holders of such Superior
Indebtedness to accelerate the maturity thereof, the
holder of this Junior Subordinated Note shall not be
entitled to receive any payment on account of
principal, premium (if any) or interest hereon
(including any such payment which would cause a
default) if either (a) judicial proceedings shall be
pending in respect of such default, or (b) written
notice of such default directing the Company to cease
payment on the subordinated indebtedness in
accordance with this paragraph (iii) shall have been
given to the Company by any holder of Superior
Indebtedness and a period of 180 days in the case of
a monetary default or 90 days in the case of any
other default shall not have expired since the giving
of such notice; provided, however, that this
paragraph (iii) shall apply to only one such notice
given in any twelve month period. The Company,
forthwith upon receipt of any such notice, shall send
a copy thereof to the holder of this Junior
Subordinated Note.
'No present or future holder of Superior Indebtedness shall be
prejudiced in such holder's right to enforce subordination of this
Junior Subordinated Note by any act or failure to act on the part of
the Company. The provisions of this Section are solely for the
purpose of defining the relative rights of the holders of Superior
Indebtedness on the one hand, and the holder of this Junior
Subordinated Note on the other hand, and nothing herein shall impair,
as between the Company and the holder of this Junior Subordinated
Note, the obligation of the Company, which is unconditional and
absolute, to pay to the holder hereof the principal and interest
hereon in accordance with the terms hereof, nor shall anything herein
prevent the holder of this Junior Subordinated Note from exercising
all remedies otherwise permitted by applicable law or hereunder upon
default hereunder, subject to the rights (if any) under this Section
of holders of Superior Indebtedness to receive cash, property or
securities otherwise payable or deliverable to the holder of this
Junior Subordinated Note and all amounts which are deemed to be
payments in respect of this Junior Subordinated Note by reason of
setoff or counterclaim in respect of any obligations of the holder of
this Junior Subordinated Note to the Company against the obligations
of the Company under this Junior Subordinated Note.' "
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<PAGE> 42
"Lease" means a lease of real or personal property; and "Lease Rental"
for any period means the sum of the rental and other payments required to be
paid by the lessee in such period under a Lease, excluding any amounts required
to be paid by the lessee (whether or not therein designated as rental or
additional rental) on account of maintenance and repairs, insurance, taxes,
assessments, water rates and similar charges.
"Make-Whole Amount" shall mean in connection with any prepayment or
acceleration of the Notes the excess (if any) of (a) the aggregate present
value as of the date of such prepayment or acceleration of each dollar of
principal being prepaid or accelerated and the amount of interest (exclusive of
interest accrued to the date of prepayment or acceleration) that would have
been payable in respect of such dollar if such prepayment had not been made or
the Notes had not been accelerated, determined by discounting such amounts at
the Reinvestment Rate from the respective dates on which they would have been
payable, over (b) 100% of the principal amount of the Notes being prepaid or
accelerated at the date such Notes are to be prepaid or are accelerated. If
the applicable Reinvestment Rate at the time of determination of the Make-Whole
Amount is equal to or higher than 8.06% in the case of any payment, prepayment
or acceleration of the Notes, the Make-Whole Amount for any payment, prepayment
or acceleration of the Notes is zero. For purposes of any determination of the
Make-Whole Amount:
"Reinvestment Rate" shall mean .50%, plus (1) the yield
reported on page "USD" of the Bloomberg Financial Market Service (or,
if not available, any other nationally recognized trading screen
reporting on-line intraday trading in United States government
securities) at 10:00 a.m. (New York time) for United States government
securities having a maturity (rounded to the nearest month)
corresponding to the scheduled maturity of the principal being prepaid
or accelerated or, in the event that no such nationally recognized
trading screen reporting on-line intraday trading in United States
government securities is available (2) the arithmetic mean of the
yields for the two columns under the heading "Week Ending" published
in the Statistical Release under the caption "Treasury Constant
Maturities" for the maturity (rounded to the nearest month)
corresponding to the scheduled maturity of the principal being prepaid
or accelerated. If no maturity exactly corresponds to such scheduled
maturity, yields for the published maturity next longer than such
scheduled maturity and for the published maturity next shorter than
such scheduled maturity shall be calculated and the Reinvestment Rate
shall be interpolated from such yields on a straight-line basis,
rounding in each of such relevant periods to the nearest month. For
the purposes of calculating the Reinvestment Rate pursuant to clause
(2) above, the most recent Statistical Release published prior to the
date of determination of the Make-Whole Amount shall be used.
"Statistical Release" shall mean the then most recently
published statistical release designated "H.15(519)" or any successor
publication which is published weekly by the Federal Reserve System
and which establishes yields on actively traded U.S. government
securities adjusted to constant maturities or, if such statistical
release is not published at the time of any determination hereunder,
then such other reasonably
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<PAGE> 43
comparable index which shall be designated by the holders of 66-2/3%
in aggregate principal amount of the outstanding Notes.
"Multiemployer Plan" shall have the same meaning as in ERISA.
"Net Income" of any Person for any period means the net income (or net
deficit) of such Person for such period, determined in the following manner:
(a) The gross revenues and other proper income credits of
such Person shall be computed for such period in accordance with
generally accepted accounting principles, but excluding:
(1) any gain arising from (i) the sale or other
disposition of any capital assets (other than property
foreclosed by such Person and sold or disposed of in the
ordinary course of business), (ii) any write-up of assets or
(iii) the acquisition by such Person of its outstanding debt
securities for a cost less than the principal of and interest
accrued on such securities;
(2) any reversal of any reserve, except to the
extent that provision for such reserve shall have been made
during such period;
(3) any amount representing the interest of such
Person in the undistributed earnings of any other Person; and
(4) any earnings, prior to the date of
acquisition, of any other Person acquired in any manner.
(b) From the amount of such gross revenues and other
proper income credits for such period, determined as provided in the
preceding subsection (a), there shall be deducted all operating
expenses and all other proper revenue and income deductions and
charges for such period, determined in accordance with generally
accepted accounting principles, exclusive of any loss from the sale,
abandonment or other disposition of any capital asset (other than
property foreclosed by such Person and sold or disposed of in the
ordinary course of business); but in any event there shall be
deducted:
(1) amortization of debt discount and any other
amortization of deferred charges; and
(2) provisions for depreciation, depletion,
obsolescence and amortization of the properties of such Person
in amounts in the aggregate not less than those actually
deducted on its books, determined in accordance with generally
accepted accounting principles.
"Net Revenues" of any Person for any period means interest and finance
income, plus other income, all determined in accordance with generally accepted
accounting principles.
-38-
<PAGE> 44
"Nonperforming Assets" include Delinquent Accounts and repossessed
assets held for resale. For purposes hereof, repossessed assets held for
resale shall be valued at the lower of cost or estimated net realizable value.
"Note" and "Notes" have the meanings specified in SECTION 1.1.
"Note Register" has the meaning specified in SECTION 11.1.
"Optional Payment" in respect of any Subordinated Indebtedness, means
any payment on account of the principal of and prepayment charge (if any) on,
or any expenditure for the purchase or other retirement of, such Subordinated
Indebtedness other than an installment, sinking fund, serial maturity or other
required payment in respect thereof permitted by subsection (a)(3) of the
definition of "Junior Subordinated Indebtedness" or subsection (a)(3) of the
definition of "Subordinated Indebtedness", in this SECTION 8.1.
"Order," in respect of a court, arbitrator or Governmental Body, means
any order, writ, injunction, decree, judgment, award, determination, direction
or demand.
"Person" means an individual, a corporation, a partnership, a trust,
an unincorporated organization, or a government or any agency or political
subdivision thereof.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Plan" means a "pension plan," as such term is defined in ERISA,
established or maintained by the Company or any ERISA Affiliate or as to which
the Company or any ERISA Affiliate contributed or is a member or otherwise may
have any liability.
"Preferred Shares," as applied to Shares of any corporation, means
Shares of such corporation which are entitled to preference or priority over
any other Shares of such corporation in respect of voting rights, the payment
of dividends or the distribution of assets upon liquidation.
"Purchaser" shall mean Principal Mutual Life Insurance Company and any
Person who succeeds to all, or substantially all, of the assets and business of
Principal Mutual Life Insurance Company.
"Reportable Event" shall have the same meaning as in ERISA.
"Responsible Officer" means the President, an Executive Vice
President, a Senior Vice President or any other Vice President of the Company.
"Restricted Payment," in respect of the Company, means
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<PAGE> 45
(a) any dividend on its Shares whether (in any such case)
in cash or property or obligations of the Company (other than a
dividend payable solely in Common Shares of the Company); or
(b) any payment on account of the purchase, redemption or
other retirement of any of its Shares whether (in any such case) in
cash or property or obligations of the Company, or of any warrant,
option or other right to acquire such Shares (except a payment on
account of the principal of and prepayment charge (if any) on
convertible Indebtedness), or any other distribution whether (in any
such case) in cash or property or obligations of the Company made in
respect thereof, either directly or indirectly; or
(c) any Optional Payment on Subordinated Indebtedness;
whether (in any such case) in cash or property or obligations of the
Company. The amount of any Restricted Payment in property of the
Company shall be deemed to be the greater of the fair value of such
property (as determined by the Board) or the net book value of such
property on the Company's books on the Computation Date.
"Restricted Subsidiary" means any Subsidiary which (a) is incorporated
or organized under the laws of the United States of America or a state thereof
or the District of Columbia or Canada or a province thereof and (b)
substantially all of the operating assets of which are located in and
substantially all of the business of which is conducted within the United
States of America and/or Canada.
"SEC" means the Securities and Exchange Commission or any similar or
corresponding governmental commission, department or agency substituted
therefor.
"Senior Borrowing Base" means the sum of Adjusted Consolidated Net
Worth and all Subordinated Indebtedness of the Company and its Restricted
Subsidiaries, determined and consolidated in accordance with generally accepted
accounting principles.
"Senior Indebtedness" of any Person means
(a) all Indebtedness of such Person other than
Subordinated Indebtedness,
(b) all Indebtedness of Subsidiaries of such Person, and
(c) all security deposits of lessee clients of such
Person and its Subsidiaries.
"Senior Notes" shall mean the "Notes."
"Senior Subordinated Indebtedness" means any Indebtedness of the
Company which is by its terms subordinate and junior only to Senior
Indebtedness.
"Shares" of any corporation include any and all shares of capital
stock of such corporation of any class or classes, and other shares, interests,
participations, convertible Indebtedness or other equivalents (however
designated) in the capital of such corporation.
-40-
<PAGE> 46
"Subordinated Indebtedness" means the Company's 13-5/8% Senior
Subordinated Notes due November 1995, 10.60% Senior Subordinated Notes due
December 1999, 11.26% Senior Subordinated Notes due April 2000, 8.93% Senior
Subordinated Notes due December 2002, 7.46% Senior Subordinated Notes due
November 2003, 11.82% Junior Subordinated Notes due December 1999, 12.26%
Junior Subordinated Notes due April 2000, 9.93% Junior Subordinated Notes due
December 2002, the Indebtedness of the Company to The Foothill Group, Inc.
represented by the Company's Subordinated Promissory Note dated October 25,
1978, in the original principal amount of SECTION 9,590,000, issued pursuant
to the Loan Agreement dated as of October 25, 1978 between the Company and The
Foothill Group, Inc., the Indebtedness of the Company to The Foothill Group,
Inc. represented by the Company's Class 2 Junior Subordinated Promissory Note
dated December 31, 1984 in the original principal amount of $12,000,000, issued
pursuant to the Loan Agreement dated as of December 31, 1984, between the
Company and The Foothill Group, Inc., any other Indebtedness (other than
Advances to the extent permitted by SECTION 7.14(C) and other than
Indebtedness for payments permitted by SECTION 7.14(A) and (B)) of the Company
to The Foothill Group, Inc. or any other Affiliate, and unsecured Indebtedness
of the Company which
(a) on the date on which the status of such Indebtedness
is determined for any purpose hereof,
(1) has a final maturity not earlier than
November 15, 2003,
(2) has a Weighted Average Life to Maturity at
least as long as the longest remaining Weighted Average Life
to Maturity of the Notes, and
(3) is not subject to principal payment,
redemption or other retirement by means of any installment,
sinking fund, serial maturity or other required payments
prior to November 15, 1998; and
(b) is issued or assumed pursuant to, or evidenced by, an
indenture or other instrument which contains provisions for the
subordination of such Indebtedness (to which appropriate reference
shall be made in the instruments evidencing such Indebtedness if not
contained therein) to the Notes (and, at the option of the Company, if
so provided, to other Indebtedness for Money Borrowed of the Company,
either generally or as specifically designated) substantially as
follows (without limitation as to further, but not inconsistent,
provisions, if so desired):
"Subordination. Anything in this Subordinated Note
to the contrary notwithstanding, the indebtedness evidenced by
this Subordinated Note shall be subordinate and junior in
right of payment, to the extent and in the manner hereinafter
set forth, to all indebtedness of the Company evidenced by its
13-1/8% Senior Notes, 9.80% Senior Notes, 10.35% Senior Notes,
9.76% Senior
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<PAGE> 47
Notes, 10.10% Senior Notes, 8.51% Senior Notes, 8.98% Senior
Notes, 9.44% Senior Notes, 9.25% Senior Notes, 6.77% Series A
Senior Notes, 7.31% Series B Senior Notes, 7.93% Series C
Senior Notes, 5.54% Series A Senior Notes, 5.89% Series B
Senior Notes, 6.23% Series C Senior Notes, 6.56% Series D
Senior Notes and the 8.06% Senior Notes, from time to time
outstanding (whether outstanding at the date of this
Subordinated Note or issued after the date of this
Subordinated Note and as said 13-1/8% Senior Notes, 9.80%
Senior Notes, 10.35% Senior Notes, 9.76% Senior Notes, 10.10%
Senior Notes, 8.51% Senior Notes, 8.98% Senior Notes, 9.44%
Senior Notes, 9.25% Senior Notes, 6.77% Series A Senior Notes,
7.31% Series B Senior Notes, 7.93% Series C Senior Notes,
5.54% Series A Senior Notes, 5.89% Series B Senior Notes,
6.23% Series C Senior Notes, 6.56% Series D Senior Notes and
the 8.06% Senior Notes, may at any time and from time to time
be modified or amended in any respect), and to*______________
_______________ (all such indebtedness to which this
Subordinated Note is subordinate as aforesaid being sometimes
hereinafter referred to as 'Superior Indebtedness'):
'(i) In the event of any insolvency or
bankruptcy proceedings, and any receivership,
liquidation, reorganization or other similar
proceedings in connection therewith, relative to the
Company or to its creditors, as such, or to its
property, and in the event of any proceedings for
voluntary liquidation, dissolution or other winding
up of the Company, whether or not involving
insolvency or bankruptcy, then the holders of
Superior Indebtedness shall be entitled to receive
payment in full of all principal, premium (if any)
and interest on all Superior Indebtedness (including
interest thereon accruing after the commencement of
any such proceedings) before the holder of this
Subordinated Note shall be entitled to receive any
payment on account of principal, premium (if any) or
interest on this Subordinated Note. Pursuant to the
foregoing (but subject to the power of a court of
competent jurisdiction to make other equitable
provisions reflecting the rights conferred herein
upon Superior Indebtedness and the holders thereof
with respect to the subordinated indebtedness
represented by this Subordinated Note and the holder
hereof by a lawful plan of reorganization under
applicable bankruptcy law) the holders of Superior
Indebtedness (until payment in full of all principal,
premium (if any) and interest on all Superior
Indebtedness, including interest thereon accruing
after the commencement of any such proceeding) shall
be entitled to receive for application in payment
thereof any payment or distribution of any kind or
character, whether in cash or property or securities,
which may be payable or deliverable in any such
proceedings in respect of this Subordinated Note
(including any such payment or distribution which may
be payable or deliverable by virtue of the provisions
of, or any security for, any securities which are
subordinate and
- ---------------
* Here will be inserted the identification of any other Superior
Indebtedness incurred by the Company after the Closing Date.
-42-
<PAGE> 48
junior in right of payment to this Subordinated
Note), except securities which are subordinate and
junior (to at least the same extent as this
Subordinated Note) in right of payment to the payment
of all Superior Indebtedness then outstanding. The
holder of this Subordinated Note shall not exercise
or attempt to exercise any right of setoff or
counterclaim in respect of any obligations of the
holder of this Subordinated Note to the Company
against the obligations of the Company under this
Subordinated Note if the effect thereof shall be to
reduce the amount of any such payment or distribution
to which the holders of Superior Indebtedness would
be entitled in the absence of such setoff or
counterclaim; and if and to the extent that,
notwithstanding the foregoing, the holder of this
Subordinated Note is required by any mandatory
provision of law to exercise any such right of setoff
or counterclaim, each reduction of the amount owing
on account of the principal of or premium (if any) or
interest on this Subordinated Note by reason of such
setoff or counterclaim shall be deemed to be a
payment by the Company in a like amount in respect of
this Subordinated Note to which the second sentence
of this paragraph (i) shall apply.
'(ii) In the event that this Subordinated
Note is declared due and payable before its expressed
maturity because of the occurrence of an event of
default hereunder (under circumstances when the
provisions of the foregoing paragraph (i) or the
following paragraph (iii) shall not be applicable),
the holders of Superior Indebtedness then due or
becoming due by acceleration or otherwise, prior to
the expiration of a period of 75 days after the date
on which the Company or a holder of this Subordinated
Note gives to the holders of the Superior
Indebtedness the written notice provided for below in
this paragraph (ii), shall be entitled to receive
payment in full of all principal, premium (if any)
and interest on all such Superior Indebtedness before
the holder of this Subordinated Note shall be
entitled to receive any payment on account of the
principal, premium (if any) or interest on this
Subordinated Note other than any such principal,
premium (if any) and interest due otherwise than by
reason of such declaration. For the purposes of this
paragraph (ii) the Company agrees, for the benefit of
the holders of Superior Indebtedness as well as the
holder of this Subordinated Note, that, if any such
declaration remains unrescinded for 15 days, the
Company will promptly give written notice thereof to
all holders of Superior Indebtedness. If the Company
fails to give such notice, the holder of this
Subordinated Note may do so on behalf of the Company.
At any time within 75 days after the date on which
such notice is given, any holder of outstanding
Superior Indebtedness shall have the right to declare
all Superior Indebtedness held by such holder to be
due and payable, whereupon such Superior Indebtedness
shall forthwith become immediately due and payable
regardless of the expressed maturity date thereof.
Nothing herein shall prevent the holder of this
Subordinated Note from seeking any remedy allowed at
law or in equity so long as any
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<PAGE> 49
judgment or decree obtained thereby makes provision
for enforcing this paragraph (ii).
'(iii) In the event that any default shall
occur and be continuing with respect to any Superior
Indebtedness permitting the holders of such Superior
Indebtedness to accelerate the maturity thereof, the
holder of this Subordinated Note shall not be
entitled to receive any payment on account of
principal, premium (if any) or interest hereon
(including any such payment which would cause a
default) if either (a) judicial proceedings shall be
pending in respect of such default, or (b) written
notice of such default directing the Company to cease
payment on the subordinated indebtedness in
accordance with this paragraph (iii) shall have been
given to the Company by any holder of Superior
Indebtedness and a period of 180 days in the case of
a monetary default or 90 days in the case of any
other default shall not have expired since the giving
of such notice; provided, however, that this
paragraph (iii) shall apply to only one such notice
given in any twelve month period. The Company,
forthwith upon receipt of any such notice, shall send
a copy thereof to the holder of this Subordinated
Note.
No present or future holder of Superior Indebtedness shall be
prejudiced in such holder's right to enforce subordination of this
Subordinated Note by any act or failure to act on the part of the
Company. The provisions of this Section are solely for the purpose of
defining the relative rights of the holders of Superior Indebtedness
on the one hand, and the holder of this Subordinated Note on the other
hand, and nothing herein shall impair, as between the Company and the
holder of this Subordinated Note, the obligation of the Company, which
is unconditional and absolute, to pay to the holder hereof the
principal and interest hereon in accordance with the terms hereof, nor
shall anything herein prevent the holder of this Subordinated Note
from exercising all remedies otherwise permitted by applicable law or
hereunder upon default hereunder, subject to the rights (if any) under
this Section of holders of Superior Indebtedness to receive cash,
property or securities otherwise payable or deliverable to the holder
of this Subordinated Note and all amounts which are deemed to be
payments in respect of this Subordinated Note by reason of setoff or
counterclaim in respect of any obligations of the holder of this
Subordinated Note to the Company against the obligations of the
Company under this Subordinated Note.' "
"Subsidiary" of any designated corporation means any corporation of
which such designated corporation, or one or more Subsidiaries of such
designated corporation, or such designated corporation and one or more
Subsidiaries of such designated corporation, own Shares (however designated)
having ordinary voting power for the election of at least a majority of the
members of the board of directors (or other governing body) of such
corporation, other than Shares having such power only by reason of the
happening of a contingency. Unless the context otherwise requires, the term
"Subsidiary" means a Subsidiary of the Company.
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<PAGE> 50
"Unrestricted Subsidiary" means any Subsidiary other than a Restricted
Subsidiary.
"Weighted Average Life to Maturity" of any Indebtedness means at any
time the number of years obtained by dividing the then Remaining Dollar-years
of such Indebtedness by the then outstanding principal amount of such
Indebtedness; and the "Remaining Dollar-years" of any Indebtedness means at any
time the amount obtained by (a) multiplying the amount of each then remaining
installment, sinking fund, serial maturity or other required payment, including
payment at final maturity, by the number of years (calculated to the nearest
one-twelfth) which will elapse between the time in question and the making of
that payment and (b) totaling all of the products obtained in (a).
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary
all of the outstanding Shares of which, other than directors' qualifying
Shares, are owned by the Company, or by one or more Wholly Owned Restricted
Subsidiaries, or by the Company and one or more Wholly Owned Restricted
Subsidiaries.
Section 8.2. Other Definitions. The terms defined in this
SECTION 8.2, wherever used in this Agreement, have the respective meanings
hereinafter specified, unless the context otherwise requires.
"this Agreement" means, and the words "herein," "hereof," "hereunder"
and words of similar import refer to, this instrument as it may from time to
time be amended or supplemented.
"holder," with respect to any of the Notes, means the registered owner
thereof as shown on the Note Register.
"outstanding," with respect to the Notes, means, at any date, all
Notes theretofore executed and delivered under this Agreement which have not
been paid or prepaid in full, except Notes in exchange for or in lieu of which
other Notes have been executed and delivered in accordance with this Agreement;
provided, however, that in determining whether the holders of outstanding Notes
of the requisite aggregate unpaid principal amount at any time have given any
authorization, notice, consent or waiver hereunder Notes owned by the Company
or any Affiliate of the Company shall be disregarded and deemed not to be
outstanding.
Section 8.3. Accounting Terms. All accounting terms used herein
which are not expressly defined in this Agreement have the meanings
respectively given to them in accordance with United States generally accepted
accounting principles as in effect from time to time, all computations made
pursuant to this Agreement shall be made in accordance with United States
generally accepted accounting principles as in effect from time to time and all
balance sheets and other financial statements shall be prepared in accordance
with United States generally accepted accounting principles as in effect from
time to time. Wherever reference is made in any provision of this Agreement to
a consolidated or consolidating balance sheet or other consolidated or
consolidating financial statement or financial computation with respect to the
Company and its Restricted Subsidiaries, if at the time that
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any such provision is applicable the Company does not have any Restricted
Subsidiary, such terms shall mean a balance sheet or other financial statement
or financial computation, as the case may be, with respect to the Company only.
SECTION 9. REMEDIES.
Section 9.1. Events of Default Defined; Acceleration of Maturity.
If any one or more of the following events (herein called "Events of Default")
shall have occurred and be continuing (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any Order of any court or any Order, rule or
regulation of any Governmental Body), that is to say:
(a) default shall be made in the due and punctual payment
of all or any part of the principal of, or prepayment charge (if any)
on, any Note when and as the same shall become due and payable,
whether at the stated maturity thereof, by acceleration, by notice of
prepayment or repurchase or otherwise;
(b) default shall be made in the due and punctual payment
of any interest on any Note when and as such interest shall become due
and payable, and such default shall have continued for a period of two
days;
(c) default shall be made in the performance or
observance of any covenant, agreement or condition contained in
SECTION 5(F), SECTION 6, SECTION 7.2(A) or in SECTIONS 7.5 to 7.19,
inclusive;
(d) default shall be made in the performance or
observance of any other covenant, agreement or condition contained in
this Agreement and such default shall have continued for a period of
30 days;
(e) default shall be made in the payment when due
(whether by lapse of time, by declaration, by call for redemption or
otherwise) of the principal of, premium (if any), or interest on, any
Indebtedness for Borrowed Money (other than the Notes) of the Company
or any Restricted Subsidiary or of any amount due pursuant to any
Interest Rate Protection Agreement of the Company or any Restricted
Subsidiary and such default shall continue beyond the period of grace
(if any) allowed with respect thereto;
(f) default or the happening of any event shall occur
under any indenture, agreement or other instrument pursuant to which
any Indebtedness for Borrowed Money of the Company or any Restricted
Subsidiary is or may be issued or under any Interest Rate Protection
Agreement of the Company or any Restricted Subsidiary and such default
or event shall continue for a period of time sufficient to permit the
acceleration of the maturity of any Indebtedness for Borrowed Money of
the Company or any Restricted Subsidiary outstanding thereunder or
result in the termination of any Interest Rate Protection Agreement of
the Company or any Restricted Subsidiary;
(g) the Company or any Restricted Subsidiary shall,
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(1) admit in writing its inability to pay its
debts generally as they become due,
(2) file or consent to the filing against it of a
petition for relief under any Chapter of Title 11 of the
United States Code or any similar act,
(3) make an assignment for the benefit of its
creditors,
(4) consent to the appointment of a receiver of
itself or of the whole or any substantial
part of its property,
(5) on an involuntary petition for relief under
any Chapter of Title 11 of the United States Code or any
similar act filed against it, have an order for relief entered
under any such Chapter or any such similar act, or
(6) file a petition or answer seeking
reorganization or arrangement under the Federal bankruptcy
laws or any other applicable law or statute of the United
States of America or any other jurisdiction;
(h) a court of competent jurisdiction shall enter an
order appointing, without the consent of the Company or a Restricted
Subsidiary, a receiver of the Company or such Restricted Subsidiary,
respectively, or of the whole or any substantial part of the property
of either, or approving the filing of a petition seeking the
reorganization or arrangement of the Company or such Restricted
Subsidiary under the Federal bankruptcy laws or any other applicable
law or statute of the United States of America or any other
jurisdiction, and such Order shall not be vacated or set aside or
stayed within 60 days from the date of entry thereof;
(i) final judgment shall be rendered against the Company
or any Restricted Subsidiary for the payment of money in excess of
$500,000 and such judgment, within 60 days after its entry, shall not
be discharged or execution thereon stayed pending appeal or, in the
event of such a stay, such judgment shall not be discharged within 60
days after such stay expires; or
(j) any representation or warranty heretofore or
hereafter made by or on behalf of the Company herein or in any
certificate or other writing delivered under or pursuant to this
Agreement or in connection with any provision hereof or related to the
transactions contemplated hereby shall prove to have been false or
incorrect or breached in any respect on the date as of which made;
then (1) upon the occurrence of any Event of Default described in subsection
(g) or (h), the unpaid principal amount of the Notes, together with accrued
interest thereon which shall be deemed matured and, to the extent permitted by
law, together with a Default Premium, shall automatically become immediately
due and payable, without presentment, demand, protest or other requirements of
any kind, all of which are hereby expressly waived by the Company, or (2) upon
the occurrence of any other Event of Default, the holder or holders of 66-2/3%
or
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<PAGE> 53
more of the aggregate unpaid principal amount of the Notes at the time
outstanding may, by written notice to the Company, declare all of the Notes to
be, and the same shall forthwith become, due and payable, together with accrued
interest thereon which shall be deemed matured and, to the extent permitted by
law, together with a Default Premium, provided that during the existence of an
Event of Default described in subsection (a) or (b) with respect to any Note,
the holder of such Note may, by written notice to the Company, declare such
Note to be, and the same shall forthwith become, due and payable, together with
accrued interest thereon which shall be deemed matured and, to the extent
permitted by law, together with a Default Premium. If any holder of any Note
shall exercise the option specified in the proviso to the preceding sentence,
each other holder of any Note may, by written notice to the Company, declare
all Notes held by it to be, and the same shall forthwith become, due and
payable, together with accrued interest thereon which shall be deemed matured
and, to the extent permitted by law, together with a Default Premium.
Nevertheless, if at any time after acceleration of the maturity of any Note or
Notes, no judgment or decree has been entered for the payment of any monies due
pursuant to the Notes or this Agreement, the Company shall pay all arrears of
interest and all payments on account of the principal and prepayment or other
charge which shall have become due otherwise than by acceleration (with, to the
extent permitted by applicable law, interest on principal and prepayment charge
and on overdue interest, at the rate specified in the Notes) and all Events of
Default (other than nonpayment of principal of and accrued interest on Notes,
in amounts equal to prepayment or other charge as aforesaid, due and payable
solely by virtue of acceleration) shall be remedied or waived pursuant to
SECTION 10.1, then, and in every such case, the holder or holders of at least
66-2/3% of the aggregate unpaid principal amount of the Notes at the time
outstanding, by written notice to the Company may rescind and annul any such
acceleration and its consequences, but no such action shall affect any
subsequent default or Event of Default or impair any right consequent thereon.
Section 9.2. Suits for Enforcement. In case any one or more of
the Events of Default specified in SECTION 9.1 shall have occurred and be
continuing, each holder of any Note may proceed to protect and enforce its
rights either by suit in equity or by action at law, or both, whether for the
specific performance of any covenant or agreement contained in this Agreement
or in aid of the exercise of any power granted in this Agreement, or the holder
of any Note may proceed to enforce the payment of all sums due upon such Note
or to enforce any other legal or equitable right of the holder of such Note.
If the Company shall default in the payment of principal of, or
interest or premium (if any) on, any Note, or shall default in the performance
or observance of any covenant, agreement or condition contained herein, it will
pay to the holder of any Note, to the extent lawful, such amounts as shall be
sufficient to cover the costs and expenses, including but not limited to
reasonable attorneys' fees, incurred by such holder in collecting any sums due
on such holder's Note or in otherwise enforcing any of such holder's rights.
Section 9.3. Remedies Cumulative. No remedy herein conferred
upon the holder of any Note is intended to be exclusive of any other remedy and
each and every such remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute or otherwise.
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<PAGE> 54
Section 9.4. Remedies Not Waived. No course of dealing between
the Company and the holder of any Note nor any delay in exercising any rights
hereunder or under any Note shall operate as a waiver of any rights of any
holder of such Note.
Section 9.5. Notice by the Company of Acceleration and Certain
Other Action. If the holder or holders of 66-2/3% or more of the aggregate
unpaid principal amount of the Notes at the time outstanding shall accelerate
the maturity of all of the Notes, or if the holder of any Note shall accelerate
the maturity thereof, as provided in SECTION 9.1, or if any event or condition
specified in SECTION 9.1(D), 9.1(E) or 9.1(F) shall occur, the Company will
forthwith give written notice thereof to the holders of all outstanding Notes,
describing the nature and status of the Event of Default giving rise to such
acceleration, or of the default in the performance or observance of any
covenant, agreement or condition contained herein giving rise to such Notice of
Default, or of the event or condition specified in SECTION 9.1(D), 9.1(E) or
9.1(F), as the case may be.
SECTION 10. AMENDMENTS, WAIVERS AND CONSENTS.
Section 10.1. Consent Required. Any term, covenant, agreement or
condition of this Agreement may, with the consent of the Company, be amended or
compliance therewith may be waived (either generally or in a particular
instance and either retroactively or prospectively), if the Company shall have
obtained the consent in writing of the holder or holders of at least 66-2/3% in
aggregate unpaid principal amount of the Notes at the time outstanding;
provided that without the written consent of the holders of all of the Notes
then outstanding, no such amendment or waiver shall be effective (a) which will
change the time of payment of the principal of or the interest on any Note or
change the principal amount thereof or change the rate of interest thereon, or
(b) which will change any of the provisions with respect to prepayments, or (c)
which will change the percentage of holders of the Notes required to consent to
any such amendment or waiver of any of the provisions of this SECTION 10 or
SECTION 9.
Section 10.2. Solicitation of Holders. So long as there are any
Notes outstanding, the Company will not solicit, request or negotiate for or
with respect to any proposed waiver or amendment of any of the provisions of
this Agreement or the Notes unless each holder of Notes (irrespective of the
amount of Notes then owned by it) shall be informed thereof by the Company and
shall be afforded the opportunity of considering the same and shall be supplied
by the Company with sufficient information to enable it to make an informed
decision with respect thereto. The Company will not, directly or indirectly,
pay or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, to any holder of Notes as consideration
for or as an inducement to entering into by any holder of Notes of any waiver
or amendment of any of the terms and provisions of this Agreement or the Notes
unless such remuneration is concurrently offered and paid, on the same terms,
ratably to the holders of all Notes then outstanding. Promptly and in any
event within 30 days of the date of execution and delivery of any such waiver
or amendment, the Company shall provide a true, correct and complete copy
thereof to each of the holders of the Notes.
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<PAGE> 55
Section 10.3. Effect of Amendment or Waiver. Any such amendment
or waiver shall apply equally to all of the holders of the Notes and shall be
binding upon them, upon each future holder of any Note and upon the Company,
whether or not such Note shall have been marked to indicate such amendment or
waiver. No such amendment or waiver shall extend to or affect any obligation
not expressly amended or waived or impair any right consequent thereon.
SECTION 11. MISCELLANEOUS.
Section 11.1. Registered Notes. The Company shall cause to be
kept at its principal office a register for the registration and transfer of
the Notes (the "Note Register"), and the Company will register or transfer or
cause to be registered or transferred, as hereinafter provided any Note issued
pursuant to this Agreement.
At any time and from time to time the holder of any Note which has
been duly registered as hereinabove provided may transfer such Note upon
surrender thereof at the principal office of the Company duly endorsed or
accompanied by a written instrument of transfer duly executed by the registered
holder of such Note or its attorney duly authorized in writing.
The Person in whose name any Note shall be registered shall be deemed
and treated as the owner and holder thereof for all purposes of this Agreement.
Payment of or on account of the principal, premium (if any) and interest on any
Note shall be made to or upon the written order of such registered holder.
Section 11.2. Exchange of Notes. At any time and from time to
time, upon not less than ten days' notice to that effect given by the holder of
any Note initially delivered or of any Note substituted therefor pursuant to
SECTION 11.1, this SECTION 11.2 or SECTION 11.3, and, upon surrender of such
Note at its office, the Company will deliver in exchange therefor, without
expense to such holder, except as set forth below, a Note for the same
aggregate principal amount as the then unpaid principal amount of the Note so
surrendered, or Notes in the denomination of $100,000 (or such lesser amount as
shall constitute 100% of the Notes of such holder) or any amount in excess
thereof as such holder shall specify, dated as of the date to which interest
has been paid on the Note so surrendered or, if such surrender is prior to the
payment of any interest thereon, then dated as of the date of issue, registered
in the name of such Person or Persons as may be designated by such holder, and
otherwise of the same form and tenor as the Notes so surrendered for exchange.
The Company may require the payment of a sum sufficient to cover any stamp tax
or governmental charge imposed upon such exchange or transfer.
Section 11.3. Loss, Theft, Etc. of Notes. Upon receipt of
evidence satisfactory to the Company of the loss, theft, mutilation or
destruction of any Note, and in the case of any such loss, theft or destruction
upon delivery of a bond of indemnity in such form and amount as shall be
reasonably satisfactory to the Company, or in the event of such mutilation upon
surrender and cancellation of the Note, the Company will make and deliver
without expense to the holder thereof, a new Note, of like tenor, in lieu of
such lost, stolen, destroyed or mutilated Note. If the Purchaser or any
subsequent Institutional Holder is the owner of any such lost,
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<PAGE> 56
stolen or destroyed Note, then the affidavit of an authorized officer of such
owner, setting forth the fact of loss, theft or destruction and of its
ownership of such Note at the time of such loss, theft or destruction shall be
accepted as satisfactory evidence thereof and no further indemnity shall be
required as a condition to the execution and delivery of a new Note other than
the written agreement of such owner to indemnify the Company.
Section 11.4. Expenses, Stamp Tax Indemnity. Whether or not the
transactions herein contemplated shall be consummated, the Company agrees to
pay directly all of your out-of-pocket expenses in connection with the
preparation, execution and delivery of this Agreement and the transactions
contemplated hereby, including but not limited to the reasonable charges and
disbursements of Chapman and Cutler, your special counsel, duplicating and
printing costs and charges for shipping the Notes, adequately insured to you at
your home office or at such other place as you may designate, and all such
expenses (including reasonable attorney's fees) relating to any amendment,
waivers or consents pursuant to the provisions hereof (whether or not the same
are actually executed and delivered), including, without limitation, any
amendments, waivers, or consents resulting from any work-out, renegotiation or
restructuring relating to the performance by the Company of its obligations
under this Agreement and the Notes. The Company also agrees that it will pay
and save you harmless against any and all liability with respect to stamp and
other taxes (if any) which may be payable or which may be determined to be
payable in connection with the execution and delivery of this Agreement or the
Notes, whether or not any Notes are then outstanding. The Company agrees to
protect and indemnify you against any liability for any and all brokerage fees
and commissions payable or claimed to be payable to any Person in connection
with the transactions contemplated by this Agreement. Without limiting the
foregoing, the Company agrees to pay the cost of obtaining the private
placement number for the Notes.
Section 11.5. Powers and Rights Not Waived; Remedies Cumulative;
Waiver of Jury Trial. No delay or failure on the part of the holder of any
Note in the exercise of any power or right shall operate as a waiver thereof,
nor shall any single or partial exercise of the same preclude any other or
further exercise thereof, or the exercise of any other power or right, and the
rights and remedies of the holder of any Note are cumulative to, and are not
exclusive of, any rights or remedies any such holder would otherwise have. THE
COMPANY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY WITH
RESPECT TO ANY PROCEEDINGS RELATING TO THE ENFORCEMENT OF THE TERMS AND
PROVISIONS OF THIS AGREEMENT AND THE NOTES.
Section 11.6. Notices. All communications provided for hereunder
shall be in writing and, if to you, delivered or mailed prepaid by registered
or certified mail or overnight air courier, or by facsimile communication, in
each case addressed to you at your address appearing on Schedule I to this
Agreement or such other address as you or the subsequent holder of any Note
initially issued to you may designate to the Company in writing, and if to the
Company, delivered or mailed by registered or certified mail or overnight air
courier, or by facsimile communication, to the Company at 11111 Santa Monica
Boulevard, Suite 1500, Los Angeles, California 90025, Attention: Chief
Financial Officer or to such other address as the Company may in writing
designate to you or to a subsequent holder of the Note initially issued to you;
provided, however, that a notice to you by overnight air courier shall only be
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<PAGE> 57
effective if delivered to you at a street address designated for such purpose
in Schedule I, and a notice to you by facsimile communication shall only be
effective if made by confirmed transmission to you at a telephone number
designated for such purpose in Schedule I and a copy of such facsimile
communication is delivered to you by overnight air courier on the next
succeeding day, or, in either case, as you or a subsequent holder of any Note
initially issued to you may designate to the Company in writing.
Section 11.7. Successors and Assigns. This Agreement shall be
binding upon the Company and its successors and assigns and shall inure to your
benefit and to the benefit of your successors and assigns, including each
successive holder or holders of any Notes.
Section 11.8. Survival of Covenants and Representations. All
covenants, representations and warranties made by the Company herein and in any
certificates delivered pursuant hereto, whether or not in connection with the
Closing Date, shall survive the closing and the delivery of this Agreement and
the Notes.
All covenants, representations and warranties made by the Company
herein shall be deemed to have been relied upon by you notwithstanding any
investigation heretofore or hereafter made by you or on your behalf.
Section 11.9. Severability. Should any part of this Agreement
for any reason be declared invalid or unenforceable, such decision shall not
affect the validity or enforceability of any remaining portion, which remaining
portion shall remain in force and effect as if this Agreement had been executed
with the invalid or unenforceable portion thereof eliminated.
SECTION 11.10. GOVERNING LAW. THIS AGREEMENT AND THE NOTES ISSUED
AND SOLD HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH NEW
YORK LAW.
Section 11.11. Captions. The descriptive headings of the various
Sections or parts of this Agreement are for convenience only and shall not
affect the meaning or construction of any of the provisions hereof.
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<PAGE> 58
The execution hereof by you shall constitute a contract between us for
the uses and purposes hereinabove set forth, and this Agreement may be executed
in any number of counterparts, each executed counterpart constituting an
original but all together only one agreement.
FOOTHILL CAPITAL CORPORATION
By /s/ David C. Hilton
-------------------------------
Its Executive Vice President
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<PAGE> 1
EXHIBIT 10.30
FLOATING RATE NOTE
Principal Amount
$10,000,000.00
THIS NOTE (AS AMENDED OR MODIFIED FROM TIME TO TIME, THIS "NOTE") HAS NOT BEEN
AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER ANY STATE SECURITIES LAW. BY ITS ACCEPTANCE HEREOF, THE
HOLDER OF THIS NOTE REPRESENTS THAT IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" AS SUCH TERM IS DEFINED IN RULE 501(a) OF REGULATION D UNDER THE ACT
AND THAT THIS NOTE IS BEING ACQUIRED FOR ITS OWN ACCOUNT (AND NOT FOR THE
ACCOUNT OF OTHERS) OR AS A FIDUCIARY FOR OTHERS FOR INVESTMENT AND NOT WITH A
VIEW TO ANY RESALE OR DISTRIBUTION HEREOF (SUBJECT, HOWEVER, TO ANY RIGHT TO
RESELL OR OTHERWISE TRANSFER THIS NOTE TO A QUALIFIED INSTITUTIONAL BUYER (A
"QUALIFIED INSTITUTIONAL BUYER") AS DEFINED IN RULE 144A UNDER THE ACT ("RULE
144A") IN A TRANSACTION WHICH MEETS THE REQUIREMENTS OF RULE 144A) AND AGREES
THAT ANY RESALE OR OTHER TRANSFER OF THE NOTE WILL BE MADE ONLY (A) DIRECTLY TO
AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION APPROVED BY THE COMPANY,
OR (B) TO A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION WHICH MEETS THE
REQUIREMENTS OF RULE 144A; PROVIDED THAT THE AGREEMENT OF THE HOLDER IS SUBJECT
TO ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF THE HOLDER'S PROPERTY SHALL
AT ALL TIMES BE AND REMAIN WITHIN ITS CONTROL. ANY RESALE OR OTHER TRANSFER OR
ATTEMPTED RESALE OR OTHER TRANSFER OF THIS NOTE MADE WITHOUT THE APPROVAL OF
THE COMPANY, EXCEPT IN THE CASE OF A RESALE OR OTHER TRANSFER MADE TO A
QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION WHICH MEETS THE REQUIREMENTS OF
RULE 144A, SHALL BE VOID AND WILL NOT BE RECOGNIZED BY THE COMPANY.
<TABLE>
<S> <C> <C>
Index Maturity Initial Interest Rate Original Issue Date
-------------- --------------------- -------------------
Three month 6.1875% November 21, 1994
Spread Base Rate Maturity Date
------ --------- -------------
25 basis points USD LIBOR November 21, 1995
Interest Payment Dates Interest Reset Dates
- ---------------------- --------------------
2/21/95; 5/22/95; 2/21/95; 5/22/95;
8/21/95 and 11/21/95 8/21/95
</TABLE>
1
<PAGE> 2
For value received, Foothill Capital Corporation, a California corporation (the
"Company"), promises to pay to the order of The Industrial Bank of Japan,
Limited (the "Noteholder") the principal amount of $10,000,000 on the Maturity
Date specified above, and to pay interest in arrears on each date specified
above under the caption "Interest Payment Dates" and on the Maturity Date (each
an "Interest Payment Date") on the unpaid principal amount hereof at the
variable rate per annum (the "Interest Rate") equal to the Base Rate specified
above (the "Base Rate") plus the applicable Spread until the principal amount
hereof is repaid in full; provided, however, that the Interest Rate in effect
from the Original Issue Date specified above (the "Original Issue Date") to the
first of the Interest Reset Dates specified above (each an "Interest Reset
Date") will be the Initial Interest Rate specified above (the "Initial
Interest Rate"); and provided, further, that if an Interest Payment Date is not
a Business Day (as defined below), such Interest Payment Date shall be the
immediately following Business Day. If any principal amount hereof is not paid
when due (at the stated maturity, by acceleration or otherwise) such principal
amount shall bear interest until payment in full thereof (after as well as
before judgement) at a rate per annum 2.00% above the London Interbank Offering
Rate for each day until payment in full thereof.
Payments of principal and interest shall be made in U.S. dollars, the lawful
currency of the United States of America. Payments of principal and interest
hereunder shall be made by the Company to the Noteholder, in immediately
available funds, via wire transfer by the close of business on the date such
payment is due. Principal and interest due under this Note on the Maturity Date
will be paid upon the Noteholder's presentation and surrender of the Note to
the Company.
For the purposes of this Note, "Business Day" means any day that is not a
Saturday or Sunday and is not a day on which banking institutions in Los
Angeles, California, are generally authorized or obligated by law to close. If
the Maturity Date specified above is not a Business Day, the Maturity Date will
be the immediately following Business Day.
The interest payable on each Interest Payment Date will equal the total accrued
and unpaid interest from and including the Original Issue Date or from and
including the last date in respect of which interest has been paid, as the case
may be, to, but excluding, such Interest Payment Date. The amount of accrued
interest for any day will equal the product of (i) the outstanding principal
amount of this Note as of the end of such day, and (ii) the Interest Rate
applicable to such day divided by 360 (rounded, if necessary, to the next
interest one hundred-thousandth of a percent, with five one-millionths of a
percentage point rounded upward). The Interest Rate in effect on any day shall
be (a) if such day is an Interest Reset Date, the sum of the Base Rate for such
Interest Reset Date and the Spread or (b) if such day is not an Interest Reset
Date, the sum of the Base Rate for the immediately preceding Interest Reset
Date and the Spread; provided, however, that the Interest Rate in effect from
the Original Issue Date to, but excluding the first Interest Reset Date will be
the Initial Interest Rate.
2
<PAGE> 3
Subject to applicable provisions of law and except as specified herein, on each
Interest Reset Date, the Interest Rate and the Base Rate shall be reset in
accordance with the provision below:
London Interbank Offering Rate shall mean the rate (rounded upwards, if
necessary, to the next 1/16 of 1%) at which dollar deposits approximately
equal in principal amount to the amount of this Note for the maturity
equal to the Index Maturity are offered by major banks to major banks in
immediately available funds in the London Interbank Market for
Eurodollars at approximately 11:00 a.m., London time, two Business Days
prior to the Interest Reset Date. Such London Interbank Offering Rates
are provided on Telerate (currently page 3750).
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants that: (i) it is a corporation duly
organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation, and is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction where the
nature of its respective business requires such qualification; (ii) the
execution, delivery and performance of this Note by the Comnpany is within its
corporate powers, has been duly authorized by all necessary corporate action,
and does not contravene its charter or by-laws, any law, rule or regulation
applicable to it or any contractual restriction binding on or affecting it;
(iii) no authorization, approval or other action by, and no notice to or filing
with, any governmental authority or regulatory body is required for its due
execution, delivery and performance of this Note; (iv) this Note constitutes a
legal, valid and binding obligation of the Company enforceable against it in
accordance with its terms; (v) there is no pending or threatened action or
proceeding affecting the Company other than that which has already been
disclosed before any court, governmental agency, or arbitrator which may
materially adversely affect the financial condition, operations or prospects of
the Company, taken as a whole, or which questions the validity of this Note;
and (vi) it is not an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
LIMITATION ON LIENS
The Company shall not at any time create, incur, assume or suffer to exist any
lien on any of its property or assets, tangible or intangible, now owned or
hereafter acquired, or agree or become liable to do so, except as expressly
defined in Exhibit A to this note. Capitalized terms used in Exhibit A shall
have the respective meanings assigned to such terms in the Multiyear Revolving
Credit Facility, dated as of June 30, 1994 among Foothill Capital Corporation
and the banks named therein.
EVENTS OF DEFAULT
The occurrence of one or more of the following events shall be an "Event of
Default": (i) a default in payment of interest when due and payable which
continues for a period of five Business Days or a default in payment of
principal upon maturity; (ii) any representation or warranty made by the
Company herein proves to have been incorrect in any material respect when made;
(iii) a failure by the Company to comply with any of its other covenants or
3
<PAGE> 4
agreements under this Note which continues for a period of 30 days after notice
to it by the Noteholder; (iv) the Company fails to repay at maturity, after any
applicable grace period, any indebtedness for borrowed money (other than
indebtedness for borrowed money that is specifically stated to be no-recourse
to the company, as the case may be), in an aggregate principal amount exceeding
$10 million; (v) any default(s) under any indenture, loan, credit agreement or
other instrument under which there is outstanding indebtedness of the Company
for borrowed money (other than indebtedness for borrowed money that is
specifically stated to be non-recourse to the Company, as the case may be) in
an aggregate principal amount exceeding $10 million has (or have) occurred and
is (or are) continuing and such indebtedness has been accelerated so that it
has been declared due and payable in full prior to its stated maturity, and
such acceleration shall not be rescinded or annulled; provided, however, that
if such default(s) shall be remedied or cured by the Company, as the case may
be, or waived by the holders of such indebtedness, then the default under this
Note by reason thereof shall be deemed likewise to have been thereupon
remedied, cured or waived without further action upon the part of this
Noteholder; or (vi) the Company (a) becomes insolvent or admits in writing its
inability to pay its debts as they mature or (b) applies for, consents to, or
acquiesces in the appointment of a trustee or receiver for any of its property;
or, in the absence of such application, consent or acquiescence, a trustee or
receiver is appointed for the Company for a substantial part of its property
and is not discharged within 30 days; or (c) becomes subject to any bankruptcy,
insolvency, dissolution or liquidation law or proceedings (x) instituted
against the Company and which remain for 30 days undismissed, or (y) instituted
by, consented to or acquiesced in by the Company.
Upon the occurrence of any Event of Default described in the preceding
paragraph, the principal of, and interest on, this Note and all other sums due
hereunder shall immediately be due and payable and upon the occurrence of any
other Event of Default, the Noteholder, as its option, may declare the
principal of, and interest on, this Note and all other sums due hereunder
immediately due and payable. Upon an acceleration of the payment of this Note
as provided in the previous sentence, the indebtedness hereunder shall
immediately become due and payable without necessity of demand, presentment,
protest, notice of dishonor, notice of default or any other notice whatsoever.
The Noteholder shall be entitled at its option to exercise each and every
remedy accorded it by law and/or specifically set forth in this Note.
The Company expressly waives demand for payment, presentment for payment,
notice of dishonor, notice of default, protest, notice of protest, and
diligence in collection and consents that the time of payment may be extended
or released by the Noteholder without in any way modifying, releasing or
limiting the Company's liability hereunder.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF CALIFORNIA.
FOOTHILL CAPITAL CORPORATION
By: Kent Wahl
------------------------------
4
<PAGE> 5
EXHIBIT A
(a) Liens on Property existing on November 21, 1994 which secure
Indebtedness in an aggregate amount of less than $100,000;
(b) Liens constituting renewals, extensions or replacements of Liens
permitted by clause (a) above, provided that the principal amount of the
Indebtedness secured by any such new Lien does not exceed the principal amount
of the Indebtedness being renewed, extended or refunded at the time of renewal,
extension or refunding thereof and that such new Lien attaches only to the same
property subject to such earlier Lien;
(c) Liens securing taxes, assessments or governmental charge or
levies, or the claims or demands of materialmen, mechanics, carriers, workmen,
repairmen, warehousemen, landlords and other like Persons, not yet delinquent
or that are being contested diligently in good faith by appropriate proceedings
and in respect of which adequate reserves in conformity with GAAP have been
provided on the books of the Company or the applicable Subsidiary thereof;
(d) other Liens (including pledges or deposits in accordance with
worker's compensation laws); incidental to the conduct of its business or the
ownership of its property and assets, that are not incurred in connection with
the borrowing of money or the obtaining of advances or credit, and that in the
aggregate do not detract materially from the value of its property or assets,
or materially impair the use thereof in the operation of its business;
(e) attachment, judgment and other similar Liens arising in
connection with court proceedings, provided that execution or other enforcement
of such Liens is effectively stayed, the claims secured thereby are being
contested diligently in good faith by appropriate proceedings and adequate
reserves in conformity with GAAP have been provided on the books of the Company
or the applicable Subsidiary thereof;
<PAGE> 6
EXHIBIT A
page 2
(f) purchase money Liens on tangible personal property securing all or
part of the purchase price thereof payable by the Company or a Subsidiary
thereof (including, without limitation, tangible personal property acquired to
be leased to customers of the Company or any Subsidiary thereof in the ordinary
course of business) and Liens (whether or not assumed) existing in property at
the time of purchase thereof by the Company or any Subsidiary thereof, as the
case may be; provided that each such Lien is confined solely to the property so
purchased, improvements thereto and proceeds thereof;
(g) zoning restrictions, easements, minor restrictions on the use of
real property, minor irregularities in title thereto and other minor Liens that
do not secure the payment of money or the performance of an obligation and that
do not in the aggregate materially detract from the value of a property or
asset to, or materially impair its use in the business of, the Company or any
Subsidiary thereof;
(h) Liens on assets of the Company acquired by the Company as a result
of foreclosures or deeds in lieu relating to collateral securing extensions of
credit by the Company made in the ordinary course of business; provided, that
in each such case such Lien is limited to such acquired asset; and
(i) Liens (exclusive of those described in subparagraphs (a) through
(h) above) that secure or represent the incurring of Indebtedness the repayment
of which in the aggregate for the Company and its Subsidiaries does not exceed
$100,000 per fiscal year of the Company.
In no event shall this Section 8.1 be construed to permit any Lien imposed by,
or required to be granted pursuant to, ERISA or any environmental law or any
Lien on Capital Interests of any direct or indirect Subsidiary of the Company.
<PAGE> 1
EXHIBIT 10.40 (A)
AMENDMENT NO. ONE TO MULTIYEAR REVOLVING CREDIT AGREEMENT
This Amendment No. One (the "Amendment") dated as of February 1, 1995, is among
FOOTHILL CAPITAL CORPORATION, a California corporation ("Company"), the banks
that are signatories hereto (collectively, the "Banks" and individually, a
"Bank") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national
banking association ("BOA"), as a Bank and as Agent (the "Agent") for the
Banks.
RECITALS
A. The Banks, other than The Long-Term Credit Bank of Japan, Ltd.
("LTB"), NationsBank of Georgia, N.A. ("Nations") and Norwest Bank Minnesota,
N.A. ("Norwest"), and the Agent and the Company entered into a Multiyear
Revolving Credit Agreement dated as of June 30, 1994 (the "Agreement").
B. LTB, Nations and Norwest have each agreed to become a Bank, LTB and
Nations each with a commitment amount of $6,666,667 and Norwest with a
commitment amount of $6,666,666, under the Agreement and the Company, the Agent
and the Banks have agreed to consent thereto, on the terms and conditions set
forth below;
C. The Banks, the Agent and the Company desire to amend the Agreement
to reflect LTB, Nations and Norwest becoming New Banks under the Agreement and
to amend certain other provisions of the Agreement.
AGGREMENT
1. DEFINITIONS. Capitalized terms used but not defined in this
Amendment shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
2.1 The definition of Applicable Margin is hereby amended in full to
read as follows:
" 'APPLICABLE MARGIN' means, during the applicable periods or
portions thereof, (a) unless an Event of Default has occurred and is
continuing, (i) 0.0% per annum with respect to Reference Rate Loans,
and (ii) 0.50% per annum with respect to LIBO Rate Loans, and (b)
during the continuance of an Event of Default and prior to the earlier
or Maturity or the expiration of the applicable Interest Period, if
any, (i) 2.00% per annum with respect to Reference Rate Loans, and (ii)
2.75% per annum with respect to LIBO Rate Loans; provided, however, for
each day that the Company's commercial paper does not have an
Investment Grade Rating from at least three Rating Agencies, each
percentage set forth in clauses (a) and (b) above shall be increased by
0.25% per annum."
- 1 -
<PAGE> 2
2.2 Section 3.1(a) of the Agreement is hereby amended in full to read
as follows:
(a) The Company shall pay to the Agent for the account of the
applicable Banks annual commitment fee equal to 0.20% per annum on the
average daily unused portion of the Aggregate Commitment for the
period from February 1, 1995 to and including the last day of the
Commitment Period, payable quarterly in arrears on the first Business
Day of each calendar quarter during the Commitment Period, commencing
with the first such date after February 1, 1995 and on the Termination
Date; provided, however, that the annual commitment fee shall be
increased to 0.30% per annum on the average daily unused portion of
the Aggregate Commitment for each day on which the Company's
commercial paper does not have an Investment Grade Rating from at
least three Rating Agencies. Commitment fees for any period shall be
calculated on the basis of a 365 or 366 day year for the actual number
of days elapsed.
2.3 Section 7.1 is hereby amended in full to read as follows:
"Section 7.1 Adjusted Consolidated Net Worth. Adjusted
Consolidated Net Worth shall not be less than $80,000,000 at any
time."
2.4 Exhibit A to the Agreement is hereby amended in full by the
attached Exhibit A.
3. Waiver. The Agent, the Banks and the Company hereby waive the
requirement contained in Section 2.1(f) of the Agreement that any New Bank will
not become a Bank until the first Business Day of the next quarter after
executing and delivery of the Supplement For New Bank, and agree that LTB,
Nations and Norwest shall become Banks under the Agreement when this Amendment
becomes effective in accordance with Paragraph 5 of this Amendment.
4. Representations and Warranties. When the Company signs this
Amendment, the Company represents and warrants to the Agent and the Banks that:
(a) there is no event which is, or with notice or lapse of time or both would
be, a default under the Agreement, and (b) the repesentations and warranties in
the Agreement are true as of the date of this Amendment as if made on the date
of this Amendment, (c) this Amendment is within the Company's powers, has been
duly authorized, and does not conflict with any of the Company's organizational
papers, and (d) this Amendment does not conflict with any law, agreement, or
obligation by which the Company is bound.
5. Conditions. This Amendment will be effective when the Agent
receives the following items, in form and content acceptable to the Agent and
the Banks:
5.1 This Amendment executed by the Agent, the Banks and the Company.
5.2 An executed Supplement For New Bank from LTB, Nations and Norwest.
5.3 A Revolving Credit Note executed by the Company for each of LTB,
Nations and Norwest.
- 2 -
<PAGE> 3
5.4 All the conditions contained in Section 5.4 of the Agreement
relating to New Banks have been complied with.
6. EFFECT OF AMENDMENT. Except as provided in this Amendment,
all of the terms and conditions of the Agreement shall remain in full force and
effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
FOOTHILL CAPITAL CORPORATION
By: Kent Wahl
-------------------------------
Title: VP/Treasurer
----------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, solely as Agent
By:
-------------------------------
Title:
----------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a Bank
By:
-------------------------------
Title:
----------------------------
CHEMICAL BANK
By:
-------------------------------
Title:
----------------------------
(signatures continue)
- 3 -
<PAGE> 1
EXHIBIT 10.42
________________________________________________________________________________
AMENDED AND RESTATED
LETTER OF CREDIT AND GUARANTY AGREEMENT
Dated as of August 1, 1994
Among
FOOTHILL CAPITAL CORPORATION,
BANK OF AMERICA NATIONAL
TRUST & SAVINGS ASSOCIATION
as Agent and as Issuing Bank
AND OTHER BANKS
________________________________________________________________________________
<PAGE> 2
<TABLE>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
<S> <C> <C>
1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02. Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE II
AMOUNT AND TERMS OF LETTERS OF CREDIT
AND SHIPSIDE BONDS AND PARTICIPATIONS THEREIN
2.01. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.02. Issuing the Letters of Credit and Shipside Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.03. Participations Purchased by Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.04. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.05. Reduction of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.06. Payments and Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.07. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.08. Extension of Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.09. Evidence of Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.10. Indemnification; Nature of the Issuing Bank's Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.11. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.12. Sharing of Payments, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.13. Uniform Customs and Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE III
GUARANTY
3.01. Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.02. Notice of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.03. Guaranty Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.04. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.05. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.06. Continuing Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE IV
CONDITIONS TO EFFECTIVENESS AND TO ISSUANCE
4.01. Conditions Precedent to Effectiveness of this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.02. Conditions Precedent to Issuance of each Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.03. Conditions Precedent to Issuance of each Shipside Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01. Status and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.02. Organizational Status of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.03. Location of Offices, Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.04. Organizational Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.05. Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.06. Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.07. No Burdensome Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
5.08. No Material Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.09. Good Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.10. Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.11. Investment Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.12. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.13. Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.14. Trademarks, Patents, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.15. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.16. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.17. Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.18. Environmental Laws, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.19. No Default or Event of Default; Compliance with Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.20. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.21. [Deliberately omitted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.22. No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.23. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.24. Ownership and Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.25. Partnerships and Other Affiliated Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.26. Other Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.27. Account Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.28. Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.29. Letter of Credit and Shipside Bond Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.30. Company Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE VI
AFFIRMATIVE COVENANTS
6.01. Reporting and Information Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.02. Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.03. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.04. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.05. Properties in Good Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.06. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.07. Pay Indebtedness and Perform Other Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.08. Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.09. Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.10. Environmental Laws, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.11. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.12. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.13. Maintain Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.14. Company Credit Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE VII
FINANCIAL COVENANTS
7.01. Adjusted Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.02. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.03. Unused Committed Bank Credit Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.04. Purchased Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.05. Industry Concentration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.06. Settlement Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE VIII
NEGATIVE COVENANTS
8.01. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.02. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.03. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
8.04. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.05. Merger, Consolidation, Sale and Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.06. Permitted Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
8.07. Amendments of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
8.08. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
8.09. Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
8.10. Borrower Concentration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
8.11. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.12. Consolidated Tax Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.13. Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE IX
EVENTS OF DEFAULT
9.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.02. Consequences of an Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.03. Suits for Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE X
THE AGENT AND ISSUING BANK
10.01. Authorization and Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
10.02. Agent's Reliance, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.03. Bank of America and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
10.04. Bank Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
10.05. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
10.06. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
ARTICLE XI
ASSIGNMENTS AND PARTICIPATIONS
11.01. Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
11.02. Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE XII
MISCELLANEOUS
12.01. Amendments, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
12.02. Notices, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
12.03. No Implied Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
12.04. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
12.05. Right of Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
12.06. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
12.07. Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
12.08. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
12.09. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
12.10. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
12.11. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
12.12. WAIVER OF JURY TRIAL AND SETOFF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
</TABLE>
- iii -
<PAGE> 5
SCHEDULES
<TABLE>
<S> <C> <C>
Schedule I - Subsidiaries
Schedule II - Locations of Books and Records
Schedule III - Intercompany tax allocation policy
Schedule IV - Certain transactions within affiliates
Schedule V - Permitted Senior Debt
Schedule VI - Permitted Subordinated Debt
EXHIBITS
Exhibit A - Form of Notice for Extension of Termination Date
Exhibit B - Form of Opinion of Counsel to the Company
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Reimbursement Agreement dated as of December 12, 1990 entered into in
connection with that certain irrevocable letter of credit no. 901211IS274LA issued
by Security Pacific National Bank for the account of South Central Health Services,
Inc. d/b/a Pinelands Hospital.
</TABLE>
- iv -
<PAGE> 6
THIS AMENDED AND RESTATED LETTER OF CREDIT AND GUARANTY
AGREEMENT dated as of August 1, 1994, is among:
(i) FOOTHILL CAPITAL CORPORATION, a California corporation (the
"Company"),
(ii) The financial institutions listed on the signature pages of
this Agreement under the heading "Banks" (collectively, the
"Initial Banks"), and
(iii) BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (being
referred hereinafter as "Bank of America), as agent for the
Banks and the Issuing Bank defined herein (such agent and any
successor agent appointed pursuant to Section 10.06 hereof
being hereinafter referred to as the "Agent").
PRELIMINARY STATEMENTS
(1) The Company, the Agent, the Issuing Bank and the
Initial Banks have entered into an Amended and Restated Letter of Credit and
Guaranty Agreement dated as of August 6, 1993, as amended by a First Amendment
dated as of March 1, 1994 (the "Existing Agreement").
(2) The Company, the Agent, the Initial Banks and Bank of
America as the Issuer of the Letters of Credit (as defined below) and Shipside
Bonds (as defined below) hereunder (in that capacity, the "Issuing Bank")
desire to amend and restate the Existing Agreement in its entirety.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. In addition to other
words and terms defined elsewhere in this Agreement, as used herein the
following words and terms shall have the following meanings, respectively,
unless the context hereof otherwise clearly requires:
"Account Party" means, for any Letter of Credit or
Shipside Bond, the commercial finance customer of the Company
obligated to the Issuing Bank under an Application and
Agreement which has been Approved by the Company.
"Advances" means unsecured borrowings by the Company
from Foothill Group, in an aggregate outstanding principal
amount not exceeding $5,000,000 at any one time, that (a) are
evidenced by demand promissory notes, (b) are subordinated
pursuant to the Foothill Group Subordination Agreement and (c)
bear interest at no greater rate and involve fees and other
amounts in respect thereof that are no higher than
- 1 -
<PAGE> 7
would be available at the time from a Person that is not an
Affiliate.
"Adjusted Consolidated Net Worth" means, as of any
date of calculation, the amount, if any, by which the Eligible
Assets of the Company and its Consolidated Subsidiaries
exceeds the Total Liabilities of the Company and its
Consolidated Subsidiaries as of such date.
"Affiliate" means any Person that, directly or
indirectly, controls or is controlled by or is under common
control with any other Person and, without limiting the
generality of the foregoing, shall include any Person that (i)
beneficially owns or holds 5% or more of the Voting Interest
of such other Person (determined either by number of shares or
number of votes) or (ii) is an "associate" (as such term is
defined in Rule 405 under the Securities Act of 1933, as in
effect on the Effective Date) of such other Person. For
purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under
common control with"), as used with respect to any Person,
means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies
of such Person, whether through the ownership of Voting
Interests, by contract or otherwise.
"Agent" has the meaning specified at the beginning of
this Agreement.
"Agent's Account" means the Agent's account no.
12331-15467, reference: Foothill L/C, maintained at the
office of Bank of America at
1850 Gateway Boulevard
Concord, California 94104
or such other deposit account as the Agent may from time to
time specify in writing to the Company and the Banks.
"Agreement" means this Amended and Restated Letter of
Credit and Guaranty Agreement dated as of August 1, 1994, as
the same may be amended and supplemented from time to time.
"Allowance for Credit Losses" means items of the type
included on the Consolidated balance sheet of the Company and
its Consolidated Subsidiaries as at December 31, 1993, within
the heading "Allowance for Credit Losses".
"Application and Agreement" means (a) a standard
Issuing Bank form of Standby Letter of Credit
- 2 -
<PAGE> 8
Application and Agreement or Commercial Letter of Credit
Application and Security Agreement, completed to describe the
Letter of Credit to be issued thereunder and executed by the
Account Party for whose account such Letter of Credit is, or
is to be, issued by the Issuing Bank, (b) in the case of that
certain direct pay letter of credit to support variable rate
revenue bonds issued by the City of Nacogdoches Health
Facilities Development Corporation pursuant to a certain trust
indenture, dated as of December 1, 1985, a reimbursement
agreement in substantially the form of Exhibit D hereto, and
(c) a standard Issuing Bank form of Customer Request for
Letter of Indemnity, Release of Shipment without Surrender of
Marine Bills of Lading, completed to describe the Shipside
Bond to be issued thereunder and executed by the Account Party
for whose account such Shipside Bond is, or is to be, issued
by the Issuing Bank.
"Approve" or "Approved" by the Company with respect
to any Application and Agreement means that the Company has
typed, written or stamped on such Application and Agreement
the word "Approved" or a similar word, in each case executed
on behalf of the Company by an officer or employee of the
Company designated from time to time as authorized so to
approve Applications and Agreements in a written notice to the
Agent, accompanied by an incumbency certificate with specimen
signature included.
"Assignment and Acceptance" means an assignment and
acceptance entered into by an assigning Bank and an Eligible
Assignee, and accepted by the Agent, in accordance with
Section 11.01 hereof and in substantially the form of Exhibit
C.
"Authorized Representative" means, with respect to
the Company or Foothill Group, the respective president,
executive vice president, chief financial officer, and any
other officer of the Company or Foothill Group designated as
such from time to time in a written notice to the Agent,
accompanied by an incumbency certificate with specimen
signature included.
"Bank Office" has the meaning specified in Section
2.07(a)(ii) hereof.
"Banks" means the Banks listed on the signature pages
hereof and each Eligible Assignee that becomes a party hereto
pursuant to Section 11.01 hereof.
"Business Day" means any day other than (i) a
Saturday, Sunday or public holiday under the laws of the
United States of America, the State of California, or the
State of New York, or (ii) any other day on
- 3 -
<PAGE> 9
which banking institutions in the State of California or the
State of New York are authorized or required by law or
executive order not to be open for the conduct of their
commercial banking business.
"Capital Interest" means, with respect to (i) any
corporation, common stock, preferred stock, and any and all
shares or other equivalents (however designated) of any other
corporate stock, of such corporation, and (ii) any
partnership, partnership interests, whether general, special
or limited, in such partnership.
"Capitalized Lease" means at any time any lease which
is, or is required under GAAP to be, capitalized on the
balance sheet of the lessee at such time, and "Capitalized
Lease Obligation" of any Person at any time means the
aggregate amount which is, or is required under GAAP to be,
reported as a liability on the balance sheet of such Person at
such time as lessee under a Capitalized Lease.
"Change of Control" means:
(a) In the case of the Company.
(i) an issuance by the Company of
its Voting Interests, or a sale or other disposition
of Voting Interests of the Company, whether by the
Company, Foothill Group, any other Subsidiary of
Foothill Group, or any other Person, which issuance,
sale or other disposition has not been consented to
by the Required Banks and which either
(A) results in Foothill Group,
directly or through one or more of its
Subsidiaries, owning or controlling less than
100% of the then outstanding Voting Interests
of the Company, or
(B) occurs during any period in
which Foothill Group, directly or through one
or more of its Subsidiaries, owns or controls
less than 100% of the then outstanding Voting
Interests of the Company and does not result
in an increase in the percentage of such
Voting Interests so owned and controlled by
Foothill Group, or
(ii) the election of a majority of
the corporate directors of the Company against the
recommendation of the management or board of
directors of the Company that was incumbent
immediately prior to such election; or
- 4 -
<PAGE> 10
(iii) the ceasing of continuous and
active participation in the Company's operations with
responsibilities at least equal to those assumed as
of the date hereof by any two or more of John F.
Nickoll, Peter E. Schwab and David C. Hilton.
(b) In the case of Foothill Group,
(i) the acquisition by any Person
(other than Foothill Group) or by any two or more
Persons acting in concert (which group of Persons
will be deemed to be a separate "Person" that
"acquires" the Voting Interests held by the members
of such group upon its formation for purposes of this
definition), of 50% or more of the then outstanding
Voting Interests of Foothill Group, which acquisition
has not been consented to by the Required Banks; or
(ii) the election of a majority of
the corporate directors of Foothill Group against the
recommendation of the management or board of
directors of Foothill Group that was incumbent
immediately prior to such election.
(c) For purposes hereof, in any case
where Voting Interests of the Company are owned or controlled
by a Subsidiary of a Person, the percentage of Voting
Interests of the Company deemed to be owned or controlled by
such Person as a result of such Subsidiary's ownership or
control shall be determined by multiplying the percentage of
the Voting Interests of such Subsidiary which are owned and
controlled by such Person by the percentage of the Voting
Interests of the Company which are owned and controlled by
such Subsidiary.
(d) In the case of a Change of Control
event described in clause (b)(i) of this definition, if all of
the then outstanding unsecured senior debt securities of the
Person acquiring the Voting Interests have an Investment Grade
Rating, the consent of the Banks to such event shall not
unreasonably be withheld. Notwithstanding the consent of the
Banks to a Change of Control event described in clause (b)(i)
of this definition, if within six months immediately following
any such event the rating of any of the then outstanding
unsecured senior debt securities of the Person having acquired
the Voting Interests that is lower than an Investment Grade
Rating, such occurrence shall be deemed a separate Change of
Control.
"Code" means the Internal Revenue Code of 1986, as
amended, and any successor statute of similar import, and
regulations thereunder, in each case as in effect
- 5 -
<PAGE> 11
from time to time. Reference to sections of the Code shall be
construed also to refer to any successor sections.
"Commitment" of any Bank means, at any time, the
amount set opposite the name of such Bank on the signature
pages hereof or, if such Bank has entered into one or more
Assignments and Acceptances, set forth for such Bank in copies
thereof maintained by the Agent pursuant to Section 11.01(c)
hereof, in either case as such amount shall have been reduced
or terminated pursuant to Sections 2.05, 2.08 or 9.02 hereof.
"Company" has the meaning specified at the beginning
of this Agreement.
"Consolidated" or "consolidated" means, as applied to
any financial or accounting term, determined on a consolidated
basis in accordance with GAAP for the applicable Person.
"Consolidated Assets" means, as of any date of
calculation, the consolidated assets of the Company and its
Consolidated Subsidiaries on the calculation date.
"Consolidated Capital Funds" means, as of any date of
calculation, the sum of Consolidated New Worth and
Subordinated Debt.
"Consolidated Net Income" means, for any period of
calculation, the consolidated net income (after deduction of
taxes chargeable to the Company or its Consolidated
Subsidiaries) of the Company and its Consolidated Subsidiaries
for such period.
"Consolidated Net Worth" means, as of any date of
calculation, the excess of assets of the Company and its
Consolidated Subsidiaries over their liabilities on the
calculation date.
"Consolidated Subsidiaries" of a Person means, as of
any date of determination, those Subsidiaries whose accounts
are or should be consolidated with those of such Person in
accordance with GAAP.
"Credit Commitment" means, at any time, the lesser of
(i) $80,000,000 or (ii) the aggregate amount of the
Commitments of the Banks, as such lesser amount shall be
reduced or terminated pursuant to Section 2.05, 2.08 or 9.02
hereof.
"D&P" means Duff & Phelps Credit Rating Company or
any successor thereto.
- 6 -
<PAGE> 12
"Default" means an event which would constitute an
Event of Default but for the requirement that notice be given
or time elapse or both.
"Delinquent Receivable" means the full unpaid amount
of a Finance Receivable (excluding Discount Receivables) on
which an installment payment of accrued interest, finance
charges or discount or outstanding principal has not been made
within 90 days of its due date (including any such obligations
relating to property or assets which are the subject of
foreclosure proceedings, whether judicial or otherwise), and
includes the full amount of any such obligations with respect
to which there are arrearages, notwithstanding that
installment payments of principal or interest are currently
being made.
"Discount Receivable" means a debt instrument (of a
type that meets the criteria for Finance Receivables set forth
in clauses (a) through (c), inclusive, of the definition
thereof, other than any requirement for security) originating
from a Person other than the Company or any Subsidiary thereof
which is acquired at less than face or par value and, at the
time of acquisition, is contractually in default, but without
defense, set-off or counterclaim.
"Dollars" and the sign "$" each means lawful money of
the United States.
"Effective Date" has the meaning assigned to such
term in Section 4.01 hereof.
"Eligible Assignee" means any commercial bank
approved in writing by the Company and the Agent as an
Eligible Assignee for purposes of this Agreement, provided
that the Company's approval shall not be unreasonably
withheld.
"Eligible Assets" means, as of any date of
calculation, an amount equal to the sum (without duplication)
of the following assets of the Company and its Consolidated
Subsidiaries:
(a) cash, plus the cash surrender value of
life insurance policies, if any; plus
(b) Permitted Liquid Investments and
Investments permitted by Section 8.04 of this Agreement; plus
(c) prepaid expenses; plus
(d) Repossessed Assets, at the lower of cost
or estimated net realizable value; plus
- 7 -
<PAGE> 13
(e) the Net Amount of Finance Receivables
less an amount equal to the greater of (i) Allowance for
Credit Losses, as shown on the Consolidated balance sheet of
the Company and its Consolidated Subsidiaries as of such date,
or (ii) an amount equal to the sum of 75% of Non-Performing
Assets as of such date.
"ERISA" means the Employment Retirement Income
Security Act of 1974, as amended, and any successor statute of
similar import, and regulations thereunder, in each case as in
effect from time to time. References to sections of ERISA
shall be construed to also refer to any successor sections.
"ERISA Affiliate" means any Person that controls, is
controlled by, or is under common control with the Company or
any Subsidiary thereof within the meaning of Section 4001 of
ERISA.
"Event of Default" has the meaning specified in
Section 9.01 hereof.
"Extension Reply Date", "Extension Request" and
"Extension Request Date" each have the meaning assigned to
such term in Section 2.08 hereof.
"FCC Holdings" means FCC Holdings Limited, a
California corporation.
"Federal Funds Rate" means, for any period, a
fluctuating interest rate per annum equal for each day during
such period to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for
such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day
on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by it.
"Final Termination Date" means the latest Termination
Date with respect to any Bank.
"Finance Receivables" means:
(a) accounts receivable arising from
commercial loans entered into or acquired by the Company or
any of its Consolidated Subsidiaries, as lender, in the
ordinary course of business, but only if such commercial loans
are secured by accounts receivable, inventory, equipment
and/or other property of the account debtor/borrower,
- 8 -
<PAGE> 14
(b) accounts receivable arising from
secured equipment leases entered into or acquired by the
Company or any of its Consolidated Subsidiaries, as lessor, in
the ordinary course of business,
(c) accounts receivable arising from
secured equipment installment sales contracts entered into or
acquired by the Company or any of its Consolidated
Subsidiaries, as seller, in the ordinary course of business,
and
(d) accounts receivable arising from
"loan" participations in transactions of a type described in
clauses (a) through (c) above, acquired in the ordinary course
of business by the Company or any of its Consolidated
Subsidiaries as participant, but only if such participations
vest in such participant an enforceable beneficial ownership
interest in the subject loan, lease or sales contract and the
accounts receivable arising therefrom,
all of which are of the types included on the audited
Consolidated financial statements of the Company and its
Consolidated Subsidiaries as at December 31, 1993, within the
heading "Finance Receivables" and including, without
limitation, Discount Receivables, Non-Public Debt Instruments
and Public Debt Securities.
"Fitch" means Fitch Investor's Service, Inc. or any
successor thereto.
"Foothill Group" means The Foothill Group, Inc., a
Delaware corporation.
"Foothill Group Subordinated Debt" means the
Indebtedness of the Company to Foothill Group listed on
Schedule VI and any additional Junior Subordinated Debt issued
to Foothill Group as Permitted Subordinated Debt, including
Advances.
"Foothill Group Subordination Agreement" means the
subordination agreement by the Company delivered as the
"Foothill Group Subordination Agreement" as defined in and
pursuant to the Multiyear Agreement and the 364 Day Agreement,
and in form and substance satisfactory to the Agent.
"GAAP" means generally accepted accounting principles
as such principles in the United States of America are in
effect from time to time.
"Governmental Authority" means any nation or
government, any state or other political subdivision thereof
and any entity or officer exercising executive, legislative,
judicial, regulatory or administrative functions of or
pertaining to any government, and any
- 9 -
<PAGE> 15
corporation or other entity owned or controlled (through
ownership of Capital Interests or otherwise) by any of the
foregoing.
"Guaranties" means guaranties, endorsements (other
than for collection in the ordinary course of business), and
other contingent obligations of such Person, including
obligations to make Investments, in respect of or in
connection with the obligations of others.
"Hazardous Materials" means and includes, without
limitation, gasoline, petroleum products, explosives,
radioactive materials, radon, hazardous materials, hazardous
wastes, hazardous or toxic substances, polychlorinated
biphenyls or related or similar materials, asbestos or any
material containing asbestos, or any other substance or
material as may be defined as a hazardous or toxic substance
by any Federal, state or local environmental law, ordinance,
rule or regulation.
"Indebtedness" of a Person means and includes,
without duplication, (a) all items that, in accordance with
GAAP, would be included in determining total liabilities as
shown on the liability side of a balance sheet as at the date
Indebtedness of such Person is to be determined, other than
distributions on Capital Interests declared, but not paid (to
the extent such distributions are not Restricted Payments),
(b) any liability secured by any mortgage, pledge, lien or
security interest on property owned or acquired by such
Person, whether or not such liability shall have been assumed
by such Person and Capitalized Lease Obligations of such
Person (without regard to any limitation of the rights and
remedies or the holder of such Lien or the lessor under such
Capitalized Lease to repossession or sale of such property)
and (c) Guaranties.
"Ineligible Rewrite" means a Finance Receivable (a)
the terms and conditions of which have been rewritten, (b)
that was more than 60 days delinquent as of the later of the
date of actual execution or the effective date of the revised
documentation therefor, and (c) in respect of which at least
one of the following statements is not accurate and complete
in all respects:
(i) the monthly payment on the
rewritten Finance Receivable is at least 50% of the
original monthly payment (without giving effect to
previous rewrites);
(ii) the obligor on the rewritten
Finance Receivable has made at least three (3)
- 10 -
<PAGE> 16
consecutive payments in accordance with the rewritten payment
schedule and each such payment was made within thirty (30)
days of the date due;
(iii) the rate of interest payable on
the rewritten Finance Receivable is a reasonable
market rate and, unless such rewritten Finance
Receivable arises from a rewritten equipment lease,
in no event is the all-in-loan- yield less than two
percent above the Reference Rate; or
(iv) said Finance Receivable has not
been more than sixty days delinquent more than once
since the date first rewritten.
"Initial Banks" has the meaning specified at the
beginning of this Agreement.
"Investment" in any Person means any loan, advance,
or extension of credit to or for the account of, any guaranty,
endorsement (other than for collection in the ordinary course
of business) or other direct or indirect contingent liability
in connection with the obligations, Capital Interests or
dividends or other distribution of, any ownership, purchase or
acquisition of any Capital Interest, obligations or securities
of, or any other interest in or capital contribution to, such
Person.
"Investment Grade Rating" means (a) with respect to
unsecured senior debt securities issued by a Person,
(i) a rating equal to or higher
than "BBB" by S&P and equal to or higher than "Baa2"
by Moody's, or
(ii) in the event the applicable
unsecured senior debt securities are not rated by
both S&P and Moody's, (A) the rating described in (i)
for either S&P or Moody's and (B) a rating equal to
or higher than "BBB" by D&P or by Fitch, or a
comparable rating by another nationally recognized
rating organization, which rating and organization
are approved by the Required Banks, or
(iii) in the event the applicable
unsecured senior debt securities are not rated by
either of S&P and Moody's, any two of (A) a rating
equal to or higher than "BBB" by Fitch, (B) a rating
equal to or higher than "BBB" by D&P, or (C) a
comparable rating by another nationally recognized
rating organization, which rating and organization
are approved by the Required Banks.
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<PAGE> 17
(b) with respect to commercial paper of
a Person, a rating equal to or higher than D-2 by D&P, F-2 by
Fitch, Prime-2 by Moody's or A-2 by S&P.
"Issue" means, with respect to any Letter of Credit
or Shipside Bond, either issue, or extend the expiry of, or
renew, or increase the amount of, such Letter of Credit or
Shipside Bond, and the term "Issued" or "Issuance" shall have
a corresponding meaning.
"Issuing Bank" has the meaning specified in
Preliminary Statement (2).
"Junior Subordinated Debt" means Subordinated Debt
that is subordinated in right and time of payment to all
Senior Subordinated Debt.
"Letter of Credit" means (a) any letter of credit
(whether a standby letter of credit or a commercial
documentary letter of credit but in each case appropriate to
be issued under an Application and Agreement) Issued by the
Issuing Bank pursuant to Article II hereof, in each case as
amended, supplemented or otherwise modified from time to time
and (b) in the case of that certain reimbursement agreement
delivered in substantially the form of Exhibit D hereto, a
letter of credit in substantially the form of Exhibit A
attached to such reimbursement agreement, as amended,
supplemented or otherwise modified from time to time.
"Letter of Credit Liability" relating to any Letter
of Credit means, as of any date of determination, all then
existing liabilities of the Account Party of such Letter of
Credit and of the Company to the Issuing Bank in respect of
such Letter of Credit, whether such liability is contingent or
fixed, and shall consist in principal amount of the sum of (a)
the aggregate maximum amount then available to be drawn under
such Letter of Credit (the determination of such maximum
amount to assume compliance with all conditions for drawing)
and (b) the aggregate amount which has then been paid by, and
not been reimbursed to, the Issuing Bank under such Letter of
Credit.
"Lien" means any interest in property securing an
obligation owed to a Person, whether such interest is based on
the common law, statute or contract, and including but not
limited to the security interest arising from a mortgage,
mortgage deed, deed of trust, encumbrance, pledge, conditional
sale or trust receipt or a lease, consignment or bailment for
security purposes. The term "Lien" includes reservations,
exceptions, encroachments, easements, rights of way,
covenants, conditions, restrictions, leases and other
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<PAGE> 18
similar title exceptions and encumbrances, including but not
limited to mechanics', materialmen's, warehousemen's,
carriers' and other similar encumbrances, affecting property.
For the purposes of this Agreement, a Person shall be deemed
to be the owner of any property which it has acquired or holds
subject to a conditional sale agreement or other arrangement
pursuant to which title to the property has been retained by
or vested in some other Person for security purposes.
"Loan Documents" means this Agreement and the
Application and Agreements, in each case as amended,
supplemented or otherwise modified from time to time.
"Material Adverse Effect" means, with respect to an
event, action or condition affecting the Company, any
Subsidiary thereof, or any of their respective properties or
revenues, an event, action or condition that would (a)
adversely affect the validity or enforceability of, or the
authority of the Company to perform its obligations under, any
of the Loan Documents, (b) materially adversely affect the
business, operations, assets or condition (financial or
otherwise) of the Company or any Subsidiary thereof or the
ability of the Company to perform its obligations under any of
the Loan Documents or (c) materially adversely affect the
business, operations, assets or condition (financial or
otherwise) of the Company and its Subsidiaries taken as a
whole.
"Moody's" means Moody's Investors Service, Inc. or
any successor thereto.
"Multiemployer Plan" means a Plan that is a
multiemployer plan as defined in Section 4001(a)(3) of ERISA.
"Multiyear Agreement" means that certain Multiyear
Revolving Credit Agreement dated as of June 30, 1994, among
the Company, the Agent, and the banks party thereto, as
amended or supplemented from time to time.
"Net Amount" means, as of any date of calculation,
with respect to a Finance Receivable or a Discount Receivable
an amount equal to the sum of:
(a) the outstanding principal component
thereof (exclusive of any unearned interest or finance charges
or any unaccrued discount representing compensation for the
use of borrowed money), less
(b) the portion, if any, of such
principal component that is the subject of a participation
interest granted by the Company or any of its
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<PAGE> 19
Consolidated Subsidiaries to any Person other than the Company
or any of its Consolidated Subsidiaries, less
(c) in the case of a Discount
Receivable, the discount from face or par value thereof at the
time such Discount Receivable was acquired (but without
duplication for amounts excluded from the principal component
thereof in clause (a) above).
"Non-Performing Assets" means Delinquent Receivables,
Repossessed Assets and Ineligible Rewrites. For purposes of
this definition, Repossessed Assets shall be valued at the
lower of cost or estimated net realizable value.
"Non-Public Debt Instruments" means debt instruments
that are not required to be registered under the Securities
Act of 1933 (other than those classified as Discount
Receivables).
"Other Taxes" has the meaning specified in Section
2.07(b) hereof.
"PBGC" means the Pension Benefit Guaranty Corporation
established under Title IV of ERISA or any other governmental
agency, department or instrumentality succeeding to the
functions of said corporation.
"Percentage" means, as of any date of calculation and
with respect to any Bank, the percentage (expressed as a
decimal, rounded upward to the nearest 1/10,000th of 1%) that
is equal to the Commitment of such Bank as of such date
divided by the Credit Commitment as of such date, and
multiplied by 100.
"Permitted Liquid Investment" means an Investment in
any of the following:
(a) direct obligations of, or
obligations guaranteed as to principal and interest by, the
United States of America;
(b) demand deposits in, certificates of
deposit issued by, or bankers' acceptances (eligible for
rediscount at Federal Reserve Banks) of, or collateralized
repurchase agreements in respect of obligations described in
clause (a) with, any of the Banks or any bank or trust company
organized under the laws of the United States of America or
any State thereof whose obligations or whose holding company's
obligations are rated as least A by S&P or at least A by
Moody's at the time such Investment is made;
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<PAGE> 20
(c) readily marketable commercial paper
that, at the time such Investment is made, is rated at least
A-1 by S&P or at least Prime-1 by Moody's;
(d) Indebtedness that is (i) traded on a
national securities exchange and (ii) rated A or better by
Moody's or S&P on the date of acquisition; or
(e) readily marketable commercial paper
(other than commercial paper described in clause (c));
provided that (i) the aggregate extended principal or face
amount thereof held does not exceed $5,000,000 at any one time
outstanding and (ii) at the time such Investment is made, such
commercial paper is rated at least Prime-2 by Moody's or at
least A-2 by S&P; and provided, that such Investment shall be
payable in Dollars and shall mature or be subject to
redemption at the option of the holder by its terms within
twelve months after the date of acquisition thereof.
"Permitted Senior Debt" means (a) all Senior
Indebtedness of the Company and its Subsidiaries that is
listed on Schedule V hereto and (b) additional unsecured
Senior Indebtedness of the Company issued after the Effective
Date, subject to the following conditions:
(i) the covenants, defaults and
other requirements applicable to such Senior
Indebtedness are no more restrictive, in any material
respect, upon the Company and its Subsidiaries than
those contained in the Loan Documents or applicable
to the Senior Indebtedness listed on Schedule V
hereto;
(ii) if Foothill Group enters into a
subordination agreement in respect thereof, the terms
thereof shall not differ in any material respect from
the terms of the Foothill Group Subordination
Agreement; and
(iii) no Default or Event of Default
shall exist at the date of issuance of such Senior
Indebtedness and after giving effect thereto.
"Permitted Subordinated Debt" means (a) all
Subordinated Debt of the Company and its Subsidiaries that is
listed on Schedule VI hereto and (b) additional unsecured
Subordinated Debt of the Company issued after the Effective
Date, subject to the following conditions:
(i) the final maturity of such
Subordinated Debt (other than Advances) may not be
earlier than November 15, 2003;
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<PAGE> 21
(ii) the weighted average life to
maturity of such Subordinated Debt (other than
Advances) shall extend at least three years beyond
the Final Termination Date as in effect as of the
date of issuance thereof;
(iii) no principal or sinking fund
payment on or other redemption of such Subordinated
Debt (other than Advances) may occur prior November
15, 1998;
(iv) the covenants, defaults and
other requirements applicable to such Subordinated
Debt are no more restrictive, in any material
respect, upon the Company and its Subsidiaries than
those contained in the Loan Documents or applicable
to the Subordination Debt listed on Schedule VI
hereto;
(v) the subordination provisions
applicable to such Subordinated Debt (other than
Foothill Group Subordinated Debt) do not differ in
any respect from those applicable to the Subordinated
Debt listed on Schedule VI hereto;
(vi) if Foothill Group enters into a
subordination agreement in respect thereof, the terms
thereof shall not differ in any material respect from
the terms of the Foothill Group Subordination
Agreement; and
(vii) no Default or Event of Default
shall exist at the date of issuance of such
Subordinated Debt and after giving effect thereto.
"Person" or "person" means any individual,
partnership, firm, corporation, association, joint venture,
trust or other entity, or any Governmental Authority.
"Plan" means, at any particular time, any employee
benefit plan that is covered by ERISA and in respect of which
the Company or an ERISA Affiliate is (or, if such plan were
terminated at such time, under Section 4069 of ERISA would be
deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Prohibited Transaction" shall have the meaning set
forth in Section 406 of ERISA or Code Section 4975.
"Property" means all equipment, real estate or other
real or personal property, tangible or intangible, owned or
operated by the Company or any Subsidiary thereof.
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<PAGE> 22
"Public Debt Securities" means debt instruments that
are registered under the Securities Act of 1933 (other than
those classified as Discount Receivables).
"Purchased Receivables" means Discount Receivables,
Non-Public Debt Instruments and Public Debt Securities.
"Rating Agency" or "Rating Agencies" means any of
D&P, Fitch, Moody's and S&P, or any other nationally
recognized rating organization approved by the Required Banks.
"Reference Rate" means the annual rate of interest
publicly announced from time to time by Bank of America in San
Francisco, California, as its "Reference Rate". The Reference
Rate is set by Bank of America based on various factors,
including Bank of America's costs and desired returns, general
economic conditions and other factors, and is used as a
reference point for pricing some loans. Bank of America may
price loans at, above or below its Reference Rate. Any change
in the Reference Rate shall take effect on the day specified
in the public announcement of such change.
"Reimbursement Obligations" has the meaning specified
in Section 3.01 hereof.
"Reportable Event" means any of the events set forth
in Section 4043(b) of ERISA, other than those events as to
which the 30-day notice period is waived under subsections
.13, .14, .16, .18, .19 or .20 of PBGC Reg. 2615.
"Repossessed Assets" means items of the type included
on the balance sheet of the Company and its Consolidated
Subsidiaries as of December 31, 1993, within the heading
"Repossessed Assets".
"Required Banks" means at any time Banks having
Percentages aggregating in excess of 67%.
"Restricted Investment" means any Investment, to the
extent it does not constitute a Permitted Liquid Investment.
"Restricted Payment" means, with respect to the
Company and its Subsidiaries:
(a) the payment of any distribution or
dividend on any Capital Interest of the Company (other than
dividends paid solely in Capital Interests of the Company); or
(b) any defeasance, redemption,
repurchase or other acquisition or retirement for value
prior to
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<PAGE> 23
scheduled maturity of any installment of principal of any
Subordinated Debt (other than Advances) and any early payment
of interest on, or other amounts due in respect of, any
Subordinated Debt; or
(c) any payment on account of the
purchase, redemption or other retirement of any Capital
Interest of the Company, or of any warrants, options or other
rights to acquire any Capital Interest in the Company, (except
a payment on account of the principal of and prepayment
charge, if any, on convertible Indebtedness) or any other
distribution made in respect thereof, either directly or
indirectly.
"S&P" means Standard & Poor's Corporation or any
successor thereto.
"Senior Indebtedness" means, as of any date, all
Indebtedness of the Company and its Subsidiaries outstanding
as of such date other than Subordinated Debt.
"Senior Subordinated Debt" means Subordinated Debt
that is senior in time and right of payment to Junior
Subordinated Debt.
"Settlement Securities" means Capital Interests
granted in consideration or good faith settlement of
Investments permitted by Section 8.04(d) hereof.
"Shipside Bond" means any shipside bond issued by the
Issuing Bank pursuant to Article II hereof, in each case as
amended, supplemented or otherwise modified from time to time.
"Shipside Bond Sublimit" means, at any time,
$5,000,000, as such amount shall be reduced or terminated
pursuant to Section 2.05, 2.08, or 9.02 hereof.
"Shipside Bond Liability" relating to any Shipside
Bond means, as of any date of determination, all then existing
liabilities of the Account Party of such Shipside Bond and of
the Company to the Issuing Bank in respect of such Shipside
Bond, whether such liability is contingent or fixed, and shall
consist of (a) the aggregate maximum amount then available to
be advanced under such Shipside Bond and (b) the aggregate
amount which has been paid by, and not been reimbursed to, the
Issuing Bank under such Shipside Bond.
"Single Employer Plan" means any Plan which is
covered by Title IV of ERISA, but is not a Multiemployer
Plan.
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<PAGE> 24
"Solvent" means, as to any Person, that such Person
has capital sufficient to carry on its business and
transactions and all business and transactions in which it is
about to engage, is able to pay its debts as they mature, and
owns property having a value, both at fair valuation and at
then current fair salable value, greater than the amount
required to pay its debts (including contingencies).
"State" means and includes, unless otherwise limited,
any State of the United States, the District of Columbia and
the Commonwealth of Puerto Rico.
"Subordinated Debt" means all Indebtedness of the
Company which shall have been subordinated in time and right
of payment to the obligations of the Company arising
hereunder.
"Subordination Custodian" shall have the meaning
specified in the Foothill Group Subordination Agreement.
"Subsidiary" or "Subsidiaries" of any Person means
any corporation or partnership of which more than 50% of the
outstanding Voting Interests in such corporation or
partnership is at the time owned, directly or indirectly, by
such Person, or by one or more of its Subsidiaries, or by such
person and one or more of its Subsidiaries.
"Taxes" has the meaning specified in Section 2.07(a)
hereof.
"Termination Date" means, with respect to each Bank,
July 30, 1995, or such later date as shall be requested by the
Company and agreed to by such Bank pursuant to Section 2.08
hereof.
"364 Day Agreement" means that certain Revolving
Credit Agreement dated as of June 30, 1994, among the Company,
the Agent, and the banks party thereto, as amended or
supplemented from time to time.
"Total Liabilities" means, as of any date of
calculation, the aggregate outstanding Indebtedness of the
Company and its Consolidated Subsidiaries as of such date,
determined on consolidated basis in accordance with GAAP.
"Total Revenues" means, with respect to any fiscal
year, an amount equal to the sum included in the audited
Consolidated financial statements of the Company and its
Consolidated Subsidiaries for such year within the heading
"Total Revenues" but only to the extent consistent with its
audited Consolidated
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<PAGE> 25
financial statements for the fiscal year ended December 31,
1993.
"UCP" has the meaning specified in Section 2.13
hereof.
"United States" and "U.S." each means the United
States of America.
"Voting Interest" means securities, as defined in
Section 2(1) of the Securities Act of 1933, as amended, of any
class of classes, the holders of which are ordinarily, in the
absence of contingencies, entitled to (a) vote for the
election of the corporate directors (or Persons performing
similar functions) or (b) in the case of a partnership, manage
or direct the business or assets thereof. References in this
Agreement to percentages of Voting Interests, unless otherwise
noted, refer to percentages of votes in which such Voting
Interests are entitled in the (i) election of corporate
directors (or Persons performing similar functions) or (ii)
management of the business or assets thereof in the case of a
partnership, rather than to the number of shares.
SECTION 1.02. Other Definitional Provisions.
(a) All terms defined in this Agreement in the
singular shall have comparable meanings when used in the plural, and vice
versa.
(b) The words "hereof," "hereby," "herein," and
"hereunder" and words of similar import when used in this Agreement refer to
this Agreement as a whole and not to any particular provisions of this
Agreement; the term "hereafter" means after, and the term "heretofore" means
before, the date of this Agreement; and Article, Section, schedule, exhibit and
like references are to this Agreement unless otherwise specified.
(c) Any defined term that relates to a document
shall include within its definition any amendments, modifications, renewals,
restatements, extensions, supplements, or substitutions that heretofore may
have been or hereafter may be executed in accordance with the terms thereof
and, if applicable, hereof.
(d) References in this Agreement to particular
sections of the Code, ERISA or any other legislation shall be deemed to refer
also to any successor sections thereto or other redesignations for codification
purposes.
(e) All terms defined in the Uniform Commercial
Code in effect in the State of California and not otherwise defined or modified
herein shall have the respective meanings ascribed to such terms in such
Uniform Commercial Code, except to the extent inconsistent with the UCP.
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<PAGE> 26
(f) All accounting terms not specifically defined
herein shall be construed in accordance with GAAP, consistently applied. Where
any accounting determination or calculation is required to be made under this
Agreement, such determination or calculation (unless otherwise provided) will
be made in accordance with GAAP, consistently applied, except that if, because
of a change in GAAP, a Person would have to alter a previously utilized
accounting method or policy in order to remain in compliance with GAAP, such
determination or calculation will continue to be made in accordance with such
Person's previous accounting methods or policy unless the Required Banks
otherwise direct. Unless otherwise specified herein all financial statements
required to be delivered hereunder shall be prepared and all financial records
shall be maintained in accordance with GAAP.
ARTICLE II
AMOUNT AND TERMS OF LETTERS OF CREDIT
AND SHIPSIDE BONDS AND PARTICIPATIONS THEREIN
SECTION 2.01. Letters of Credit.
(a) Letters of Credit. The Issuing Bank agrees
with the Company, on the terms and conditions hereinafter set forth, to Issue
for the account of each Account Party one or more Letters of Credit from time
to time during the period from the date hereof until the Final Termination Date
in an aggregate undrawn amount not to exceed at any time the Credit Commitment;
provided that each such Letter of Credit upon its Issuance shall expire on or
before the date which occurs one year from the date of its Issuance (or, in the
case of the Letter of Credit Issued in connection with that certain
reimbursement agreement delivered in substantially the form of Exhibit D
hereto, one year from the date of its most recent notice of extension as
provided by Paragraph 8(iv) thereof); and provided, further, that the Issuing
Bank shall not be obligated to Issue any Letter of Credit if, after giving
effect to such Issuance of such Letter of Credit, the then outstanding
aggregate principal amount of all Letter of Credit Liability for Letters of
Credit plus the then outstanding aggregate principal amount of all Shipside
Bond Liability for Shipside Bonds shall exceed the then applicable Credit
Commitment. Within the limits of the obligations of the Issuing Bank set forth
above, the Company may request the Issuing Bank to issue one or more Letters of
Credit, reimburse, or cause the appropriate Account Party to reimburse, the
Issuing Bank for payments made thereunder, and request the Issuing Bank to
Issue one or more other Letters of Credit under this Section 2.01(a).
(b) Shipside Bonds. The Issuing Bank agrees with
the Company, on the terms and conditions hereinafter set forth, to Issue for
the account of each Account Party, one or more Shipside Bonds from time to time
during the period from the date hereof until the Final Termination Date in an
aggregate amount not to exceed at any time the Shipside Bond Sublimit;
provided, that the Issuing Bank shall not be obligated to Issue any Shipside
Bond if, after giving effect to such Issuance of such
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<PAGE> 27
Shipside Bond, the then outstanding aggregate principal amount of all Shipside
Bond Liability for Shipside Bonds plus the then outstanding aggregate principal
amount of all Letter of Credit Liability for Letters of Credit shall exceed the
then applicable Credit Commitment. Within the limits of the obligations of the
Issuing Bank set forth above, the Company may request the Issuing Bank to issue
one or more Shipside Bonds, reimburse, or cause the appropriate Account Party
to reimburse, the Issuing Bank for any payments made thereunder, and request
the Issuing Bank to Issue one or more other Shipside Bonds under this Section
2.01(b).
SECTION 2.02. Issuing the Letters of Credit and Shipside
Bonds. Each Letter of Credit or Shipside Bond shall be Issued on at least
three Business Days' notice from the Company to the Agent specifying the
Account Party, the date, amount, expiry, and beneficiary thereof accompanied by
an Application and Agreement describing such Letter of Credit or Shipside Bond,
duly executed by such Account Party and Approved by the Company. On the date
specified by the Company in such notice and upon fulfillment of the applicable
conditions set forth in Article IV hereof, the Issuing Bank will Issue such
Letter of Credit or Shipside Bond in the form specified in such Application and
Agreement.
SECTION 2.03. Participations Purchased by Banks.
(a) On the date of Issuance of each Letter of
Credit, the Issuing Bank shall be deemed irrevocably and unconditionally to
have sold and transferred to each Bank (other than Bank of America) and each
Bank shall be deemed to have irrevocably and unconditionally purchased and
received from the Issuing Bank, an undivided interest and participation, to the
extent of such Bank's Percentage in effect from time to time, in such Letter of
Credit and all Letter of Credit Liability relating to such Letter of Credit.
On or prior to the fifth Business Day of each month of each year, and on the
Termination Date, the Agent will promptly notify each Bank of each Letter of
Credit Issued by the Issuing Bank during the preceding month, and the Account
Party, date of Issue, amount, expiry, and reference number thereof.
Notwithstanding anything to the contrary, no Bank shall be obligated to
participate in any Letter of Credit Issued after the Termination Date
applicable to such Bank.
(b) On the date of Issuance of each Shipside
Bond, the Issuing Bank shall be deemed irrevocably and unconditionally to have
sold and transferred to each Bank (other than Bank of America) and each Bank
shall be deemed to have irrevocably and unconditionally purchased and received
from the Issuing Bank, an undivided interest and participation, to the extent
of such Bank's Percentage in effect from time to time, in such Shipside Bond
and all Shipside Bond Liability relating to such Shipside Bond. On or prior to
the fifth Business Day of each month of each year, and on the Termination Date,
the Agent will promptly notify each Bank of each Shipside Bond Issued by the
Issuing Bank during the preceding month, and the Account Party, date of Issue,
amount, and reference number thereof.
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<PAGE> 28
Notwithstanding anything to the contrary, no Bank shall be obligated to
participate in any Shipside Bond Issued after the Termination Date applicable
to such Bank.
(c) In the event that any reimbursement
obligation under any Application and Agreement is not paid when due to the
Issuing Bank with respect to any Letter of Credit or any Shipside Bond, the
Issuing Bank shall promptly notify the Agent to that effect, and the Agent
shall promptly notify each Bank (other than Bank of America) having purchased a
participation therein of the amount of such reimbursement obligation and each
Bank other than Bank of America shall immediately pay to the Issuing Bank, in
lawful money of the United States and in same day funds, an amount equal to
such Bank's Percentage then in effect of the amount of such unpaid
reimbursement obligation.
(d) Promptly after the Issuing Bank receives a
payment on account of a reimbursement obligation with respect to any Letter of
Credit or any Shipside Bond, the Issuing Bank shall promptly pay to the Agent,
and the Agent shall promptly pay to each Bank which funded its participation
therein, in lawful money of the United States and in the kind of funds so
received, an amount equal to such Bank's ratable share thereof.
(e) Upon the request of any Bank, the Agent shall
furnish to such Bank copies of any Letter of Credit, any Shipside Bond and any
Application and Agreement and other documents related thereto as may be
reasonably requested by such Bank.
(f) The obligation of each Bank other than Bank
of America to make payments under subsection (c) above shall be unconditional
and irrevocable and shall be made under all circumstances (except as otherwise
expressly provided in subsections (a) and (b) above), including, without
limitation, any of the circumstances referred to in Section 2.10(b) hereof.
(g) If any payment received on account of any
reimbursement obligation with respect to a Letter of Credit or a Shipside Bond
and distributed to a Bank as a participant under Section 2.03(d) hereof is
thereafter recovered from the Issuing Bank in connection with any bankruptcy or
insolvency proceeding relating to the Company or the Account Party thereof, as
the case may be, each Bank which received such distribution shall, upon demand
by the Agent, repay to the Issuing Bank such Bank's ratable share of the amount
so recovered together with an amount equal to such Bank's ratable share
(accounting to the proportion of (i) the amount of such Bank's required
repayment to (ii) the total amount so recovered) of any interest of other
amount paid or payable by the Issuing Bank in respect of the total amount so
recovered.
SECTION 2.04. Fees.
(a) Agent's Fees. The Company agrees to pay to
the Agent, for its own account, the agency fees referred to in
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<PAGE> 29
the letter dated the date of this Agreement first written above from Bank of
America to the Company, payable on the dates specified in such letter, as such
letter may be amended or supplemented from time to time.
(b) Commitment Fee. The Company agrees to pay to
each Bank a commitment fee on the average daily unused portion of such Bank's
commitment, from the Effective Date in the case of each Initial Bank and from
the effective date specified in the Assignment and Acceptance pursuant to which
it became a Bank in the case of each other Bank, until the Termination Date, at
the rate of 1/4 of 1% per annum, payable monthly in arrears on or prior to the
fifth Business Day after the end of each month in each year and on the
Termination Date. For purposes of this Agreement, the unused portion of any
Bank's Commitment at any time shall be the excess of such Bank's Commitment
over such Bank's Percentage of the undrawn balance of then outstanding Letters
of Credit and Shipside Bonds.
(c) Usage Fee. The Company agrees to pay to each
Bank a usage fee on such Bank's Percentage of the average daily undrawn balance
of outstanding Letters of Credit and Shipside Bonds, from the date hereof, in
the case of each Initial Bank, and from the effective date specified in the
Assignment and Acceptance pursuant to which it became a Bank, in the case of
each other Bank, at the rate of 1% per annum, payable monthly in arrears on or
prior to the fifth Business Day after the end of each month in each year.
(d) Letter of Credit Fees. The Company agrees
with the Issuing Bank and the Banks that the letter of credit fee, payable by
each Account Party with respect to each Letter of Credit issued for the account
of such Account Party and guaranteed by the Company under Article III hereof,
shall be:
(i) in the case of each Letter of Credit
which is a standby letter of credit, in an amount equal to
$300 assessed on the date of Issuance of such Letter of
Credit, and
(ii) in the case of each Letter of Credit
which is a commercial documentary letter of credit, in an
amount equal to the greatest of (A) $100, (B) 1/8 of 1% of the
maximum amount available to be drawn under such Letter of
Credit assessed on the date of Issuance of such Letter of
Credit (the determination of such maximum amount to assume
compliance with all conditions for drawing) or (C) such amount
agreed to in writing by such Account Party, the Company and
the Issuing Bank, and
(iii) in the case of each Letter of Credit
which is commercial documentary letter of credit, in an
amount, for each draw requested thereunder by the beneficiary
thereof, assessed on the date of each drawing, equal to the
greatest of (A) $100, (B) 1/8 of
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<PAGE> 30
1% of the amount of such requested draw (the determination of
such amount to assume compliance with all conditions for
drawing) or (C) such amount agreed to in writing by such
Account Party, the Company and the Issuing Bank,
in each case under clauses (i), (ii) and (iii) of this Section 2.04(d), payable
to and for the account of the Issuing Bank monthly in arrears on or prior to
the fifth Business Day after the end of each month in each year.
(e) Shipside Bond Fee. The Company agrees with
the Issuing Bank and the Banks that the shipside bond fee, payable by each
Account Party with respect to each Shipside Bond issued for the account of such
Account Party and guaranteed by the Company under Article III hereof, shall be:
(i) a fee in the amount of the greater
of (A) 1/4 of 1% of the amount of such Shipside Bond or (B)
$50, assessed for the initial 21 days,
(ii) for Shipside Bonds having a duration
beyond 21 days, a fee in the amount of the greater of (A) 1%
of the amount of such Shipside Bond or (B) $50 per calendar
quarter, and
(iii) such processing fees as may be
charged by a foreign office of the Issuing Bank for the
Issuance of a Shipside Bond,
in each case under clauses (i), (ii) and (iii) of this Section 2.04(e), payable
to and for the account of the Issuing Bank monthly in arrears on or prior to
the fifth Business Day after the end of each month in each year.
SECTION 2.05. Reduction of Commitments. The Company shall
have the right, upon at least three Business Days' notice to the Agent, to
terminate in whole or reduce ratably in part the unused portion of the
respective Commitments of the Banks; provided, however, that each such partial
reduction shall be in the amount of $5,000,000 or any multiple of $1,000,000 in
excess thereof.
SECTION 2.06. Payments and Computations.
(a) The Company shall make each payment under
this Agreement, irrespective of and without condition or deduction for any
counterclaim, defense, recoupment or setoff, in lawful money of the United
States and in same day funds delivered to the Agent not later than 10:00 A.M.
(Los Angeles time) on the day when due by deposit of such funds to the Agent's
Account. The Agent will promptly thereafter cause to be distributed like funds
relating to the payment of principal (reimbursement for payments under Letters
of Credit and Shipside Bonds), interest, or commitment, or usage fees ratably
(other than amounts payable to any Bank pursuant to Sections 2.07 or 2.10
hereof) to the
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Banks for their respective accounts, and like funds relating to the payment of
any other amount payable to any Bank or to the Issuing Bank to such Bank for
its account, in each case to be applied in accordance with, and subject to, the
terms of this Agreement. Upon its acceptance of an Assignment and Acceptance
pursuant to Section 11.01 hereof, from and after the effective date specified
in such Assignment and Acceptance, the Agent shall make all payments hereunder
and under any other Loan Document in respect of the interest assigned thereby
to the Bank assignee thereunder, and the parties to such Assignment and
Acceptance shall make all appropriate adjustments in such payments for periods
prior to such effective date directly between themselves.
(b) The Company hereby authorizes each Bank, if
and to the extent payment owing to such Bank is not made when due hereunder, to
charge from time to time against any or all of the Company's accounts with such
Bank any amount so due.
(c) All computations of interest and of
commitment, usage, letter of credit and shipside bond fees shall be made by the
Agent on the basis of a year of 360 days, in each case for the actual number of
days (including the first day but excluding the last day) occurring in the
period for which such interest or fees are payable. Each determination by the
Agent of an interest rate hereunder shall be conclusive and binding for all
purposes, absent manifest error.
(d) Computation by the Agent of the usage fee
with respect to each commercial documentary letter of credit shall be
calculated from the date of issuance of the commercial documentary letter of
credit until 21 days beyond the stated expiration date of such commercial
documentary letter of credit.
(e) Unless the Agent shall have received notice
from an Account Party prior to the date on which payment is due to the Banks
under its Application and Agreement that such Account Party will not make such
payment in full, the Agent may assume that such Account Party 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 to such Bank. If and to the extent such
Account Party shall not have so made such payment in full to the Agent, 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.
(f) Whenever any payment hereunder shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest, commitment, usage
and other fees, as the case may be.
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SECTION 2.07. Taxes.
(a) All payments by the Company under this Agreement
or any other Loan Document shall be made free and clear of, and without
reduction or withholding for or on account of, any and all present or future
income, stamp or other taxes, levies, imposts, duties, charges, fees,
deductions or withholdings, now or hereafter imposed, levied, collected,
withheld or assessed by any Governmental Authority, and all liabilities with
respect thereto, excluding
(i) in the case of each of the Issuing
Bank, each Bank and the Agent, income or franchise taxes
imposed on it by the jurisdiction under the laws of which it
is organized or any political subdivision or taxing authority
thereof or therein or as a result of a connection between it
and any jurisdiction other than a connection resulting solely
from this Agreement, the other Loan Documents and the
transactions contemplated hereby and thereby, and
(ii) in the case of each Bank, income or
franchise taxes imposed by any jurisdiction in which such
Bank's lending office listed under its name on the signature
pages hereof or on the signature page of the Assignment and
Acceptance pursuant to which it became a Bank (such office
being the "Bank Office" of such Bank) is located or any
political subdivision or taxing authority thereof or therein
(all such non-excluded taxes, levies, imposts, deductions, charges or
withholdings being hereinafter referred to as "Taxes"). If any Taxes are
required to be withheld or deducted from any amounts payable hereunder or under
any Loan Document to the Issuing Bank, any Bank or the Agent, the Company shall
pay the relevant amount of such Taxes and the amounts so payable to the Issuing
Bank, such Bank or the Agent shall be increased to the extent necessary to
yield to the Issuing Bank, such Bank or the Agent (after payment of all Taxes)
interest or any such other amounts payable hereunder at the rates or in the
amounts specified in this Agreement and the other Loan Documents. Whenever any
Taxes are paid by the Company with respect to payments made in connection with
this Agreement or any other Loan Document, as soon as possible thereafter, the
Company shall send to the Agent for its own account or for the account of such
Bank or Issuing Bank, as the case may be, a certified copy of an official
original receipt received by the Company showing payment thereof.
(b) In addition, the Company agrees to pay all
stamp, document, transfer, recording or filing taxes or fees and similar
impositions now or hereafter determined by the Agent, the Issuing Bank or any
Bank to be payable in connection with this Agreement, any Application or
Agreement or any other documents, instruments or transactions pursuant to on in
connection herewith or therewith (hereinafter to as "Other Taxes").
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<PAGE> 33
(c) Without limiting the generality of Section
2.10 hereof, and in addition thereto, the Company hereby indemnifies each Bank,
the Issuing Bank and the Agent for the full amount of Taxes or Other Taxes
(including, without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 2.07): (i) attributable to
payments by or on behalf of the Company hereunder or under any of the other
Loan Documents or by any Account Party under any Application and Agreement or
withheld by any Account Party with respect to amounts paid under any
Application and Agreement, (ii) for any Taxes or Other Taxes paid by such Bank,
the Issuing Bank or the Agent, and (iii) for any and all present or future
claims, liabilities or losses with respect to or resulting from any omission to
pay or delay in paying any Taxes or Other Taxes (including any incremental
Taxes, interest or penalties that may become payable by such Bank, the Issuing
Bank or the Agent as a result of any failure to pay such Taxes or Other Taxes),
in the case of clauses (i), (ii) or (iii) above whether or not such Taxes or
Other Taxes were correctly or legally asserted. Such indemnification shall be
made within 30 days from the date the such Bank, the Issuing Bank or the Agent,
as the case may be, make written demand therefor.
(d) Prior to the date of the Issuance of the
initial Letter of Credit or Shipside Bond in the case of each Initial Bank, and
on the date of the Assignment and Acceptance pursuant to which it became a Bank
in the case of each other Bank, and from time to time thereafter if requested
by the Company or the Agent, each Bank organized under the laws of a
jurisdiction outside the United States shall provide the Agent and the Company
with either (i) the forms prescribed by the Internal Revenue Service of the
United States certifying as to such Bank's status for purposes of determination
exemption from United States withholding taxes with respect to all payments to
be made to such Bank under the Loan Document or (ii) other documents
satisfactory to the Company and the Agent indicating that all payments to be
made to such Bank under any Loan Document are subject to such taxes at a rate
reduced by an applicable tax treaty. Unless the Company and the Agent have
received forms or other documents satisfactory to them indicating that payments
under any Loan Document are not subject to United States withholding tax or are
subject to such tax at a rate reduced by an applicable tax treaty, the Company
or the Agent shall withhold taxes from such payments at the applicable
statutory rate in the case of payments to or for the Issuing Bank or any Bank
organized under the laws of a jurisdiction outside the United States.
(e) Each Bank agrees to use its best efforts
(consistent with its internal policy and legal and regulatory restrictions) to
designate a different Bank Office in the making of such designation would avoid
the need for the Bank or Issuing Bank to pay, or reduce the amount of, any
Taxes or Other Taxes and would not, in the reasonable judgment of such Bank, be
otherwise disadvantageous to such Bank.
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<PAGE> 34
(f) Without prejudice to the survival of any
other agreement of the Company hereunder, the agreements and obligations of the
Company contained in this Section 2.07 shall survive the payment in full of the
Letter of Credit Liability relating to the Letters of Credit and the Shipside
Bond Liability relating to the Shipside Bonds.
SECTION 2.08. Extension of Termination Date. On or before
May 1, 1995, and each May 1 thereafter (each such May 1 being an "Extension
Request Date"), the Company may request the Agent to extend the Termination
Date for an additional 364 days (such request being an "Extension Request").
The Agent will promptly notify each Bank of such Extension Request. Each Bank
may, in its sole discretion, so agree to extend the Termination Date by
delivering a notice of consent to the Agent in the form of Exhibit A hereto by
the next succeeding July 1 (each such July 1 being an "Extension Reply Date").
If, by the Extension Reply Date, Banks then holding more than 25% of the
Commitments of the Banks have failed to consent to the Extension Request, the
Agent shall notify the Banks and the Company of this fact, and each Bank which
had consented to the Extension Request shall have until the next succeeding
July 15 to withdraw its consent. Failure to respond by any Bank by the
Extension Reply Date shall constitute a nonconsent. The Commitment of each
nonconsenting Bank shall terminate on the Termination Date with respect to such
Bank and shall not be otherwise renewed or extended, and any future Extension
Request shall be delivered only to Banks which, on such future Extension
Request Date, have continuing Commitments. The Agent and Banks shall be under
no obligation whatsoever to extend the Termination Date. Notwithstanding the
foregoing, if any nonconsenting Bank, at any time after the Extension Reply
Date but in no event later than the next succeeding July 15, shall determine at
its option to extend its Commitment until a later Termination Date and so shall
notify the Agent and the Company thereof in writing, such nonconsenting Bank
thereafter shall be deemed to have consented to the Extension Request as set
forth in such notice for all purposes of this Agreement and its Commitment
shall be deemed to be extended until the earlier of the Termination Date set
forth in the related Extension Request or the notice of such Bank to the Agent
and the Company.
Notwithstanding the foregoing, if the Agent has not received consents for the
extension from Banks then holding 75% or more of the Commitments, by the next
succeeding July 15, the Commitments of the Banks shall terminate on the then
existing Termination Date and the Agent shall so notify the Company and the
Banks.
SECTION 2.09. Evidence of Debt. The Issuing Bank shall
maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of each Account Party and the Company to the
Issuing Bank resulting from each drawing under any Letter of Credit or payment
under any Shipside Bond and the amounts of principal and interest payable and
paid to the Issuing Bank from time to time hereunder. In any legal action or
proceeding in respect of this Agreement or any Application and
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Agreement, the entries made in such account or accounts shall be conclusive
evidence of the existence and amounts of the obligations of such Account Party
and the Company therein recorded.
SECTION 2.10. Indemnification; Nature of the Issuing Bank's
Duties.
(a) The Company agrees to reimburse and indemnify
each of the Agent, the Issuing Bank, each Bank, their respective Affiliates,
and the directors, officers, employees, attorneys and agents of each of the
foregoing (each an "Indemnified Party") from and against any and all losses,
liabilities, claims, damages, expenses, obligations, penalties, actions,
judgments, suits, costs or disbursements of any kind or nature whatsoever
(including, without limitation, the fees and disbursements of counsel for such
Indemnified Party in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not such Indemnified
Party shall be designated a party thereto) that may at any time be imposed on,
asserted against or incurred by such Indemnified Party as a result of, or
arising out of, or in any way related to or by reason of, (i) this Agreement or
any other Loan Document, (ii) any transaction from time to time contemplated
hereby or thereby, including, without limitation, (A) the Issuance of any
Letter of Credit or any Shipside Bond or (B) any action or proceeding relating
to a court order, injunction, or other process or decree restraining or seeking
to restrain the Issuing Bank from paying any amount under any Letter of Credit
or Shipside Bond, or (iii) any transaction financed in whole or in part or
directly or indirectly with the proceeds of any Letter of Credit (and without
in any way limiting the generality of the foregoing, including any violation or
breach of any law by the Company or any Subsidiary or Affiliate of any of
them); but excluding any such losses, liabilities, claims, damages, expenses,
obligations, penalties, actions, judgments, suits, costs or disbursements
resulting solely from the gross negligence or willful misconduct of such
Indemnified Party or a wrongful refusal of such Indemnified Party, if the
Issuing Bank, to honor a Letter of Credit or Shipside Bond, each as finally
determined by a court of competent jurisdiction.
(b) In furtherance and not in limitation of the
foregoing, the obligations of the Company hereunder shall be unconditional and
irrevocable, and shall be paid strictly in accordance with the terms hereof
under all circumstances, including, without limitation, any of the following
circumstances:
(i) any lack of validity or
enforceability of any Letter of Credit, any Shipside Bond or
any agreement or instrument relating thereto;
(ii) the existence of any claim, setoff,
defense or other right which the Company or any Account Party
may have at any time against the beneficiary, or
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<PAGE> 36
any transferee, of any Letter of Credit or Shipside Bond, or
the Issuing Bank, any Bank, or any other Person;
(iii) any draft, certificate, or other
document presented under any Letter of Credit or Shipside Bond
proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) any lack of validity, effectiveness,
or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Letter of Credit or
Shipside Bond or the rights or benefits thereunder or proceeds
thereof, in whole or in part;
(v) any loss or delay in the
transmission or otherwise of any document required in order to
make a drawing under any Letter of Credit or of the proceeds
thereof;
(vi) any failure of the beneficiary of a
Letter of Credit to strictly comply with the conditions
required in order to draw upon any Letter of Credit;
(vii) any misapplication by the
beneficiary of any Letter of Credit or Shipside Bond of the
proceeds of any drawing under such Letter of Credit or payment
under such Shipside Bond; or
(viii) any other circumstance or happening
whatsoever, whether or not similar to the foregoing; provided
that the Issuing Bank shall not be relieved of any liability
it may otherwise have as a result of its gross negligence,
willful misconduct or wrongful refusal to honor any Letter of
Credit or any Shipside Bond.
(c) If and to the extent that the foregoing
obligations of the Company under this Section 2.10, or any other
indemnification obligation of the Company hereunder or under any other Loan
Document, are unenforceable for any reason, the Company hereby agrees to make
the maximum contribution to the payment and satisfaction of such obligations
which is permissible under applicable law.
SECTION 2.11. Increased Costs.
(a) Change in Law Generally. If any change in
any law or regulation or in the interpretation thereof by any court or
administrative or governmental authority charged with the administration
thereof shall either (i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against letters of credit issued by the Issuing
Bank or (ii) impose on the Issuing Bank or any Bank any other condition
regarding letters of credit or shipside bonds or, in
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the case of such Bank, its participation hereunder in Letters of Credit and
Shipside Bonds, and the result of any event referred to in the preceding clause
(i) or (ii) shall be to increase the cost to the Issuing Bank of Issuing or
maintaining or, in the case of such Bank, having a participation in, Letters of
Credit and Shipside Bonds, then, upon demand by the Issuing Bank or such Bank
(with a copy to the Agent), the Company shall immediately pay to the Issuing
Bank or such Bank from time to time as specified by the Issuing Bank or such
other Bank (with a copy to the Agent), additional amounts which shall be
sufficient to compensate the Issuing Bank or such Bank for such increased cost.
A certificate as to such increased cost, and amount thereof, incurred by the
Issuing Bank or any Bank as a result of any event mentioned in clause (i) or
(ii) above, submitted by the Issuing Bank or such Bank to the Company and the
Agent, shall be conclusive and binding for all purposes, absent manifest error.
(b) Capital. If the Issuing Bank or any Bank
determines that compliance with any law or regulation or any guideline or
request from any central bank or other governmental authority (whether or not
having the force of law) affects or would affect the amount of capital required
or expected to be maintained by the Issuing Bank or such Bank or any
corporation controlling the Issuing Bank or such Bank and that the amount of
such capital is increased by or based upon the existence of letters of credit
or shipside bonds or participations therein (or similar contingent
obligations), then, upon demand by the Issuing Bank or such Bank, as the case
may be (with a copy of the Agent), the Company shall immediately pay to the
Issuing Bank or such Bank, from time to time as may be specified by the Issuing
Bank or such Bank, additional amounts sufficient to compensate it in light of
such circumstances, to the extent that the Issuing Bank or such Bank reasonably
determines such increase in capital to be allocable to the Issuance or
maintenance of the Letters of Credit and Shipside Bonds, or, in the case of
such Bank, to its participation in the Letters of Credit and Shipside Bonds. A
certificate as to such amounts submitted to the Company by the Issuing Bank or
such Bank shall be conclusive and binding for all purposes, absent manifest
error.
SECTION 2.12. Sharing of Payments, Etc. If any Bank shall
obtain any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise, including, but not limited to, any charge
pursuant to Section 2.06(b) hereof) on account of the Letter of Credit
Liability and Shipside Bond Liability owing to it (other than pursuant to
Sections 2.07 or 2.10 hereof) in excess of its ratable share of payments on
account of the Letter of Credit Liability and Shipside Bond Liability owing to
all the Banks, such Bank shall forthwith purchase from the other Banks such
participations in the Letter of Credit Liability and Shipside Bond Liability
owing to them as shall be necessary to cause such purchasing Bank to share the
excess payment ratably with each of them; provided, however, that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Bank, such purchase from each Bank shall be rescinded and such Bank shall repay
to the purchasing
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<PAGE> 38
Bank the purchase price to the extent of such recovery, together with an amount
equal to such Bank's ratable share (according to the proportion of (a) the
amount of such Bank's required repayment to (b) the total amount so recovered
from the purchasing Bank) of any interest or other amount paid or payable by
the purchasing Bank in respect of the total amount so recovered. The Company
agrees that any Bank purchasing a participation from another Bank pursuant to
Section 2.03 or 11.02 hereof or this Section 2.12 may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Bank were the
direct creditor of the Company in the amount of such participation.
SECTION 2.13. Uniform Customs and Practice. The Uniform
Customs and Practice for Documentary Credits as most recently published by the
International Chamber of Commerce ("UCP") shall in all respects be deemed a
part of this Article II as if incorporated herein and shall apply to the
Letters of Credit.
ARTICLE III
GUARANTY
SECTION 3.01. Guaranty. The Company hereby unconditionally
guarantees to the Agent, the Issuing Bank and the Banks the punctual payment
when due of all obligations of each Account Party at any time and from time to
time existing under each Application and Agreement executed by such Account
Party and Approved by the Company, whether for reimbursement for amounts drawn
under the Letter or Letters of Credit covered thereby, reimbursement for
amounts paid under any Shipside Bonds, interest, fees, expenses,
indemnification or otherwise (such obligations being the "Reimbursement
Obligations").
SECTION 3.02. Notice of Payment. In the event that any
Reimbursement Obligation under any Application and Agreement referred to in
Section 3.01 hereof is not paid when due by the Account Party thereunder to the
Issuing Bank with respect to any Letter of Credit or Shipside Bond, the Issuing
Bank shall so notify the Company and the Company shall pay to the Issuing Bank
on the date of such notice all amounts then due by the defaulting Account Party
under such Application and Agreement.
SECTION 3.03. Guaranty Absolute. The Company
guarantees that the Reimbursement Obligations will be paid strictly in
accordance with the terms of the applicable Application and Agreement and this
Agreement, regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of the
Issuing Bank or banks with respect thereto. The liability of the Company under
this Guaranty shall be absolute and unconditional irrespective of:
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<PAGE> 39
(a) any lack of validity or enforceability of any
Application or Agreement or other agreement or instrument
relating hereto or thereto;
(b) any change in the time, manner or place of
payment of, or in any other term of, all or any of the
Reimbursement Obligations, or any other amendment or waiver of
or any consent to departure from this Agreement or any
Application and Agreement;
(c) any release or nonperfection or amendment or
waiver of, or consent, to departure from, any collateral
security or any other guaranty for all or any of the
Reimbursement Obligations; or
(d) any other circumstance which might otherwise
constitute a defense available to, or a discharge of, the
applicable Account Party of the Company;
provided that the Issuing Bank shall not be relieved of any liability it may
otherwise have as a result of its gross negligence, willful misconduct or
wrongful refusal to honor any Letter of Credit or Shipside Bond. This Guaranty
shall continue to be effective or be reinstated, as the case may be, if at any
time any payment of any of the Reimbursement Obligations is rescinded or must
otherwise be returned by the Issuing Bank or the Banks upon the insolvency,
bankruptcy or reorganization of any Account Party or otherwise, all as though
such payment had not been made.
SECTION 3.04. Waivers. The Company hereby waives:
(a) promptness, diligence, notice of acceptance
and any other notice with respect to any of the Reimbursement Obligations and
this Guaranty;
(b) any requirement that the Agent, the Issuing
Bank of the Banks protect, secure or insure any security interest or lien or
any property subject thereto or exhaust any right or take any action against
the Account Party or any other Person or any collateral or any right to set off
the fair market value of any collateral against the Reimbursement Obligations;
and
(c) any duty on the part of the Agent, the
Issuing Bank of the Banks to disclose to the Company any matter, fact or thing
relating to the business, operation or condition of any Account Party or its
assets now known or hereafter to be known by the Agent, the Issuing Bank or the
Banks.
SECTION 3.05. Subrogation. The Company will not exercise
any rights which it may acquire by way of subrogation under this Article III,
by any payment made hereunder or otherwise, until all the Reimbursement
Obligations and all other amounts payable under this Agreement and under the
Application and Agreements shall have been paid in full and the Commitments
shall have expired or terminated. If any amount shall be paid to
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<PAGE> 40
the Company or account of such subrogation rights at any time prior to the
later of (x) the payment in full of the Reimbursement Obligations and all other
amounts payable under this Agreement and under the Application and Agreements
and (y) the expiration or termination of the Commitments, such amount shall be
held in trust for the benefit of the Agent, the Issuing Bank and the Banks and
shall forthwith be paid to the Agent to be credited and applied upon the
Reimbursement Obligations, whether matured or unmatured, in accordance with the
terms of this Agreement or to be held by the Agent as collateral security for
any Reimbursement Obligations thereafter existing. If (i) the Company shall
make payment to the Agent of all or any part of the Reimbursement Obligations,
(ii) all the Reimbursement Obligations and all other amounts payable under this
Agreement and under the Application and Agreement shall be paid in full and
(iii) the Commitments shall have expired or terminated, the Agent, the Issuing
Bank and the Banks will, at the Company's request, execute and deliver to the
Company appropriate documents, without recourse and without representation or
warranty, necessary to evidence the transfer by subrogation to the Company of
an interest in the Reimbursement Obligations resulting from such payment by the
Company.
SECTION 3.06. Continuing Guaranty. This Guaranty is a
continuing guaranty and shall remain in full force and effect until payment in
full (after the Final Termination Date) of the Reimbursement Obligations and
all other amounts payable under Article II hereof and this Article III and
under the Application and Agreements.
ARTICLE IV
CONDITIONS TO EFFECTIVENESS AND TO ISSUANCE
SECTION 4.01. Conditions Precedent to Effectiveness of this
Agreement. This Agreement shall become effective as of the date (the
"Effective Date") as of which of each of the following conditions is satisfied:
(a) the Agent shall have received a counterpart of this Agreement executed and
delivered by the Company, the Agent and the Issuing Bank; (b) the Agent shall
have been notified by each Bank that such Bank has executed this Agreement and
(c) the Agent shall have received the following, each dated the date hereof, in
form and substance satisfactory to the Agent and in sufficient copies for each
Bank:
(i) An executed copy of the Foothill
Group Subordination Agreement, together with a writing
evidencing that the Banks have the benefit of the Foothill
Group Subordination Agreement,
(ii) A certificate of the Secretary or
Assistant Secretary of Company certifying as to (A) the
corporate action taken by the Company relative to this
Agreement and (B) the incumbency of the officers of the
Company authorized to sign on its behalf this Agreement and
any other documents, instruments or certificates
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required hereby, together with true signatures of such
officers, and
(iii) An opinion of Buchalter, Nemer, Fields
& Younger, a professional corporation, counsel for the
Company, in substantially the form of Exhibit B hereto.
SECTION 4.02. Conditions Precedent to Issuance of each
Letter of Credit. The obligation of the Issuing Bank to Issue each Letter of
Credit (including the initial Letter of Credit) shall be subject to the further
conditions precedent that on the date of such Issuance of such Letter of
Credit:
(a) The Agent shall have received the following,
in form and substance satisfactory to the Agent:
(i) A completed Application and
Agreement duly executed by the Account Party thereunder and
Approved by the Company, and
(ii) Such other documents (including but
not limited to, a certified copy of resolutions of the Board
of Directors of such Account Party and incumbency and
signature certificate of such Account Party) as the Agent may
reasonably request; and
(b) the following statements shall be true (and
the giving of the applicable notice by the Company in respect of such Letter of
Credit shall constitute a representation and warranty by the Company that on
the date of such Issuance such statements are true):
(i) The representations and warranties
contained in Article V (except for those contained in Section
5.22) of this Agreement are correct on and as of the date of
such Issuance of such Letter of Credit, before and after
giving effect to such Issuance, as though made on and as of
such date; and
(ii) No event has occurred and is
continuing, or would result from such Issuance of such Letter
of Credit, which constitutes an Event of Default or Default.
SECTION 4.03. Conditions Precedent to Issuance of each
Shipside Bond. The obligation of the Issuing Bank to Issue each Shipside Bond
(including the initial Shipside Bond) shall be subject to the further
conditions precedent that on the date of such Issuance of such Shipside Bond:
(a) The Agent shall have received the following,
in form and substance satisfactory to the Agent:
(i) A completed Application and Agreement
duly executed by the Account Party thereunder and Approved
by the Company, and
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<PAGE> 42
(ii) Such other documents (including but
not limited to, a certified copy of resolutions of the Board
of Directors of such Account Party and incumbency and
signature certificate of such Account Party) as the Agent may
reasonably request; and
(b) the following statements shall be true (and
the giving of the applicable notice by the Company in respect of such Shipside
Bond shall constitute a representation and warranty by the Company that on the
date of such Issuance such statements are true):
(i) The representations and warranties
contained in Article V (except for those contained in Section
5.22) of this Agreement are correct on and as of the date of
such Issuance of such Shipside Bond, before and after giving
effect to such Issuance, as though made on and as of such
date; and
(ii) No event has occurred and is
continuing, or would result from such Issuance of such
Shipside Bond, which constitutes an Event of Default or
Default.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to the Issuing
Bank, the Banks and the Agent that:
SECTION 5.01. Status and Standing. The Company is a duly
organized and validly existing corporation in good standing under the laws of
the jurisdiction of its organization, is properly licensed, has the power and
authority and the legal right to own its property and conduct the business in
which it is engaged or currently proposes to engage and is duly licensed and
qualified and in good standing under the laws of the each jurisdiction where
the failure to qualify would have a Material Adverse Effect.
SECTION 5.02. Organizational Status of Subsidiaries.
Schedule I annexed hereto correctly sets forth the name of each Subsidiary of
the Company in existence on the date hereof, its jurisdiction and form of
organization and the ownership of its Capital Interests. Each of such
Subsidiaries is duly organized and validly existing in the form organization
indicated on Schedule I, duly licensed and in good standing under the laws of
its jurisdiction of organization, and is duly licensed and qualified and in
good standing in each jurisdiction where the failure to qualify as such would
have a Material Adverse Effect.
SECTION 5.03. Location of Offices, Books and Records.
Schedule II annexed hereto completely and accurately lists all places at which
each of the Company and its Subsidiaries maintains, as of the date hereof, its
books and records relating to its Finance Receivables and the collateral
related thereto. The principal office or principal executive office of each of
the
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Company and its Subsidiaries in each jurisdiction is correctly indicated on
Schedule II as of the date hereof.
SECTION 5.04. Organizational Power and Authority. The
Company has a corporate power and authority and the legal right to execute,
deliver and perform this Agreement. The Company has taken all necessary
corporate action (including, but not limited to, the obtaining of any consent
of the holders of its Capital Interests required by law or by the
organizational documents thereof) to authorize the execution, delivery, and
performance this Agreement and to authorize the transactions contemplated
hereby and thereby.
SECTION 5.05. Enforceable Obligations. This Agreement
constitutes the legal, valid, and binding obligation of the Company enforceable
in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors rights generally, and general principles
of equity, and there are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened against, or affecting, the Company, any
Subsidiary thereof, or Foothill Group or any of their respective officers or
directors calling into question the legality, validity or enforceability
thereof.
SECTION 5.06. Absence of Conflicts. Neither the execution
and delivery of this Agreement nor consummation of the transactions herein
contemplated nor performance of or compliance with the terms and conditions
hereof will
(a) violate any law, or
(b) conflict with or result in a breach of or a
default under or result in (or give rise to any right, contingent or otherwise,
of any Person to cause) any termination, cancellation, prepayment or
acceleration of performance of, or result in the creation or imposition of (or
give rise to any obligation, contingent or otherwise, to create or impose) any
Lien upon any property of the Company or any Subsidiary of the Company pursuant
to, or otherwise result in (or give rise to any right, contingent or otherwise,
of any Person to cause) any change in any right, power, privilege, duty or
obligation of the Company or any Subsidiary under or in connection with,
(i) the articles of incorporation or
by-laws (or other constituent documents) of the Company or any
Subsidiary of the Company, or
(ii) any agreement (including, without
limitation, the Multiyear Agreement and the 364 Day Agreement)
or instrument to which the Company or any Subsidiary of the
Company is a party or by which any of them or any of their
respective properties (now owned or hereafter acquired) may be
subject or bound.
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SECTION 5.07. No Burdensome Agreements. Neither the
Company or any Subsidiary thereof is a party to any agreement or instrument or
subject to any restriction set forth in its organizational documents or
provisions relating to its Capital Interests that has a Material Adverse
Effect.
SECTION 5.08. No Material Litigation. There are no
actions, suits or proceedings pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary thereof or any of
their respective officers or directors before any court, arbitrator or
governmental or administrative body or agency that, if adversely determined in
the reasonable opinion of the Company acting in consultation with counsel,
would have a Material Adverse Effect. No injunction, writ, restraining order
or other order of any nature adverse to the Company or any Subsidiary thereof
or the conduct of their respective businesses or inconsistent with the due
consummation of any transaction contemplated by any Loan Document has been
issued by any Governmental Authority. Neither the Company nor any Subsidiary
thereof is in default under any applicable material statute, rule, order,
decree or regulation of any court, arbitrator or governmental body or agency
having jurisdiction over the Company or any Subsidiary thereof.
SECTION 5.09. Good Title to Properties. The Company and
its Subsidiaries have good and marketable title to all their respective
properties and assets, subject only to such defects in title as do not detract
materially from the value of such property or assets or impair the use thereof
in the operation of their respective businesses, and subject to no Liens of any
kind other than Liens which are expressly permitted under this Agreement.
SECTION 5.10. Margin Regulations. Neither the Company nor
any Subsidiary is engaged in the business of extending credit to others for the
purpose of purchasing or carrying any "margin stock", such term is used in
Regulation U of the Board of Governors of the Federal Reserve System, as
amended from time to time. Not more than 25 percent of the value of the
property or assets (either of the Company only or of the Company and its
Consolidated Subsidiaries) subject to the provisions of Sections 8.01 or 8.05,
or subject to any restriction contained in any agreement or instrument between
the Company and any Bank or any Affiliate of any Bank relating to Indebtedness
and which agreement or instrument is within the scope of Section 9.01(e) or
9.01(g), will be "margin stock".
SECTION 5.11. Investment Company. Neither the Company nor
any Subsidiary thereof is an "investment company," or an "affiliated person"
of, or "promoter" or "principal underwriter" for, an "investment company," as
such terms are defined in the Investment Company Act of 1940, as amended. The
performance of the transactions contemplated by this Agreement and the other
Loan Documents will not violate any provision of said Act, or any rule,
regulation or order issued by the Securities and Exchange Commission
thereunder.
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<PAGE> 45
SECTION 5.12. Disclosure. No representation or warranty
made by, and no information regarding, the Company or any Subsidiary thereof in
any Loan Document or any other document furnished from time to time in
connection herewith or therewith (other than projections or forecasts of future
financial performance), contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary to
make the statements herein or therein, in light of the circumstances under
which they are or will be made, not misleading. The projections and forecasts
of future financial performance of the Company delivered to the Agent and the
Banks will be reasonable at the time they are delivered to the Agent and the
Bank in light of then available current information. There is not a fact known
to the Company that has, or that in the future might have in the reasonable
judgment of the Company, a Material Adverse Effect, except as set forth or
referred to in this Agreement or in another document or instrument heretofore
furnished to the Agent and the Banks.
SECTION 5.13. Taxes and Claims. Each of the Company and
its Subsidiaries has filed or caused to be filed, all federal, state and local
tax returns and reports that are required to be filed and has paid all taxes
shown to be due and payable on said returns or any assessments made against it
or any of its property and all other taxes, fees or charges imposed on it or
any of its property by any Governmental Authority (other than those the amount
or validity of which are currently being contested diligently in good faith by
appropriate proceedings and in respect of which adequate reserves in conformity
with GAAP have been provided on the books of the Company or its Subsidiaries,
as the case may be); and no tax Liens (other than those the amount or validity
or which are currently being contested diligently in good faith by appropriate
proceedings and in respect of which adequate reserves in conforming with GAAP
have been provided on the books of the Company or its Subsidiaries, as the case
may be) have been filed and, to the knowledge of the Company, no claims are
being asserted with respect to any such taxes, fees or other charges. The
income taxes chargeable against the income of the Company and its Subsidiaries
are paid by the Foothill Group on consolidated income tax returns. The federal
income tax liabilities of Foothill Group and each of its Subsidiaries have been
finally determined by the Internal Revenue Service, or the time for audit has
expired, of all fiscal periods ending on or prior to December 31, 1989; all
such liabilities (including all deficiencies assessed following audit) have
been satisfied, except liabilities which would not be required to be satisfied
under the provisions of Section 6.02 hereof. Schedule III describes all tax
sharing arrangements or agreements to which the Company or any Subsidiary is a
party or is subject or bound.
Each of the Company and its Subsidiaries, to the knowledge of
the Company, has paid and discharged all lawful claims for labor, material,
supplies and anything else that might or could, if unpaid, become a Lien on any
of its properties (other than those the amount or validity of which are
currently
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<PAGE> 46
being contested diligently in good faith by appropriate proceedings and in
respect of which adequate reserves in conformity with GAAP have been provided
on the books of the Company or its Subsidiaries, as the case may be).
SECTION 5.14. Trademarks, Patents, Etc. Each of the
Company and its Subsidiaries possesses all trademarks and service marks (or has
licenses for the use thereof), trade names, copyrights, patents, licenses,
permits, approvals and consents (including, without limitation, licenses,
approvals and consents of Governmental Authorities) and rights in any thereof,
adequate for the conduct of their respective businesses as not conducted or as
currently proposed to be conducted, without conflict with the rights or claimed
rights of others.
SECTION 5.15. Consents. No consent, authorization or
action of, or filing with, any Governmental Authority or any other Person is
required to authorize, or otherwise is required of the Company or any
Subsidiary thereof in connection with, the execution, delivery, performance,
validity, or enforceability of any Loan Document or any of the instruments or
documents to be delivered pursuant to any Loan Document.
SECTION 5.16. Employee Benefit Plans. (a) None of the
Plans maintained at any time or the trusts created thereunder has engaged in
any Prohibited Transaction that could subject any such Plan or trust to a
material tax or penalty on Prohibited Transactions imposed under Code Section
4975 or ERISA Sections 502(i) or 502(1).
(b) The consummation of the transactions
contemplated hereby does not and will not involve any Prohibited Transaction
that could subject the Company or an ERISA Affiliate to any material liability,
tax or penalty imposed under Code Section 4975 or ERISA Sections 502(i) or
502(l).
(c) Neither the Company nor any ERISA Affiliate
contributes to or maintains, or since 1974 has contributed to or maintained,
any employee pension benefit plan within the meaning of Section 3(2) of ERISA,
including any employee pension benefit plan subject to Title IV of ERISA or
subject to the funding requirements of Section 412 of the Code.
(d) All Plans have at all times been operated and
maintained in substantial compliance with ERISA and applicable provisions of
the Code (including, but not limited to, Code Section 105). All Plans have
substantially complied with, and are in substantial compliance with, Code
Section 4980B and Treasury Regulations (whether proposed or final) relating
thereto. No Plan provides benefits to retired employees of the Company or such
ERISA Affiliate, except to the extent required under Code Section 4980B and
Treasury Regulations (whether proposed or final) relating thereto.
(e) Neither the Company nor any ERISA Affiliate
individually or in the aggregate, has taken actions or undergone
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events which would cause liability to arise under WARN or regulations issued
thereunder, or any applicable state law regarding employee terminations, mass
layoffs or plant closings, and neither the Company nor any ERISA Affiliate is
aware of the existence of any such actions or events.
(f) The Company and each ERISA Affiliate have
made all contributions required to be made under each Plan as of the date of
this Agreement.
SECTION 5.17. Financial Condition. The (a) consolidated
balance sheet of the Company and its Consolidated Subsidiaries, the
consolidated statements of income, cash flow, and retained earnings of the
Company and its Consolidated Subsidiaries as at the end of and for the fiscal
year ended on December 31, 1993, as certified by Ernst & Young, independent
certified public accountants, and (b) consolidated balance sheet of the Company
and its Consolidated Subsidiaries for the fiscal quarter ended March 31, 1994,
and the related consolidated statements of income, cash flow, and retained
earnings, as certified by the chief financial officer of the Company to be true
and correct, in each case heretofore furnished to the Agent and the Banks,
present fairly the financial condition of the Company and its Consolidated
Subsidiaries as at the dates of such balance sheets, and the results of its
operations for such periods. All such financial statements have been prepared
in accordance with GAAP applied on a basis consistent with that of the
comparable preceding period.
SECTION 5.18. Environmental Laws, Etc. Except to the
extent that none of the following has or would have a Material Adverse Effect:
(a) all Property heretofore, now, or hereafter
owned or operated by the Company or any Subsidiary thereof and in their
possession or over which they exercise control (including Repossessed Assets,
collectively, the "Foothill Property") complied, complies and will comply in
all material respects with all applicable federal, state and local,
environmental, health and safety statutes, guidelines, codes, ordinances and
regulations;
(b) the Foothill Property does not contain and
has not been, is not being, and will not be used to generate, manufacture,
refine, produce, store, handle, transfer, process, dispose of, or transport,
any Hazardous Materials, the effect of which would be to (i) violate any
applicable federal, state or local law or regulation or (ii) cause the
incurrence of any liability that would have a Material Adverse Effect; and
(c) there are no underground storage tanks or
surface impoundments located on, under, or within the Foothill Property that
(i) are in violation of any applicable federal, state or local law or
regulation and (ii) the cost of remediation of which (to the extent not covered
by insurance) would have a Material Adverse Effect.
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SECTION 5.19. No Default or Event of Default; Compliance
with Instruments. No event or condition has occurred and is continuing that
constitutes a Default or an Event of Default or that would constitute a Default
or Event of Default after notice or lapse of time or both. The Company and
each Subsidiary thereof is (a) in compliance with its charter instruments and
by-laws and (b) in substantial compliance with the terms of all agreements and
instruments of any kind to which it is a party or subject (including but not
limited to the Multiyear Agreement, the 364 Day Agreement, other agreements to
repay borrowed money, and guarantees, leases of real or personal property as
lessor or lessee, contracts for future purchase or delivery of goods or
rendering of services, powers of attorney, distribution arrangements, patent
license agreements, collective bargaining agreements, employment agreements,
bonus, pension or retirement plans, or vacation pay, insurance or welfare
agreements), other than agreements or instruments, the breach or termination of
which, singly and in the aggregate, would not have a Material Adverse Effect;
no party is in default thereunder and no event has occurred that, with the
giving of notice or the passage of time or both, would constitute such a
default.
SECTION 5.20. Solvency. The Company and each of its
Subsidiaries is Solvent, and neither the Company nor any Subsidiary thereof, as
a result of the transactions contemplated hereby or by any other Loan Document,
will (a) become not Solvent, (b) be left with unreasonably small capital, or
(c) have liabilities (including contingencies) in excess of either the fair
value or the then fair salable value of its assets.
SECTION 5.21. [Deliberately omitted].
SECTION 5.22. No Material Adverse Change. As of the
Effective Date, there has not occurred since December 31, 1993, a material
adverse change in the business, operations, condition (financial or otherwise)
or prospects of the Company and its Subsidiaries taken as a whole; there has
not occurred any other event, act or condition which could have a Material
Adverse Effect; and there is not threatened, with a reasonable likelihood of
occurrence, either an adverse change since March 31, 1994, in the business,
operations, condition (financial or otherwise) or prospects of the Company and
its Subsidiaries taken as a whole or any other event, act or condition which
could have a Material Adverse Effect.
SECTION 5.23. Insurance. The Company and each Subsidiary
maintain with financially sound and reputable insurers (not related to or
affiliated with the Company) insurance with respect to their properties and
business and against at least such liabilities, casualties and contingencies
and in at least such types and amounts as is customary in the case of
corporations engaged in the same or a similar business or having similar
properties similarly situated.
SECTION 5.24. Ownership and Subsidiaries. The Company is a
wholly-owned Subsidiary of Foothill Group. The Company has
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no Subsidiaries except FCC Holdings. There are no options, warrants, calls,
subscriptions, conversion rights, exchange rights, preemptive rights or other
rights, agreements or arrangements (contingent or otherwise) which may in any
circumstances now or hereafter obligate any Subsidiary to issue any shares of
its capital stock.
SECTION 5.25. Partnerships and Other Affiliated Entities.
Neither the Company nor any Subsidiary thereof (a) is or has agreed or
otherwise has a duty to become a general partner of any person or otherwise
generally liable for or on account of the liabilities, acts or omissions of
another Person, (b) has agreed or otherwise has a duty to make capital
contributions to or on account of another Person, or (c) has an interest in
another Person or has or may have a liability to or on account of such Person
which interest or liability could reasonably be expected to have a Material
Adverse Effect.
SECTION 5.26. Other Debt.
(a) Each offering and sale of Senior Indebtedness
and Subordinated Debt has been and will be made in accordance with the
applicable terms of the Securities Act of 1933, as amended (including
applicable rules and regulations thereunder), the Securities Exchange Act of
1934, as amended (including applicable rules and regulations thereunder),
applicable state securities and "blue sky" laws and other applicable laws.
(b) All of the obligations of the Company
hereunder constitute and will constitute "Superior Indebtedness" or "Senior
Indebtedness" within the meaning ascribed to such term in all loan agreements,
indentures, and other agreements relating to, and all notes evidencing,
Subordinated Debt. The subordination provisions of such agreements and
instruments relating to or evidencing Subordinated Debt are enforceable against
Foothill Group and the holders from time to time (including any pledgee thereof
and any trustee or other representative of such holders) of the Subordinated
Debt in accordance with their respective terms.
SECTION 5.27. Account Parties. No Account Party is an
Affiliate or a Subsidiary of the Company or Foothill Group.
SECTION 5.28. Collateral. The subrogation rights of the
Company against each Account Party for payments under its guaranty in Article
III hereof are fully supported by collateral pledged to the Company by such
Account Party under existing credit facilities.
SECTION 5.29. Letter of Credit and Shipside Bond Liability.
The sum of the aggregate Letter of Credit Liability relating to the Letters of
Credit plus the aggregate Shipside Bond Liability relating to Shipside Bonds
does not exceed 60% of Consolidated Net Worth.
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SECTION 5.30. Company Credit Decision. The Company shall
have the sole and independent responsibility to perform such credit analysis
and other investigation in respect of each Account Party, and to obtain such
documents and information, as it deems necessary and appropriate to make its
own decision to Approve an Application and Agreement. The Company is not
relying, and shall not rely, on any Bank or the Issuing Bank to make any
investigation at any time of any Account Party or to disclose to the Company at
any time any information concerning any Account Party. The Company understands
and agrees that (a) the purpose and structure of the financing and the guaranty
by the Company contemplated by this Agreement is to prevent any Bank or the
Issuing Bank from having to make any investigation at any time of any Account
Party or from having to disclose to the Company at any time any information
concerning any Account Party and (b) the parties hereto have agreed to shift to
the Company the entire duty and risk of investigation and disclosure concerning
each Account Party.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any Letter of Credit Liability or any Shipside Bond
Liability shall exist or any Bank shall have any Commitment hereunder or the
Company shall have any obligation to pay any amount to the Agent, the Issuing
Bank or any Bank hereunder, the Company covenants to the Issuing Bank, the
Banks and the Agent as follows:
SECTION 6.01. Reporting and Information Requirements.
(a) Annual Audit Reports. As soon as
practicable, and in any event within 90 days after the close of each fiscal
year of the Company, the Company shall furnish to the Banks:
(i) consolidated and consolidating
statements of income, retained earnings and cash flow of
Foothill Group and its Consolidated Subsidiaries for such
fiscal year and consolidated and consolidating balance sheets
of Foothill Group and its Consolidated Subsidiaries as of the
close of such fiscal year, and notes to each, and
(ii) consolidated and consolidating
statements of income, retained earnings and cash flow of the
Company and its Consolidated Subsidiaries for such fiscal year
and a consolidated balance sheet of the Company and its
Consolidated Subsidiaries as of the close of such fiscal year,
and notes to each,
all in reasonable detail, setting forth in comparative form the corresponding
figures of the preceding fiscal year, and all accompanied by a report thereon
of Ernst & Young, or other independent public accountants of recognized
national standing selected by the Company, containing an opinion unqualified as
to
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scope limitations imposed by the Company, unqualified as to the Company being a
going concern and otherwise without qualification except as therein noted, to
the effect that the consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company and its
Subsidiaries as of the end of the fiscal year being reported on and that the
consolidated results of the operations and cash flows for said year are in
conformity with generally accepted accounting principles and that the
examination of such accountants in connection with such financial statements
has been conducted in accordance with generally accepted auditing standards and
included such tests of the accounting records and such other auditing
procedures as said accountants deemed necessary in the circumstances;
(b) Quarterly Reports. As soon as practicable,
and in any event within 45 days after the close of each of the first three
quarters of each fiscal year of the Company, the Company shall furnish to the
Banks:
(i) unaudited consolidated and
consolidating statements of income, retained earnings and cash
flows for Foothill Group and its Consolidated Subsidiaries for
such fiscal quarter and for the period from the beginning of
such fiscal year to the end of such fiscal quarter, and
unaudited consolidated and consolidating balance sheets of
Foothill Group and its Consolidated Subsidiaries as of the
close of such fiscal quarter, and exhibits to each, and
(ii) unaudited consolidated and
consolidating statements of income, retained and cash flow for
the Company and its Consolidated Subsidiaries for such fiscal
quarter and for the period from the beginning of such fiscal
year to the end of such fiscal quarter, and an unaudited
consolidated and consolidating balance sheet of the Company
and its Consolidated Subsidiaries as of the close of such
fiscal quarter, and exhibits to each.
all in reasonable detail, setting forth in comparative form the corresponding
figures for the same period or as of the same date during the preceding fiscal
quarter (except for the balance sheets, which shall set forth in comparative
form the corresponding balance sheets as of the prior fiscal year end), and
(except in the case of such consolidating statements) certified by an
Authorized Representative of the Company as presenting fairly the financial
position of the Company and its Consolidated Subsidiaries as of the end of such
fiscal quarter, and the results of their operations and the changes in their
financial position for such fiscal quarter, in conformity with GAAP, subject to
year-end audit adjustments.
(c) Compliance Certificates. Within 90 days
after the end of each fiscal year of the Company and within 45 days after the
end of each of the first three quarters of each
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fiscal year, the Company shall deliver to the Banks a certificate dated as of
the end of such fiscal year or quarter, signed on behalf of the Company by its
Authorized Representative (i) stating that as of the date thereof no Default or
Event of Default has occurred and is continuing or exists, or if a Default or
Event of Default has occurred and is continuing or exists, specifying in detail
the nature and period of existence thereof and any action with respect thereto
taken or contemplated to be taken by the Company, (ii) stating in reasonable
detail the information and calculations necessary to establish compliance with
the provisions of Article VII and Sections 8.02(a)(vii), 8.02(a)(viii), 8.03
and 8.08 hereof and (iii) stating that the signer has personally reviewed this
Agreement and that such certificate is based on an examination made by or under
the supervision of the signer sufficient to assure that such certificate is
accurate.
(d) Accountant's Certificate. Each set of
consolidated statements and balance sheet of the Company delivered pursuant to
Section 6.01(a) hereof shall be accompanied by a certificate or report dated as
of the date of such statements and balance sheet by the accountants who
certified such statements and balance sheet stating in substance that they have
reviewed this Agreement and that in making the examination necessary for their
certification of such statements and balance sheet they did not become aware of
any Default or Event of Default, or if they did become so aware, such
certificate or report shall state the nature and period of existence thereof.
(e) Other Reports and Information. Promptly upon
the issuance or filing thereof, the Company shall deliver to the Banks a copy
of all reports that the Company, any Subsidiary thereof or the Foothill Group
shall file with the Securities and Exchange Commission (or any successor
thereto), any other Governmental Authority with responsibility for regulating
the business of the Company, any Subsidiary thereof, or Foothill Group or any
securities exchange, and all reports, notices or statements sent to all holders
of Capital Interests in or Indebtedness of the Company, any Subsidiary thereof
or Foothill Group. The Company shall provide the Banks with copies of any
certificates or notices furnished to any party in respect of any optional
redemption of, or default under, any Senior Indebtedness (other than arising
under the Multiyear Agreement and the 364 Day Agreement) or Subordinated Debt,
which notice or certificate shall be delivered concurrently with the Company's
delivery of such certificate or notice to such other party.
(f) Net Receivable Information. As soon as
practicable and in any event within 45 days after the close of each of the
first three fiscal quarters of the Company and within 90 days after the close
of the fiscal year of the Company, the Company shall furnish to the Banks a
report (i) describing items included in the Net Amount of Finance Receivables
and reports on Non-Performing Assets, in any case in excess of $1,000,000, (ii)
describing the type and estimated market value of items included in Purchased
Receivables in excess of $2,000,000, (iii)
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describing the type and estimated market value of items included in Purchased
Receivables which are not secured or are not fully secured, (iv) listing each
new Finance Receivable having a Net Amount in excess of $2,000,000 closed
during such fiscal quarter, including a designation as to the type of Finance
Receivable and a description of the collateral, (v) identifying the ten largest
obligors by Net Amount of Finance Receivables, including a designation as to
the type of Finance Receivable and a description of the collateral and (vi)
listing all outstanding letters of credit and guarantees in excess of
$1,000,000 as of the end of such fiscal quarter or fiscal year.
(g) Further Information. The Company will
promptly furnish to the Banks such other information and in such form as any
Bank may reasonably request.
SECTION 6.02. Taxes and Claims. The Company and its
Subsidiaries shall pay and discharge (a) all taxes, assessments and
governmental charges upon or against them or their respective properties or
assets prior to the date on which penalties attach thereto, unless and to the
extent that such charges are being contested diligently in good faith by
appropriate proceedings and adequate reserves in conformity with GAAP have been
provided therefor on the books of the Company or such Subsidiary, as the case
may be, and (b) all lawful claims, whether for labor, materials, supplies,
services or anything else that might or could, if unpaid, become a Lien or
charge upon the properties or assets of the Company or any Subsidiary thereof,
which Lien would not be permitted under this Agreement, unless and to the
extent such claims are being contested diligently in good faith by appropriate
proceedings and adequate reserves in conformity with GAAP have been provided
therefor on the books of the Company or such Subsidiary.
SECTION 6.03. Insurance. The Company and its Subsidiaries
shall (a) keep all of their respective properties adequately insured at all
times with responsible insurance carriers against loss or damage by fire ad
other hazards, and (b) maintain adequate insurance at all times with
responsible carriers against liability on account of damage to persons and
property and under all applicable worker's compensation laws. For the purposes
of this Section 6.03, insurance shall be deemed adequate if the same is not
less extensive in coverage and amount than is customarily maintained by other
persons engaged in the same or similar business similarly situated.
SECTION 6.04. Books and Records. The Company and its
Subsidiaries shall maintain at all times true and complete books, records and
accounts in which true and correct entries shall be made of its transactions in
accordance with GAAP consistently applied and in compliance with the
regulations of any Governmental Authority having jurisdiction over it.
SECTION 6.05. Properties in Good Condition. The Company and
its Subsidiaries shall keep their respective properties in good repair, working
order and condition (subject
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to such wear and tear as may occur in the ordinary course of business) and,
from time to time, make all needful and proper repairs, renewals, replacements,
additions and improvements thereto, so that the business carried on may be
properly and advantageously conducted at all times in accordance with prudent
business management.
SECTION 6.06. Inspection. The Company shall allow any
representative of the Agent or any Bank to visit and inspect its properties and
the properties of any Subsidiary of the Company, to examine and audit the books
of account and other records and files of the Company and its Subsidiaries to
make copies thereof and to discuss the affairs, business, finances and accounts
of the Company and its Subsidiaries with their respective officers and
employees, all at such reasonable times and as often as the Agent, the Issuing
Bank or such Bank may request. Audits and inspections by or at the request of
any Bank shall be at the expense of such Bank, and audits and inspections by or
on behalf of the Agent shall be at the expense of all the Banks, except that,
if an Event of Default shall have occurred and be continuing, all such audits
and inspections by the Agent shall be at the expense of the Company. Any Bank
may request an audit and inspection by the Agent if an Event of Default shall
have occurred and be continuing.
SECTION 6.07. Pay Indebtedness and Perform Other Covenants.
The Company shall make full and timely payments of the principal of and
interest on all amounts owed by the Company to the Agent, the Issuing Bank or
the Banks, whether now existing or hereafter arising, under the Agreement or
otherwise, and the Company and its Subsidiaries shall comply duly with all the
terms and covenants contained in each of the instruments and documents
furnished in connection with or pursuant to the Loan Documents or otherwise,
all at the times and places and in the manner set forth therein.
SECTION 6.08. Compliance With Laws. The Company and its
Subsidiaries shall comply with all applicable laws and regulations, including
but not limited to, federal, state and local laws and regulations relating to
commercial lending, disclosure, collection and licensing, where the failure so
to comply would have, in the opinion of management in consultation with
counsel, a Material Adverse Effect.
SECTION 6.09. Notice of Certain Events. Promptly, but in no
event later than ten Business Days after obtaining knowledge thereof, the
Company shall give written notice to the Agent and the Banks of:
(a) any litigation, including arbitrations, and
any investigations or proceedings before any Governmental Authority brought
against the Company or any Subsidiary thereof (whether or not the claim is
considered to be covered by insurance) that might, if determined adversely,
have a Material Adverse Effect, or where the amount involved, when added
together with all other amounts involved in any other litigation,
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investigation, arbitration or proceeding affecting the Company or any
Subsidiary thereof, might have a Material Adverse Effect;
(b) any written notice of a violation received by
the Company or any Subsidiary thereof from any Governmental Authority that, if
such violation were established, might have a Material Adverse Effect; and
(c) any Default or Event of Default, specifying
the nature and extent thereof and specifying the course of action to be taken
by the Company to cure such Default or Event of Default.
SECTION 6.10. Environmental Laws, Etc. (a) Except to the
extent that the following does not have and would not have, in the reasonable
opinion of management, a Material Adverse Effect, the Company and each
Subsidiary thereof shall: (i) keep all Property owned or operated by them or in
their possession or over which they exercise control free of Hazardous
Materials, (ii) comply with all requirements of all applicable Federal, state
and local environmental, health, safety and sanitation laws, ordinances,
regulatory and administrative authorities with respect thereof, (iii) not use
any Property to generate, manufacture, refine, transport, treat, store, handle,
dispose, transfer, produce, process or in any manner deal with, Hazardous
Materials, (iv) not knowingly make or acquire any Finance Receivable secured by
Property that has been used to generate, manufacture, refine, transport, treat,
store, handle, dispose, transfer, produce, process, or deal in any manner with
Hazardous Materials except upon conducting an environmental liability review
that is satisfactory in the reasonable opinion of management, (v) not knowingly
foreclose on or repossess any Property that has been so used, (vi) not
knowingly cause or permit the installation or placement of Hazardous Materials
onto any Property or onto any adjacent property or suffer the presence of
Hazardous Materials on any Property. The Company and its Subsidiaries shall
undertake promptly and pursue diligently to complete appropriate remedial clean
up action in the event of any release of Hazardous Materials on, upon or into
any property owned or operated by any of them or any Property adjacent thereto.
(b) The Company agrees to provide the Agent with
copies of any notifications of releases of Hazardous Materials that the Company
or any Subsidiary thereof either gives to or receives from any Governmental
Authority or any other Person with respect to any Property owned or operated by
any thereof or securing any Finance Receivable or Purchased Receivables, except
where such release could not have a Material Adverse Effect. Such copies shall
be sent to the Agent concurrently with the mailing or delivery of such copies
of the Governmental Authority.
SECTION 6.11. Further Assurances. Upon the request of either
the Agent or the Required Banks, the Company shall duly execute and deliver, or
cause to be duly executed and delivered, to the Agent (without cost to the
Agent, the Issuing Bank or the
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Banks) such further instruments and do and cause to be done such further acts
as may be reasonably necessary or proper in the opinion of either the Agent or
such Banks to carry out more effectively the provisions and purposes of this
Agreement and the other Loan Documents.
SECTION 6.12. ERISA. The Company and each ERISA Affiliate
shall comply with, and shall operate and maintain each Plan in compliance with,
ERISA and all applicable provisions of the Code.
SECTION 6.13. Maintain Existence. The Company and each
Subsidiary thereof shall do or cause to be done all things necessary to
preserve, renew and keep in full force and effect:
(a) their current form of organization;
(b) their good standing in their jurisdiction of
organization;
(c) their qualification and good standing in each
jurisdiction in which the ownership of their properties or the nature of their
business or both makes such qualification necessary or desirable; and
(d) all their other rights, licenses, permits and
franchises,
the change, termination or loss of which might (other than as specified in
clause (a) above) have a Material Adverse Effect; and shall conduct and operate
their respective businesses in substantially the manner in which they currently
are conducted and operated, without material alteration or change in the nature
of such business; provided, however, that their merger of FCC Holdings into the
Company shall not be deemed in and of itself to have a Material Adverse Effect.
SECTION 6.14. Company Credit Analysis. The Company shall,
independently and without reliance on any Bank, the Agent or the Issuing Bank,
make such credit analysis and other investigations, and request such documents
and information, as it deems necessary and appropriate to make its own credit
decision to Approve each Application and Agreement.
ARTICLE VII
FINANCIAL COVENANTS
So long as any Letter of Credit Liability or any Shipside Bond
Liability shall exist or any Bank shall have any Commitment hereunder or the
Company shall have any obligation to pay any amount to the Agent, the Issuing
Bank or any Bank hereunder, the Company covenants to the Banks, the Issuing
Bank and the Agent as follows:
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SECTION 7.01. Adjusted Consolidated Net Worth. Adjusted
Consolidated Net Worth shall not be less than $75,000,000 at any time.
SECTION 7.02. Indebtedness. (a) Outstanding Senior
Indebtedness (other than Guaranties) shall not exceed an amount equal to 340%
of the sum of (i) Adjusted Consolidated Net Worth, plus (ii) outstanding
Subordinated Debt.
(b) Outstanding Subordinated Debt shall not
exceed an amount equal to 125% of Adjusted Consolidated Net Worth.
(c) Outstanding Senior Subordinated Debt shall
not exceed an amount equal to 60% of the sum of (i) Adjusted Consolidated Net
Worth, plus (ii) outstanding Junior Subordinated Debt.
Notwithstanding the foregoing, the Company agrees that the
Banks shall have the benefit of the covenants contained in Section 9.6A of the
Loan Agreement dated as of November 10, 1980, between the Company and each of
the lenders named therein; provided that the Banks shall only be entitled to
the benefits of said Section 9.6A so long as said sections have not been
amended to be less restrictive than Section 7.02 hereof or any notes issued
under the Loan Agreement dated as of November 10, 1980, shall remain
outstanding; provided, however, the Company shall at all times be and remain
subject to the provisions of Section 7.02 hereof.
SECTION 7.03. Unused Committed Bank Credit Facilities. The
sum of (i) the aggregate outstanding face amount of commercial paper issued by
the Company and (ii) the aggregate outstanding principal amount of loans
permitted by Section 8.02(a)(ii)(B)(II) hereof shall not exceed the aggregate
unborrowed amount available to the Company at such time under committed credit
facilities.
SECTION 7.04. Purchased Receivables. The Net Amount of
Purchased Receivables shall not exceed $75,000,000.
SECTION 7.05. Industry Concentration. The aggregate Net
Amount of all Finance Receivables owed by all borrowers in any single industry,
as defined by two-digit SIC codes, shall not exceed an amount equal to 10% of
Consolidated Assets at the end of any two consecutive fiscal quarters of the
Company. Notwithstanding the foregoing, Wholesale Trade Durable Goods (SIC
Code 50) and Wholesale Trade Non-Durable Goods (SIC Code 51) shall be excluded
from the above limitation.
SECTION 7.06. Settlement Securities. The aggregate book
value (as measured by original cost) of all Settlement Securities granted to
and held by the Company or any of its Subsidiaries shall not exceed 7.5% of
Consolidated Assets.
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ARTICLE VIII
NEGATIVE COVENANTS
So long as any Letter of Credit Liability or any Shipside Bond
Liability shall exist or any Bank shall have any Commitment hereunder or the
Company shall have any obligation to pay any amount to the Agent, the Issuing
Bank or any Bank hereunder, the Company covenants to the Bank, the Issuing Bank
and the Agent as follows:
SECTION 8.01. Liens. The Company shall not, and shall not
permit any Subsidiary to, at any time create, incur, assume or suffer to exist
any Lien on any of its property or assets, tangible or intangible, now owned or
hereafter acquired, or agree or become liable to do so, except:
(a) Liens on Property existing on the Effective
Date which secure Indebtedness in an aggregate amount of less than $100,000;
(b) Liens constituting renewals, extensions or
replacements of Liens permitted by clause (a) above, provided that the
principal amount of the Indebtedness secured by any such new Lien does not
exceed the principal amount of the Indebtedness being renewed, extended or
refunded at the time of renewal, extension or refunding thereof and that such
new Lien attaches only to the same property subject to such earlier Lien;
(c) Liens securing taxes, assessments or
governmental charge or levies, or the claims or demands of materialmen,
mechanics, carriers, workmen, repairmen, warehousemen, landlords and other like
Persons, not yet delinquent or that are being contested diligently in good
faith by appropriate proceedings and in respect of which adequate reserves in
conformity with GAAP have been provided on the books of the Company or the
applicable Subsidiary thereof;
(d) other Liens (including pledges or deposits in
accordance with worker's compensation laws), incidental to the conduct of its
business or the ownership of its property and assets, that are not incurred in
connection with the borrowing of money or the obtaining of advances or credit,
and that in the aggregate do not detract materially from the value of its
property or assets, or materially impair the use thereof in the operation of
its business;
(e) attachment, judgment and other similar Liens
arising in connection with court proceedings, provided that execution or other
enforcement of such Liens is effectively stayed, the claims secured thereby are
being contested diligently in good faith by appropriate proceedings and
adequate reserves in conformity with GAAP have been provided on the books of
the Company or the applicable Subsidiary thereof;
(f) purchase money Liens on tangible personal
property securing all or part of the purchase price thereof
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payable by the Company or a Subsidiary thereof (including, without limitation,
tangible personal property acquired to be leased to customers of the Company or
any Subsidiary thereof in the ordinary course of business) and Liens (whether
or not assumed) existing in property at the time of purchase thereof by the
Company or any Subsidiary thereof, as the case may be; provided that each such
Lien is confined solely to the property so purchased, improvements thereto and
proceeds thereof;
(g) zoning restrictions, easements, minor
restrictions on the use of real property, minor irregularities in title thereto
and other minor Liens that do not secure the payment of money or the
performance of an obligation and that do not in the aggregate materially
detract from the value of a property or asset to, or materially impair its use
in the business of, the Company or any Subsidiary thereof;
(h) Liens on assets of the Company acquired by
the Company as a result of foreclosures or deeds in lieu relating to collateral
securing extensions of credit by the Company made in the ordinary course of
business; provided, that in each such case such Lien is limited to such
acquired asset; and
(i) Liens (exclusive of those described in
subparagraphs (a) through (h) above) that secure or represent the incurring of
Indebtedness the repayment of which in the aggregate for the Company and its
Subsidiaries does not exceed $100,000 per fiscal year of the Company.
In no event shall this Section 8.01 be construed to permit any Lien imposed by,
or required to be granted pursuant to, ERISA or any environmental law or any
Lien on Capital Interests of any direct or indirect Subsidiary of the Company.
SECTION 8.02. Indebtedness. (a) The Company shall not, and
shall not permit any Subsidiary thereof to, create, incur, assume or suffer to
exist, contingently or otherwise, any Indebtedness, except:
(i) Indebtedness arising (A) hereunder
or under any of the other Loan Documents and (B) under the
Multiyear Agreement and the 364 Day Agreement and the
promissory notes issued by the Company thereunder;
(ii) the following other Senior
Indebtedness:
(A) Permitted Senior Debt, and
(B) subject to compliance with
the requirements of Section 7.03 hereof,
(I) Indebtedness evidenced by
commercial paper issued by the Company,
(II) Indebtedness in respect of
loans under uncommitted credit facilities
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extended by any financial institution
provided that, the covenants, defaults and
other requirements applicable to such
Indebtedness are no more restrictive upon the
Company and its Subsidiaries than those
contained in the Loan Documents;
(iii) Permitted Subordinated Debt;
(iv) Indebtedness secured by a Lien
described in subsections (f) or (h) of Section 8.01 hereof;
provided that any such Indebtedness that is secured by a Lien
described in such subsection (h) is not assumed by the Company
or any Subsidiary thereof;
(v) unsecured accounts payable and other
current liabilities incurred in the ordinary course of
business other than liabilities that are for money borrowed or
are evidenced by bonds, debentures, notes or other similar
instruments;
(vi) obligations to return cash
collateral or security deposits taken as collateral for loans
and leases extended by the Company in the ordinary course of
its business;
(vii) the following other Indebtedness:
(A) contingent liabilities arising
from the endorsement of negotiable or other
instruments for deposit or collection or similar
transactions in the ordinary course of business;
(B) Indebtedness in respect of
letters of credit and guarantees, whether (I) issued
directly by the Company or by a financial institution
for the account of the Company or of third party
customers of the Company, in either case fully
supported by collateral pledged to the Company by
third parties under existing credit facilities,
issued in the ordinary course of the Company's
business under usual customary terms for the account
of persons who are not Affiliates or Subsidiaries of
the Company or Foothill Group or (II) issued by a
financial institution for the account of the Company
to secure or support interest rate swaps, caps,
collars or other interest rate risk management
contracts entered into by the Company, provided, the
aggregate contingent liability of the Company under
such letters of credit and guarantees does not at any
time exceed an amount equal to 60% of Consolidated
Net Worth at such time;
(C) indemnities by the Company or
any Subsidiary thereof of the liabilities of its
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directors or officers pursuant to provisions
contained in its articles of incorporation or
by-laws or as otherwise permitted by applicable
law; and
(viii) advances to, and other Indebtedness
of, any Subsidiary of the Company owed to or held by the
Company, provided that the aggregate of all such advances and
other Indebtedness at any time outstanding does not exceed an
amount equal to 6% of Consolidated Net Worth at such time.
(b) The Company shall not, and shall not permit
any Subsidiary thereof to, enter into any arrangements, directly or indirectly,
with any Person, whereby the Company or any Subsidiary thereof shall sell or
transfer any property, whether now owned or hereafter acquired, used or useful
in its business in connection with the rental or lease of the property so sold
or transferred or of other property that the Company or any Subsidiary thereof
intends to use for substantially the same purpose or purposes as the property
so sold or transferred.
SECTION 8.03. Restricted Payments. (a) the Company, on a
consolidated basis with its subsidiaries, shall not make, or commit to make,
any Restricted Payment if after giving effect to the proposed Restricted
Payment, at the date of declaration in the case of a dividend or at the date of
distribution in the case of any other proposed Restricted Payment (each such
date, as the case may be, being herein called the "Computation Date"),
(i) the sum of
(A) the aggregate amount of all
dividends (other than dividends payable solely in
Capital Interests of the Company) declared during the
period commencing January 1, 1994, and ending on the
Computation date (herein called the "Computation
Period"), plus
(B) the aggregate amount of all
other Restricted Payments made during the Computation
Period (and any commitments for other Restricted
Payments during the Computation Period and
outstanding on the Computation Date)
exceeds $15,326,000 plus 50% (or, in the case of a deficit,
minus 100%) of Consolidated Net Income for the Computation
Period;
(ii) the sum of all such Restricted Payments
for the current fiscal year exceeds Consolidated Net Income
for the immediately preceding fiscal year; and
(iii) at the time of such Restricted Payment
and immediately after giving effect thereto, a Default
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or Event of Default shall have occurred and be continuing.
(b) Notwithstanding the foregoing restrictions of
this Section 8.03, the Company may make an optional payment in respect of any
outstanding Subordinated Debt in exchange for, or out of the net proceeds of
the substantially concurrent sale of, its Capital Interests or other
Subordinated Debt, and no such optional payment shall be included in any
computation for the above subsection (a).
SECTION 8.04. Investments. The Company shall not make or
obligate itself to make, and shall not permit any Subsidiary to make or
obligate itself to make any Restricted Investment, except:
(a) trade credit extended, and loans and advances
extended to subcontractors or suppliers, under usual and customary terms in the
ordinary course of business;
(b) advances to employees to meet expenses
incurred by such employees in the ordinary course of business;
(c) subject to Section 8.10 hereof, credit
extended under usual and customary terms in the ordinary course of the
Company's business to Persons who are not Affiliates or Subsidiaries of the
Company or Foothill Group;
(d) subject to Section 7.06 hereof, Settlement
Securities;
(e) Capital Interests in Persons that, as of the
Effective Date, are Subsidiaries;
(f) advances by the Company to, and other
Indebtedness held by the Company of, any Subsidiary thereof; provided that such
advances and other Indebtedness are permitted pursuant to Section 8.02(a)(viii)
hereof; and
(g) subject to Section 7.04 hereof, Public Debt
Securities and Non-Public Debt Instruments.
SECTION 8.05. Merger, Consolidation, Sale and Transfer of
Assets. (a) The Company shall not, and shall not permit any Subsidiary thereof
to, enter into any transaction of merger, consolidation, partnership, or joint
venture with, or transfer, sell, assign, lease, or otherwise dispose of their
respective properties or assets to any Person, or purchase all or a substantial
portion of the properties or assets of any other Person from such Person, other
than in the ordinary course of business except that:
(i) The Company may make cash
acquisitions of secured commercial finance or leasing
portfolios in an amount, in any fiscal year, up to 10% of
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Consolidated Assets as of the end of the previous fiscal year;
(ii) The Company may sell or dispose of
assets, other than in the ordinary course of business, in an
amount, in any fiscal year, up to 2.5% of Consolidated Assets
as of the end of the previous fiscal year; and
(iii) Any Subsidiary of the Company may
consolidate or merge into the Company, provided that the
Company is the survivor of any such consolidation or merger.
(b) The Company shall not, and shall not permit
any Subsidiary thereof to, sell to any Person (other than the Company or any
Subsidiary thereof) any Capital Interests in any Subsidiary of the Company
owned by the Company or any other Subsidiary thereof.
SECTION 8.06. Permitted Business. The Company shall not
engage in any business which is substantially different from the business of
secured commercial financing and leasing. FCC Holdings shall only engage in
its business of owning, operating and liquidating Repossessed Assets.
SECTION 8.07. Amendments of Agreements. The Company shall
not amend, modify or change, in any material respect, any of the terms of its
Subordinated Debt if after giving effect to such modification, such
Subordinated Debt would fail to qualify as Permitted Subordinated Debt if newly
issued upon such modified terms (other than because of its then remaining
maturity and weighted average life to maturity). The Company shall not amend,
modify, or change any of the terms of the subordination provisions applicable
to any Subordinated Debt. The Company will not amend, modify or change in any
material respect any of the terms of its Senior Indebtedness if, after giving
effect to such modification, such Senior Indebtedness would fail to qualify as
Permitted Senior Debt if newly issued upon such modified terms.
SECTION 8.08. Transactions with Affiliates. (a) Neither the
Company nor any Subsidiary thereof shall enter into, or cause, suffer, or
permit to exist, any transactions, including, without limitation, the purchase,
sale, lease or exchange of any property or the rendering of any service, with
any Affiliate, on terms that are less favorable to it than those that would be
obtainable at the time from any Person that is not such an Affiliate.
(b) Neither the Company nor any Subsidiary
thereof shall make any payments to or on behalf of, or transfer funds to,
Foothill Group or any Subsidiary thereof, except that if no Default or Event of
Default has occurred and is continuing or exists or would occur or exist as a
result thereof:
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(i) the Company and its Subsidiaries may
pay allocated administrative overhead expenses in an aggregate
amount not to exceed 2% of Total Revenues per fiscal year of
the Company, to the extent charged to the Company and its
Subsidiaries by Foothill Group;
(ii) the Company and its Subsidiaries may
pay taxes chargeable, on the basis of GAAP, to the Company and
such Subsidiaries in accordance with the tax sharing
arrangements described on Schedule III;
(iii) subject to the provisions of the
Foothill Group Subordination Agreement, the Company may make
regularly scheduled payments on account of the Foothill Group
Subordinated Debt; and
(iv) the Company may pay dividends on its
Capital Interests held by Foothill Group and other Restricted
Payments to the extent such payments otherwise are permitted
under the provisions of Section 8.03 hereof.
(c) The Company and its Subsidiaries may carry
out such transactions with its Affiliates as are described on Schedule IV
hereto.
SECTION 8.09. Inconsistent Agreements. The Company shall
not, and shall not permit any Subsidiary thereof to, enter into any agreement
that contains any provisions that would be violated or breached by any Issuance
of any Letter of Credit hereunder or by the performance by the Company or any
Subsidiaries of their respective obligations under any of the Loan Documents or
by the granting of any security for the pro rata benefit of the holders of the
obligations of the Company hereunder and other Senior Indebtedness on a pari
passu basis. The Company shall not, and shall not permit any Subsidiary
thereof to, enter into, become or remain subject to any agreement or instrument
to which the Company or such Subsidiary is a party or by which either of them
or any of their respective properties (now owned or hereafter acquired) may be
subject or bound that would prohibit or require the consent of any Person to
any amendment, modification or supplement to any of the Loan Documents.
SECTION 8.10. Borrower Concentration. The Company will not
enter into any lending arrangement with any borrower if, immediately after the
consummation of such lending arrangement and after giving effect thereto: (a)
there shall be more than ten borrowers for which the aggregate principal amount
of all loans, letters of credit, guarantees and other obligations by the
Company to each such borrower exceeds 10% of Consolidated Capital Funds or (b)
the aggregate principal amount of all loans, letters of credit, guarantees and
other obligations by the Company to such borrower would exceed 15% of
Consolidated Capital Funds.
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SECTION 8.11. Subsidiaries. The Company shall not, and shall
not permit any Subsidiary thereof to, undertake or cause the incorporation or
organization of any Subsidiaries.
SECTION 8.12. Consolidated Tax Return. The Company shall
not, and shall not suffer any Subsidiary thereof to, file or consent to the
filing of any consolidated income tax return with any Person other than
Foothill Group and its Subsidiaries or to pay income tax liabilities otherwise
than in accordance with the tax sharing arrangements described on Schedule III.
SECTION 8.13. Compliance with ERISA. The Company shall not
permit or suffer to exist any Prohibited Transaction involving any of the Plans
or any trust created thereunder that would subject the Company or any ERISA
Affiliate to a material tax or penalty on Prohibited Transactions imposed under
Code Section 4975 or ERISA Sections 502(i) or 502(1); fail to pay to any Plan
any required contribution under the terms of such Plan; permit or suffer to
exist any liability under Code Section 4980B or Treasury Regulations (whether
proposed or final) relating thereto; or permit or suffer to exist any tax or
penalty for failure to comply with the requirements of Title of ERISA, which
singly or in the aggregate would result in any material liability, tax or
penalty to the Company and/or any ERISA Affiliate.
ARTICLE IX
EVENTS OF DEFAULT
SECTION 9.01. Events of Default. An "Event of Default" means
the occurrence or existence of one or more of the following events or
conditions (whatever the reason for such Event of Default and whether
voluntary, involuntary or effected by operation by law):
(a) The Company shall fail to pay when due any
amount payable hereunder and, with respect to amounts other than principal,
such default shall continue for more than two days; or
(b) The Company or any Subsidiary thereof shall
default in the performance or observance of any covenant, agreement or
provision contained in Sections 6.02, 6.04, 6.13, Article VII or Article VIII
hereof; or
(c) The Company or any Subsidiary thereof shall
default in the performance or observance of any other covenant, agreement or
provision of this Agreement (other than Section 6.07 hereof) and such default
shall not have been remedied within 30 days after such failure shall first have
become known to any officer of the Company or such Subsidiary as the case may
be; or
(d) The Company or any Subsidiary thereof shall
default in the performance or observance of any covenant, agreement or
provision of any other Loan Document or in any other agreement, instrument or
document delivered to the Agent, any Bank or the Issuing Bank and such default
shall not have been
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remedied within such grace or cure period, if any, as may be provided therefor;
or
(e) The Company or any Subsidiary thereof shall
default (i) in the payment of any principal, interest or premium with respect
to any Indebtedness (other than Indebtedness under this Agreement) for borrowed
money or any obligation that is the substantive equivalent thereof and such
default shall continue for more than the period of grace, if any, therein
specified, or (ii) the performance or observance of any other term, condition
or agreement contained in any such Indebtedness or obligation or in any
agreement relating thereto if the effect thereof is to cause, or permit the
holder or holders of such Indebtedness or obligation (or a trustee on behalf of
such holder or holders) to cause, such Indebtedness or obligation to become
due, or requiring the Company to repurchase or repay such Indebtedness or
obligation, prior to its scheduled maturity; or
(f) Any representation or warranty made by the
Company (or any of its officers) under this Agreement or any statement made by
the Company or any Subsidiary thereof in any financial statement, certificate,
report, exhibit, writing or statement furnished by the Company or any
Subsidiary thereof to the Issuing Bank, the Agent or the Banks pursuant to this
Agreement or any other Loan Document shall prove to have been false or
misleading in any material respect as of the time when made; or
(g) Any "Event of Default" as defined in and
under the Multiyear Agreement or the 364 Day Agreement shall have occurred and
be continuing; or
(h) The Company or any Subsidiary thereof shall
admit in writing its inability to pay its debts or obligations or shall file a
petition or seek relief under or take advantage of any insolvency law; make an
assignment for the benefit of its creditors; commence a proceeding for the
appointment of a receiver, trustee, liquidator, custodian or conservator of
itself or of the whole or substantially all of its property; file a petition or
an answer to a petition under any chapter of the United States Bankruptcy Code,
as amended (U.S.C. Section 101 et seq.); or file a petition or seek relief
under or take advantage of any other similar law or statute of the United
States, any state thereof or any foreign country; or
(i) A court of competent jurisdiction shall enter
an order, judgment or decree appointing or authorizing a receiver, trustee,
liquidator, custodian or conservator of the Company or any Subsidiary thereof
or of the whole or substantially all of the property of any thereof, or enter
an order for relief against the Company or any Subsidiary thereof in any case
commenced under any chapter of the United States Bankruptcy Code, as amended,
or grant relief under any other similar law or statute of the United States,
any state thereof or any foreign country; or under the provisions of any law
for the relief or aid of debtors, a court of competent jurisdiction or a
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receiver, trustee, liquidator, custodian or conservator shall assume custody or
control or take possession of the Company or any Subsidiary thereof or of the
whole or substantially all of the property of any thereof; or there is
commenced against the Company or any Subsidiary thereof any proceeding for any
of the foregoing relief or a petition is filed against the Company or any
Subsidiary thereof under any chapter of the United States Bankruptcy Code, as
amended, or under any other similar law or statute of the United States or any
state thereof or any foreign country and such proceeding or petition remains
undismissed for a period of 60 days; or the Company or any Subsidiary thereof
by any act indicates its consent to, approval of or acquiescence in any such
proceeding or petition; or
(j) Any judgment or judgments against the Company
or any Subsidiary thereof or any attachment or execution against any of their
respective properties for any amount or amounts, in any case or in the
aggregate, in excess of $500,000 shall remain unpaid, unstayed, undismissed or
unbonded for a period of more than 60 days; or
(k) (i) Any Person shall engage in any
Prohibited Transaction involving any Plan, or (ii) any other event or condition
shall occur or exist with respect to a Plan; and in the case of clause (ii)
above, such event or condition, together with all other such events or
conditions, if any, could subject the Company or any of its ERISA Affiliates to
any tax, penalty or other liabilities in the aggregate material in relation to
the business, operations, property or financial or other condition of the
Company or such Subsidiary; or
(l) Capital Interests of the Company are pledged
as security for any obligations of Foothill Group; or
(m) A Change in Control shall occur; or
(n) Any term or provision of the subordination
provisions contained in the documents related to the Subordinated Debt shall
cease to be in full force and effect, or the Company, Foothill Group, or any
holder of Subordinated Debt (or any trustee or agent on behalf of, or pledgee
of, such holders) shall, or shall purport to, terminate, repudiate, declare
voidable or void or otherwise contest any term or provision of such
subordination provisions; or
(o) Any Loan Document or term or provision
thereof shall cease to be in full force and effect, or the Company shall, or
shall purport to, terminate, repudiate, declare voidable or void or otherwise
contest, any Loan Document or term or provision thereof or any obligation or
liability of the Company thereunder.
SECTION 9.02. Consequences of an Event of Default.
(a) If an Event of Default specified in any one
of subsections (a) through (g) or (j) through (o) of Section 9.01
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hereof shall occur or exist then, in addition to all other rights and remedies
which the Agent, the Issuing Bank or any Bank may have hereunder or under any
other Loan Document, at law, in equity or otherwise, the Agent from time to
time may with the consent, and shall upon the request, of the Required Banks do
any or all of the following:
(i) by notice to the Company, declare
the obligation of the Issuing Bank to Issue Letters of Credit
and Shipside Bonds and the Banks to purchase participations
therein to be terminated, whereupon the same shall forthwith
terminate;
(ii) by notice to the Company, declare all
Letter of Credit Liability relating to the Letters of Credit,
all Shipside Bond Liability relating to Shipside Bonds and all
other amounts payable under this Agreement to be forthwith due
and payable, whereupon all such Letter of Credit Liability,
Shipside Bond Liability and amounts shall become and be
forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby
waived, and an action therefore shall immediately accrue;
(iii) by notice to the Company, require the
Company to provide to the Agent, in order to secure the
payment of the Letter of Credit Liability relating to the
Letters of Credit and the Shipside Bond Liability relating to
Shipside Bonds Issued by the Issuing Bank, cash collateral in
an aggregate amount equal to the sum of such aggregate Letter
of Credit Liability and Shipside Bond Liability; and
(iv) may exercise any other remedies
provided hereunder or by law.
(b) If an Event of Default specified in
subsection (h) or (i) of Section 9.01 hereof shall occur or exist, then, in
addition to all other rights and remedies which the Agent, the Issuing Bank or
any Bank may have hereunder or under any other Loan Documents, at law, in
equity or otherwise, (i) the obligation of the Issuing Bank to Issue Letters of
Credit and Shipside Bonds and the Banks to purchase participations therein
shall automatically be terminated and (ii) all Letter of Credit Liability
relating to the Letters of Credit and the Shipside Bond Liability relating to
Shipside Bonds and all other amounts payable under this Agreement shall
automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby waived, and an
action therefore shall immediately accrue.
SECTION 9.03. Suits for Enforcement. In case any one or more
Events of Default shall occur and be continuing, the Agent, the Issuing Bank
and the Banks may proceed to protect and enforce their rights or remedies
either by suit in equity or by
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action at law, or both, whether for the specific performance of any covenant,
agreement or other provision contained herein, in the other Loan Documents, or
in any document or instrument delivered in connection with or pursuant to this
Agreement or the other Loan Documents or to enforce any other legal or
equitable right or remedy.
ARTICLE X
THE AGENT AND ISSUING BANK
SECTION 10.01. Authorization and Action. (a) Each Bank and
the Issuing Bank each hereby irrevocably appoints and authorizes Bank of
America to act as Agent under this Agreement and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers under this
Agreement and the other Loan Documents as are delegated to the Agent by the
terms hereof and thereof, together with such powers as are reasonably
incidental thereto. As to any matters not expressly provided for by this
Agreement or other Loan Documents, the Agent shall not be required to exercise
any discretion or take any action, but shall be required to act or to refrain
from acting upon the instructions of the Required Banks, in which case (i) it
shall be fully protected in so acting or refraining from acting, (ii) it need
not comply with such instructions until it is indemnified to its satisfaction
by the Banks against any and all liability and expense that may be incurred by
it by reason of such compliance, and (iii) such instructions and compliance
shall be binding upon all Banks; provided, however, that, unless and until the
Agent shall have received such instructions in connection with a Default, an
Event of Default or any default under any document, agreement or instrument
delivered in connection herewith, the Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
event, default or condition as it shall deem advisable in the best interests of
the Banks; and provided, further, that the Agent shall not in any case be
required to take any action which exposes the Agent to personal liability or
which is contrary to this Agreement or applicable law.
(b) The Agent agrees to give to each Bank prompt
notice of each notice given to it by the Company pursuant to the terms of this
Agreement.
(c) Notwithstanding any provision to the contrary in
this Agreement or any of the other Loan Documents, the Agent shall not have any
duties or responsibilities except those expressly set forth herein or therein,
nor any fiduciary relationship with any Bank, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into the Loan Documents or otherwise exist against the Agent.
(d) The Agent may execute any of its duties by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. Without limiting the
foregoing, in order to comply with
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any legal requirement in any jurisdiction, the Agent may appoint another bank
or trust company or one or more other Persons, either to act as co-agent or
co-agents, jointly with the Agent, or to act as separate agent or agents on
behalf of the Banks, with such power and authority as may be necessary for the
effective operation of the provisions hereof and may be specified in the
instrument of appointment (which, in the discretion of the Agents, may include
provisions for the protection of such co-agent or separate agent similar to the
provisions of this Article X). The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
(e) The Issuing Bank shall act on behalf of the
Banks with respect to any Letters of Credit and Shipside Bonds Issued by it and
the documents associated therewith until such time and except for so long as
the Agent may elect to act for the Issuing Bank with respect thereto; provided,
however, that the Issuing Bank shall have all of the benefits and immunities
(i) provided to the Agent in this Article X with respect to any acts taken or
omissions suffered by the Issuing Bank in connection with Letters of Credit and
Shipside Bonds Issued by it or proposed to be Issued by it and the Application
and Agreements relating to the Letters of Credit or Shipside Bonds as fully as
if the term "Agent", as used in this Article X, included the Issuing Bank with
respect to such acts or omissions, and (ii) as additionally provided in this
Agreement with respect to the Issuing Bank.
SECTION 10.02. Agent's Reliance, Etc. (a) Neither the Agent
nor any of its directors, officers, agents, employees, attorneys-in-fact or
Affiliates shall be liable for any action taken or omitted to be taken by it or
them under or in connection with this Agreement, except for its or their own
gross negligence or willful misconduct. Without limitation of the generality
of the foregoing, the Agent: (i) may consult with legal counsel (including
counsel for the Company), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
take in good faith by it in accordance with the advice of such counsel,
accountants or experts; (ii) makes no warranty or representation to any Bank
and shall not be responsible to any Bank for any statements, warranties or
representations made or received in or in connection with the Agreement or any
Loan Document; (iii) shall not have any duty to ascertain or to inquire as to
the performance or observance of any of the terms, covenants or conditions of
this Agreement or any other Loan Document on the part of the Company or any
Account Party or to inspect the property (including the books and records) of
the Company; (iv) shall not be responsible to any Bank for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or any other Loan Document or other instrument or document furnished
pursuant hereto; and (v) shall incur no liability under or in respect of this
Agreement or any other Loan Document by acting upon any notice, consent,
certificate or other instrument or writing (which may be
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teletransmitted) or statement or conversation believed by it to be genuine and
signed, sent or made by the proper party or parties.
(b) The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default unless the Agent
shall have actual knowledge thereof or shall have received notice from any Bank
or the Company describing such event, act or condition, Default or Event of
Default and stating that such notice is a "notice of default". In the event
that the Agent has such actual knowledge or receives such a notice, the Agent
shall give notice thereof to the Banks.
SECTION 10.03. Bank of America and Affiliates. Bank of
America shall have the same rights and powers under this Agreement as any other
Bank and may exercise the same as though it were not the Agent; and the term
"Bank" or "Banks" shall, unless otherwise expressly indicated, include Bank of
America in its individual capacity. Bank of America and its Affiliates may
accept deposits from, lend money to, acquire or act as placement agent for debt
or equity interests in, act as trustee under indentures of, and generally
engage in any kind of business with, the Company or any Account Party and any
person who may do business with or own securities of the Company or any Account
Party, all as if Bank of America were not the Agent and without any duty to
account therefor to the Banks. The Company and the Banks acknowledge and
consent to the Agent acting as Agent under the Multiyear Agreement and 364 Day
Agreement and waive any conflict or potential conflict that may occur as a
result of its acting in such capacity.
SECTION 10.04. Bank Credit Decision. (a) Each Bank
acknowledges that it has, independently and without reliance upon the Agent or
any other Bank and based on the financial statements referred to in Section
6.01 hereof and such other documents, investigation and information as it has
deemed appropriate, make 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,
investigation and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Loan Documents.
(b) Each Bank expressly acknowledges that neither
the Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates have made any representations or warranties to
it and that no act by the Agent hereafter taken, including any review of the
affairs of the Company, Foothill Group and their respective Subsidiaries shall
be deemed to constitute any representation or warranty by the Agent to any
Bank.
(c) Except for notices, reports and other documents
expressly required to be furnished to the Banks by the Agent hereunder, the
Agent shall have no duty or responsibility
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to provide to any Bank any credit or other information concerning the business,
operations, property, prospects, financial and other condition or
creditworthiness of the Company, Foothill Group or any Subsidiary of either
thereof that may come into the possession of the Agent or any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates.
SECTION 10.05. Indemnification. Each Bank agrees to
indemnify the Agent (to the extent not reimbursed by the Company or any Account
Party), ratably according to the respective Bank's Percentage, from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever that at any time (including without limitation at any time following
the payment of any or all Reimbursement Obligations) may be imposed on,
incurred by, or asserted against the Agent in any way relating to or arising
out of this Agreement, any other Loan Document or the transactions contemplated
hereby or thereby or any action taken or omitted by the Agent under or in
connection with any of the foregoing, provided that no Bank shall be liable for
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting solely
from the Agent's gross negligence or willful misconduct. Without limitation of
the foregoing, each Bank agrees to reimburse the Agent promptly upon demand for
its ratable share of any out-of-pocket expenses (including without limitation
the fees and disbursements of counsel) incurred by the Agent in connection with
the preparation, execution, delivery, administration, modification, amendment
or enforcement (whether through negotiations, legal or bankruptcy proceedings
or otherwise) of, or legal advice in respect of rights or responsibilities
under, this Agreement and the other Loan Documents, to the extent that the
Agent is not reimbursed for such expenses by the Company or any Account Party.
The covenants contained in this Section 10.05 shall survive the satisfaction of
the obligations of the Company arising under this Agreement.
SECTION 10.06. Successor Agent. The Agent may resign at any
time by giving written notice thereof to the Banks and the Company. Upon any
such resignation, the Required Banks shall have the right to appoint a
successor Agent. 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 under the laws of the United States or of any State
thereof, or an Affiliate of such bank, having a combined capital and surplus of
at least $50,000,000. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed
Agent, such successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations under this
Agreement and the other Loan Documents. After any retiring
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Agent's resignation hereunder as Agent, the provisions of this Article X shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement and the other Loan Documents.
ARTICLE XI
ASSIGNMENTS AND PARTICIPATIONS
SECTION 11.01. Assignments. (a) Each Bank may assign to one
or more commercial banks all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its
Commitment), provided, however, that (i) each such assignment shall be of a
constant, and not a varying percentage of the assigning Bank's rights and
obligations under this Agreement, (ii) unless the Agent otherwise consents, the
aggregate amount of the Commitment of the assigning Bank being assigned
pursuant to each such assignment (determined as of the date of the Assignment
and Acceptance with respect to such assignment) shall in no event be less than
$5,000,000 and shall be an integral multiple of $1,000,000, (iii) each such
assignment shall be to an Eligible Assignee, and (iv) the parties to each such
assignment shall execute and deliver to the Agent, for its approval and
acceptance, an Assignment and Acceptance, together with a processing and
recordation fee of $2,500.00. Upon such execution, delivery, approval,
acceptance and recording, from and after the effective date specified in each
Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto
and, to the extent that rights and obligations hereunder have been assigned to
it pursuant to such Assignment and Acceptance, have the rights and obligations
of a Bank hereunder and (y) the Bank assignor thereunder shall, to the extent
that rights and obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Bank's rights
and obligations under this Agreement, such Bank shall cease to be a party
hereto) except that in all cases the Bank assignor shall remain entitled to the
rights and benefits arising under Sections 2.10 and 2.11, and shall remain
liable with respect to any of its obligations arising under Article X hereof
with respect to any matters arising prior to the effective date of any such
assignment.
(b) By executing and delivering an Assignment and
Acceptance, the Bank assignor thereunder and the assignee thereunder confirm to
and agree with each other and other parties hereto as follows: (i) other than
as provided in such Assignment and Acceptance, such assigning Bank makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or any other Loan Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any
other Loan Document or any other instrument or document furnished pursuant
hereto; (ii) such assigning Bank makes no representation or warranty and
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assumes no responsibility with respect to the financial condition of the
Company or any Account Party or the performance or observance by the Company or
any Account Party of any of their respective obligations under any Loan
Document or any other instrument or document furnished pursuant hereto; (iii)
such assignee confirms that it has received a copy of this Agreement, together
with copies of the financial statements referred to in Section 5.17 hereof and
such other Loan Documents and other documents and information as it has deemed
appropriate to make its credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Agent, such assigning Bank or any other Bank and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (v) such assignee confirms that it is an Eligible Assignee;
(vi) such assignee appoints and authorizes the Agent to take such action as
agent on its behalf and to exercise such powers under this Agreement and the
other Loan Documents as are delegated to the Agent by the terms hereof and
thereof, together with such powers as are reasonably incidental thereto; and
(vii) such assignee agrees that it will perform in accordance with their terms
all of the obligations which by the terms of this Agreement are required to be
performed by it as a Bank.
(c) The Agent shall maintain at its address referred
to in Section 12.02 hereof a copy of each Assignment and Acceptance delivered
to and accepted by it. Such copies shall be conclusive and binding for all
purposes, absent manifest error, and the Company, the Agent and the Banks may
treat each assignee whose name is set forth in such copies as a Bank hereunder
for all purposes of this Agreement. Such copies of Assignments and Acceptances
shall be available for inspection by the Company or any Bank at any reasonable
time and from time to time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance
executed by an assigning Bank and an assignee representing that it is an
Eligible Assignee, the Agent shall, if such Assignment and Acceptance has been
properly completed and is in substantially the form of Exhibit C, accept such
Assignment and Acceptance, and give prompt notice thereof to the Company.
SECTION 11.02. Participations. Each Bank may sell
participations to one or more commercial banks in all or any portion of its
rights and obligations under this Agreement (including, without limitation, all
or a portion of its Commitment); provided, however, that (i) such Bank's
obligations under this Agreement (including, without limitation, its Commitment
to the Company hereunder) shall remain unchanged, (ii) such Bank shall remain
solely responsible to the other parties hereto for the performance of such
obligations, and (iii) the Company, the Agent and the other Banks shall
continue to deal solely and directly with such Bank in connection with such
Bank's rights and obligations under this Agreement.
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ARTICLE XII
MISCELLANEOUS
SECTION 12.01. Amendments, Etc.
(a) Amendments with Consent of Agent. The Company
or any Account Party and the Agent may enter into one or more amendments to any
Loan Document without the consent of any Bank for any of the following
purposes:
(1) to cure any ambiguity, defect or
inconsistency herein or in any Application or Agreement or to
make any change not inconsistent with the provisions hereof;
(2) to convey, transfer, assign, mortgage or
pledge any property to or with the Agent, or to make any other
provisions with respect to matters or questions arising
hereunder or under any Application and Agreement so long as
such action shall not adversely affect the interests of the
Banks;
(3) to add the covenants of the Company
hereunder for the benefit of the Banks; and
(4) to add to the rights of the Banks.
Any such amendment must be in writing and signed by the Agent to be effective
and then such amendment shall be effective only in the specific instance and
for the specific purpose for which given.
(b) Amendments with Consent of Banks. Except as
provided in subsection (a) of this Section 12.01, no amendment, modification or
waiver of any provision of any Loan Document, nor consent to any departure by
the Company or any Account Party therefrom, shall in any event be effective
unless the same shall be in writing and signed by the Required Banks and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given; provided, however, that no amendment,
waiver or consent shall, unless in writing and signed by all the Banks, do any
of the following: (i) waive any of the conditions specified in Section 4.01,
4.02, or 4.03 hereof, except as otherwise provided in such Sections, (ii)
increase the Commitments of the Banks or subject the Banks to any additional
obligations, (iii) reduce the principal of, or interest on, the Letter of
Credit Liability or the Shipside Bond Liability or any fees or other amounts
payable hereunder, (iv) postpone any date fixed for any payment of principal
of, or interest on, the Letter of Credit Liability or the Shipside Bond
Liability or any fees or other amounts payable hereunder, (v) change the
Percentage, or the aggregate unpaid principal amount of the Letter of Credit
Liability or the Shipside Bond Liability, or the number of Banks, which shall
be required for the Banks or any of them to take any action hereunder or (vi)
amend this Section 12.01; and provided, further, that no amendment, waiver
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or consent shall, unless in writing and signed by the Agent in addition to the
Banks required above to take such action, affect the rights or duties of the
Agent under this Agreement or any other Loan Document.
SECTION 12.02. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including
teletransmission communication) and mailed or teletransmitted or delivered, if
to the Company, at its address at:
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025
Attention: David C. Hilton
Facsimile: (310) 478-2961;
if to any Bank, at its address listed on the signature pages hereof or on the
signature page of the Assignment and Acceptance pursuant to which it became a
Bank; if to the Issuing Bank, at its address at:
2049 Century Park East
Suite 300, No. 1417
Los Angeles, California 90067
Attention: Sheryl E. Bond
Facsimile: (310) 785-6100;
with a copy to:
1455 Market Street
13th Floor, No. 5596
San Francisco, California 94103
Attn: Ann E. Mead, Global Agency
Facsimile: (415) 622-4894
and if to the Agent, at its address at:
1455 Market Street
13th Floor, No. 5596
San Francisco, California 94013
Attn: Ann E. Mead, Global Agency
Facsimile: (415) 622-4894
or, as to each party, at such other address as shall be designated by such
party in a written notice to the Company and the Agent; provided, that the
Company is not required to furnish to the Issuing Bank the financial reports
specified in Sections 6.01(a) and 6.01(b) hereof. All notices and other
communications provided for hereunder shall be in writing and shall be deemed
to have been given (a) three days after the date mailed if sent by registered
or certified mail, postage prepaid, return receipt requested, (b) on the day of
delivery if personally delivered, (c) on the day of transmission if (i) sent by
teletransmission (including facsimile) and (ii) confirmed on the same day as
such notice is sent by telephonic notice and by one of the other two methods
listed above.
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SECTION 12.03. No Implied Waiver; Cumulative Remedies. No
course of dealing and no delay or failure on the part of the Agent, the Issuing
Bank or any Bank in exercising any right, power or privilege under this
Agreement, any other Loan Document or any other documents or instruments
delivered pursuant to or in connection with this Agreement shall affect any
other or future exercise thereof or exercise of any other right, power or
privilege; nor shall any single or partial exercise of any such right, power or
privilege or any abandonment or discontinuance of steps to enforce such a
right, power or privilege preclude any further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies provided under
this Agreement, or other Loan Documents and any other documents or instruments
delivered pursuant to or in connection with this Agreement are cumulative and
not exclusive of any rights or remedies which the Agent, the Issuing Bank and
each bank would otherwise have.
SECTION 12.04. Costs and Expenses. (a) The Company agrees
to pay on demand all reasonable out-of-pocket costs and expenses incurred by
(i) the Issuing Bank and the Agent from time to time in connection with the
preparation, execution, delivery, filing, recording, administration,
modification or amendment of this Agreement, the other Loan Documents, and any
documents or instruments delivered pursuant to or in connection with this
Agreement, (ii) the Banks, the Issuing Bank and the Agent in connection with
the enforcement (whether in the context of a civil action, adversary
proceeding, bankruptcy or otherwise, but excluding any negotiated workout) of
this Agreement, the other Loan Documents, and such other documents and
instruments and (iii) the Agent in connection with any negotiated workout of
this Agreement, the other Loan Documents, and such other documents and
instruments, in each case of classes (i), (ii) and (iii) above including,
without limitation, the reasonable fees and disbursements of counsel, audit
charges, appraisal fees, search fees and filing fees. The Company agrees to be
responsible for payment of these amounts referred to in this Section 12.04
whether or not any Letters of Credit or Shipside Bonds are issued hereunder.
(b) The Company further agrees that, in the event
that the Banks, the Issuing Bank or the Agent shall retain or engage counsel
(including "in house" counsel) to collect or enforce or protect its interests
with respect to this Agreement, any of the other Loan Documents, or any
document or instrument delivered pursuant to this Agreement, the Company shall
pay, within 10 days after demand therefor, all of the costs and expenses of
such collection, enforcement or protection, including the reasonable fees and
disbursements of such counsel, and the Bank, the Issuing Bank or the Agent may
take judgment for all such amounts, in addition to the other obligations of the
Company due and payable hereunder.
(c) References in this Section 12.04 and elsewhere
in this Agreement to "fees and disbursements of counsel" shall include, without
limitation, all reasonable fees
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of counsel (including the actual charges and disbursements of "in-house"
counsel) arising from the services (including, without limitation, services in
respect of actions and proceedings and appeals therefrom) of such counsel under
or in respect of or in connection with this Agreement and the other Loan
Documents, and all reasonably incurred expenses, costs, charges and other fees
of such counsel; and all such fees and disbursements shall constitute
obligations of the Company to the Banks, the Issuing Bank and the Agent under
this Agreement. Without limiting the generality of the foregoing, such
expenses, costs, charges and fees may include: paralegal fees, costs and
expenses; accountants' fees, costs and expenses; court costs and expenses;
photocopying and duplicating expenses; long distance telephone charges; courier
and messenger charges; facsimile and other teletransmission charges;
secretarial overtime charges; and expenses for travel, lodging and food paid or
incurred in connection with the performance of such services.
(d) The agreements in this Section 12.04 shall
survive the payment of any and all of the Reimbursement Obligations.
SECTION 12.05. Right of Set-Off. If any obligation of the
Company arising hereunder shall be due and payable (by acceleration or
otherwise), each Bank and the Issuing Bank and any branch, subsidiary or
affiliate of such Bank or the Issuing Bank anywhere in the world shall each
have the right, in addition to all other rights and remedies available to it,
without prior notice to the Company, to set-off against and to appropriate and
apply to such obligations any debt, liability or obligation of any nature owing
to the Company by such Bank or the Issuing Bank or by such branch, subsidiary
or affiliate including, without limitation, all funds in all deposit accounts
(whether time or demand, general or special, provisionally credited or finally
credited, or otherwise) now or hereafter maintained by the Company with such
Bank or the Issuing Bank or such branch, subsidiary or affiliate. Such right
shall be absolute and unconditional in all circumstances and, without
limitation, shall exist whether or not such Bank or the Issuing Bank shall have
given notice or made any demand hereunder, whether or not such debt, liability
or obligation owing to or funds held for the account of the Company is or are
matured or unmatured, and regardless of the existence or adequacy of any
collateral, guaranty or any other security, right or remedy available to such
Bank or the Issuing Bank. The Company hereby consents to and confirms the
foregoing arrangements and confirms the rights and remedies of each Bank, the
Issuing Bank, and those of each such branch, subsidiary or affiliate. Nothing
in this Agreement shall be deemed a waiver or prohibition of or restriction on
any Bank's or the Issuing Bank's other rights and remedies or those of any such
branch, subsidiary or affiliate. The Agent and each Bank agree that any setoff
shall be applied ratably based upon the Indebtedness outstanding under this
Agreement, the 364 Day Agreement and the Multiyear Agreement. Each Bank and
the Issuing Bank each agree promptly to notify the Company after any such
set-off and application made by such Bank or the Issuing Bank, as
- 73 -
<PAGE> 79
the case may be, provided that the failure to give such notice shall not affect
the validity of such set-off and application.
SECTION 12.06. Binding Effect. On and after the Effective
Date, this Agreement shall be binding upon and inure to the benefit of the
Company, the Agent, the Issuing Bank and each Bank and their respective
successors and assigns, except that the Company shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the Banks.
SECTION 12.07. Severability of Provisions. Any provision of
this Agreement which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provisions in any other
jurisdiction.
SECTION 12.08. Headings. Article and Section headings in
this Agreement are included for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
SECTION 12.09. Entire Agreement. This Agreement sets forth
the entire agreement of the parties with respect to its subject matter and
supersedes all previous understandings, written or oral, in respect thereof.
SECTION 12.10. Execution in Counterparts. This Agreement may
be execute in any number of counterparts and by different paries hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken shall constitute one and the same agreement.
SECTION 12.11. Governing Law. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
California, except, in the case of Article II hereof, to the extent such laws
are inconsistent with the UCP.
SECTION 12.12. WAIVER OF JURY TRIAL AND SETOFF. EACH OF THE
COMPANY, THE AGENT, THE BANKS AND THE ISSUING BANK HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN
DOCUMENTS, OR THE ACTIONS OF THE AGENT, ANY BANK OR THE ISSUING BANK IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF; AND THE
COMPANY HEREBY WAIVES THE RIGHT TO INTERPOSE ANY SETOFF, COUNTERCLAIM OR
CROSS-CLAIM AGAINST THE BANKS, THE ISSUING BANK AND THE AGENT, OR ANY OF THEM,
IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING, IRRESPECTIVE OF THE NATURE OF
SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM; PROVIDED, HOWEVER, THAT THE COMPANY
SHALL NOT BE PRECLUDED FROM ASSERTING ANY SUCH CROSS-CLAIM OR COUNTERCLAIM
THAT, PURSUANT TO APPLICABLE PROCEDURAL LAWS, COULD NOT BE RAISED IN A SEPARATE
PROCEEDING.
- 74 -
<PAGE> 80
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
FOOTHILL CAPITAL CORPORATION
By: /s/ D.C. HILTON
------------------------------
Title: EVP
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By: /s/ AL ELLEND
-------------------------------
Vice President
BANKS
Commitment BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Issuing Bank
$15,000,000 and as a Bank
By: /s/ SHERYL BOND
-------------------------------
Vice President
By: /s/ KATHY BABBITT
-------------------------------
Vice President
Address for Notices:
2049 Century Park East, Suite 300
Los Angeles, California 90067
Commitment NATIONAL WESTMINSTER BANK USA
$10,000,000
By: /s/ STEPHANIE WILSON
-------------------------------
Title: Vice President
Address for Notices:
175 Water Street, 28th Floor
New York, NY 10038-4924
(Signatures continue)
- 75 -
<PAGE> 81
Commitment THE BANK OF NEW YORK
$5,000,000
By: /s/ OLAIJIRHA BANGHOSE
----------------------------
Title: Assistant Vice President
Address for Notices:
10990 Wilshire Boulevard
Suite 1700
Los Angeles, California 90024
Commitment THE BANK OF NOVA SCOTIA
$5,000,000
By: /s/ JAMES M. SPANIER
----------------------------
Title: Relationship Manager
Address for Notices:
101 California Street,
48th Floor
San Francisco, California 94111
Commitment FIRST BANK NATIONAL ASSOCIATION
$5,000,000
By: /s/ DAVID A. DRAXLER
----------------------------
Title: Vice President
Address for Notices:
601 Second Avenue South
7th Floor
Minneapolis, Minnesota 55402
Commitment FIRST INTERSTATE BANK OF CALIFORNIA
$5,000,000
By: /s/ KATHRYN D. PLUMB
----------------------------
Title: Vice President
Address for Notices:
21021 Ventura Boulevard, Suite 101
Woodland Hills, California 91364
(Signatures continue)
- 76 -
<PAGE> 82
Commitment HARRIS TRUST AND SAVINGS BANK
$5,000,000
By: /s/ JEROME P. CROKIN
------------------------
Title: Vice President
Address for Notices:
111 West Monroe Street
Chicago, Illinois 60690
Commitment MELLON BANK, N.A.
$5,000,000
By: /s/ CAROL A. NEYLAND
------------------------
Title: First VP
Address for Notices:
300 So. Grand Avenue
Suite 3800
Los Angeles, CA 90071
Commitment NATIONAL BANK OF CANADA
$5,000,000
By: /s/ MARK J. LOCHER
------------------------
Title: AVP
By: /s/ GEORGE A. BALUP
------------------------
Title: VP
Address for notices:
725 South Figueroa Street
Suite 1690
Los Angeles, CA 90017-54116
Commitment PNC BANK, NATIONAL ASSOCIATION
$5,000,000
By: /s/ BRIAN J. REED
------------------------
Title: Vice President
Address for notices:
55 South Lake Avenue
Pasadena, CA 91101
(Signatures continue)
- 77 -
<PAGE> 83
Commitment SANWA BANK CALIFORNIA
$5,000,000
By: /s/ MICHAEL PLATT
------------------------
Title: Vice President
By: ________________________
Title:
Address for notices:
Sherman Oaks Commercial Center
14724 Ventura Blvd., Suite 1000
Sherman Oaks, CA 91403
Commitment SHAWMUT BANK CONNECTICUT, N.A.
$5,000,000
By: /s/ JOSEPH SAVAGE
------------------------
Title: Managing Director
Address for notices:
777 Main Street
Hartford, CT 06115
Commitment UNITED STATES NATIONAL BANK
OF OREGON
$5,000,000
By: /s/ SCOTT J. BELL
------------------------
Title: Vice President
Address for notices:
111 S.W. Fifth Avenue, Suite 2900
Portland, OR 97204
____________
$80,000,000 Total of the Commitments
- 78 -
<PAGE> 1
EXHIBIT 11.1
THE FOOTHILL GROUP, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Primary:
Income from continuing operations..................... $31,076,000 $20,823,000 $12,134,000
Preferred stock dividends............................. (270,000) (270,000) (277,000)
Income (loss) from discontinued operations............ -- (1,579,000) 563,000
Extraordinary items................................... -- (561,000) (552,000)
----------- ----------- -----------
Income for primary calculation........................ $30,806,000 $18,413,000 $11,868,000
=========== =========== ===========
Weighted average number of common shares
outstanding........................................ 16,516,00 16,262,000 13,326,000
Effect of dilutive stock options...................... 338,000 421,000 404,000
----------- ----------- -----------
Number of common shares used in computation........... 16,854,000 16,683,000 13,730,000
=========== =========== ===========
Per share:
Income from continuing operations..................... $ 1.83 $ 1.23 $ 0.89
Income (loss) from discontinued operations............ -- (0.09) 0.04
Extraordinary items................................... -- (0.03) (0.04)
----------- ----------- -----------
Net income............................................ $ 1.83 $ 1.11 $ 0.89
=========== =========== ===========
Fully diluted:
Income from continuing operations..................... $31,076,000 $20,823,000 $12,134,000
Interest expense avoided on assumed conversion of 9.5%
debentures......................................... -- -- 1,003,000
Tax benefit lost due to assumed conversion............ -- -- (401,000)
Income (loss) from discontinued operations............ -- (1,579,000) 563,000
Extraordinary items................................... -- (561,000) (552,000)
----------- ----------- -----------
Income for fully diluted calculation.................. $31,076,000 $18,683,000 $12,747,000
=========== =========== ===========
Weighted average number of shares outstanding......... 16,516,000 16,262,000 13,326,000
Shares issued upon assumed conversion of convertible
preferred stock.................................... 667,000 667,000 667,000
Shares issued upon assumed conversion of 9.5%
debentures......................................... -- -- 1,240,000
Effect of dilutive stock options...................... 344,000 434,000 417,000
----------- ----------- -----------
Number of shares used in computation.................. 17,527,000 17,363,000 15,650,000
=========== =========== ===========
Per share:
Income from continuing operations..................... $ 1.77 $ 1.20 $ 0.81
Income (loss) from discontinued operations............ -- (0.09) 0.04
Extraordinary items................................... -- (0.03) (0.03)
----------- ----------- -----------
Net income............................................ $ 1.77 $ 1.08 $ 0.82
=========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 13.1
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Five years ended December 31, 1994 The Foothill Group, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
---------------------------------------------------------------------------------------------
(Dollars in thousands,
except per share data) 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA*:
Interest and fees earned $87,088 13.5% $ 65,125 12.9% $54,988 12.6% $56,824 13.4% $ 63,516 14.8%
Interest expense 28,519 4.4 21,064 4.2 24,268 5.6 34,511 8.2 39,046 9.2
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest revenue 58,569 9.1 44,061 8.7 30,720 7.0 22,313 5.2 24,470 5.6
Asset management fees 5,460 0.9 6,025 1.2 2,979 0.7 3,255 0.8 1,835 0.4
Gain (loss) from asset sales and
managed partnerships 24,899 3.9 18,260 3.6 11,942 2.8 5,608 1.3 (6,892) (1.6)
Provision for credit losses 9,658 1.5 12,794 2.5 8,671 2.0 7,298 1.7 3,443 0.8
General and administrative
expenses 24,751 3.9 19,651 3.9 16,215 3.7 13,727 3.3 12,583 2.9
- ---------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 54,519 8.5 35,901 7.1 20,755 4.8 10,151 2.3 3,387 0.7
Provision for income taxes from
continuing operations 23,443 3.7 15,078 3.0 8,621 2.0 4,467 1.1 437 0.1
- ---------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 31,076 4.8 20,823 4.1 12,134 2.8 5,684 1.2 2,950 0.6
Income (loss) from discontinued
operations -- -- (1,579) (0.3) 563 0.1 374 0.1 (5,238) (1.2)
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary
items 31,076 4.8 19,244 3.8 12,697 2.9 6,058 1.3 (2,288) (0.6)
Extraordinary items -- -- (561) (0.1) (552) (0.1) 213 0.1 563 0.1
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $31,076 4.8% $18,683 3.7% $12,145 2.8% $ 6,271 1.4% $ (1,725) (0.5)%
=================================================================================================================================
</TABLE>
*Percentages are percent of average assets of continuing operations (excluding
unrealized gains on marketable debt and equity securities).
<TABLE>
<S> <C> <C> <C> <C> <C>
PER SHARE DATA (shares in thousands):
Fully diluted earnings from
continuing operations $ 1.77 $ 1.20 $ 0.81 $ 0.52 $ 0.30
Income (loss) from discontinued
operations - (0.09) 0.04 0.03 (0.54)
Extraordinary items - (0.03) (0.03) 0.02 0.06
- --------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per
common share $ 1.77 $ 1.08 $ 0.82 $ 0.57 $ (0.18)
================================================================================================================================
Number of shares used in
computing per share amount 17,527 17,363 15,650 12,400 9,690
================================================================================================================================
Declared cash dividends per
common share $ 0.22 $ 0.14 $ - $ - $ 0.21
================================================================================================================================
SELECTED BALANCE SHEET DATA:
Total assets $738,190 $606,507 $474,383 $440,877 $450,944
Average assets** 642,479 520,105 448,941 435,492 441,092
Average assets of continuing
operations** 642,479 504,022 433,158 421,734 426,651
Average stockholders' equity** 147,425 137,448 103,823 68,765 66,216
Average stockholders' equity in
continuing operations** 147,425 121,365 88,040 55,007 51,775
Finance receivables 659,356 514,518 394,895 390,314 412,681
Average finance receivables** 591,263 480,353 413,067 403,856 404,362
================================================================================================================================
Sources of funds employed:
Commercial paper $214,897 $148,283 $ 64,915 $ 10,886 $ 4,058
Other short-term borrowings 10,000 - - 139,800 162,300
Senior notes 268,829 237,404 216,560 143,995 131,602
Subordinated notes and
debentures 50,550 53,725 48,940 64,142 81,919
Stockholders' equity 172,410 152,147 129,012 74,505 63,298
- --------------------------------------------------------------------------------------------------------------------------------
Total funds employed $716,686 $591,559 $459,427 $433,328 $443,177
=================================================================================================================================
</TABLE>
**Average assets, stockholders' equity and finance receivables are monthly
averages and exclude unrealized gains on marketable debt and equity securities.
17
<PAGE> 2
SELECTED FINANCIAL DATA FOR FOOTHILL CAPITAL CORPORATION
<TABLE>
<CAPTION>
Five years ended December 31, 1994
- ----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
----------------------------------------------------------------------------------------------
(Dollars in thousands) 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA*:
Interest and fees earned $ 85,713 14.1% $ 63,951 12.9% $ 54,575 12.7% $ 56,418 13.5% $ 60,781 15.0%
Interest expense 29,494 4.8 22,218 4.5 23,113 5.4 29,805 7.2 33,143 8.2
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest revenue 56,219 9.3 41,733 8.4 31,462 7.3 26,613 6.3 27,638 6.8
Gain (loss) from asset sales 14,549 2.4 13,179 2.6 8,305 1.9 3,591 0.9 (618) (0.2)
Provision for credit losses 9,554 1.6 12,254 2.5 8,641 2.0 6,377 1.5 3,774 0.9
General and administrative expenses 21,264 3.5 16,565 3.3 14,819 3.4 13,334 3.2 12,461 3.1
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and
extraordinary item 39,950 6.6 26,093 5.2 16,307 3.8 10,493 2.5 10,785 2.6
Provision for income taxes 17,178 2.8 10,959 2.2 6,849 1.6 4,302 1.0 4,314 1.1
- ----------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 22,772 3.8 15,134 3.0 9,458 2.2 6,191 1.5 6,471 1.5
Extraordinary item - - (561) (0.1) - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 22,772 3.8% $ 14,573 2.9% $ 9,458 2.2% $ 6,191 1.5% $ 6,471 1.5%
==================================================================================================================================
</TABLE>
*Percentages are percent of average assets (excluding unrealized gains on
marketable debt and equity securities).
<TABLE>
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets $701,421 $572,630 $437,867 $408,713 $416,584
Average assets** 608,856 495,501 431,120 417,332 405,310
Finance receivables 648,763 506,673 393,530 389,521 407,134
Average finance receivables** 581,315 476,382 412,203 401,858 397,232
====================================================================================================================================
Sources of funds employed:
Commercial paper $214,897 $148,283 $ 64,915 $ 10,886 $ 4,058
Other short-term borrowings 10,000 - - 139,800 162,300
Senior notes 267,633 233,817 216,560 120,313 116,642
Subordinated notes and
debentures 59,300 64,225 62,190 58,420 54,850
Stockholder's equity 132,309 114,133 83,127 73,669 70,498
- ------------------------------------------------------------------------------------------------------------------------------------
Total funds employed $684,139 $560,458 $426,792 $403,088 $408,348
====================================================================================================================================
</TABLE>
**Average assets and finance receivables are a monthly average (excluding
unrealized gains on marketable debt and equity securities).
<TABLE>
<S> <C> <C> <C> <C> <C>
OTHER SELECTED DATA:
Nonperforming finance receivables
and repossessed assets*** $ 6,891 $ 16,296 $ 22,057 $ 20,890 $ 17,957
Allowance for credit losses 16,957 13,857 10,527 8,047 8,475
Actual writeoffs during the
year, net 6,454 8,924 6,161 6,805 3,524
Number of employees 114 108 100 101 98
====================================================================================================================================
</TABLE>
***Includes repossessed assets and loans that have contractual installments more
than sixty days past due.
18
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business - Subsidiaries, Offices and Receivables Outstanding
The Foothill Group, Inc. ("Foothill" or "Parent Company") is a specialized
financial services company which operates two tightly linked businesses:
commercial lending and money management. Foothill's wholly owned subsidiary,
Foothill Capital Corporation ("Foothill Capital"), provides asset-based
financing to businesses throughout the United States. Foothill also engages in
money management for institutional investors through two limited partnerships.
Unless the context otherwise indicates, the "Company" refers to Foothill and its
subsidiary. The areas of commercial finance in which the Company principally
engages include revolving and term lending. The Company's loans are secured by
accounts receivable, inventory, real estate and/or personal property, equipment
and other assets. The Company attempts to offset lending risk by lending on a
collateralized basis.
Foothill's money management activities include limited partnerships
(Foothill Partners, L.P. and Foothill Partners II, L.P.) in which Foothill is a
general partner. These partnerships (the "Funds") invest in loans or securities
of companies in financial difficulty or in reorganization. At December 31, 1994,
capital subscriptions of the Funds were $515 million. The Foothill Fund and
Foothill Recovery Fund, which previously had total capital subscriptions of $77
million, ceased operations and were fully liquidated on December 31, 1994.
Foothill Capital operates primarily out of one office in Los Angeles,
California. Foothill Capital also maintains a satellite office in the Boston
area primarily for use by its field examiners, a satellite office in the Chicago
area used by marketing representatives, and a small business lending unit near
Richmond, Virginia, effective January 1995.
Effective December 23, 1993, Foothill completed the spin-off of its
Foothill Thrift and Loan subsidiary to Foothill shareholders. All previously
reported financial results of Foothill Thrift and Loan, through the record date
for the spin-off, are classified as discontinued operations. Revenues of
Foothill Thrift and Loan totaled $21,658,000 and $23,131,000 for the years ended
December 31, 1993 and 1992, respectively.
Finance receivables outstanding by company were as follows for the past
three years:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1994 December 31, 1993 December 31, 1992
-------------------- ------------------- -------------------
% OF % of % of
(Dollars in thousands) AMOUNT TOTAL Amount Total Amount Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Foothill Capital $648,763 98.4% $506,673 98.5% $393,530 99.7%
Parent Company 10,593 1.6 7,845 1.5 1,365 0.3
Total finance receivables $659,356 100.0% $514,518 100.0% $394,895 100.0%
====================================================================================================================================
</TABLE>
ANALYSIS OF AMOUNTS DUE THE COMPANY BY CATEGORIES
The following table shows the net amounts due the Company (before the
allowance for credit losses) in the various financing categories and the
percentages of the total represented by each category:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1994 December 31, 1993 December 31, 1992
----------------- ----------------- -----------------
% OF % of % of
(Dollars in thousands) AMOUNT TOTAL Amount Total Amount Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revolving loans:
Foothill Capital $474,714 72.0% $319,792 62.1% $186,422 47.3%
Parent Company 6,349 1.0 6,581 1.3 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total revolving loans 481,063 73.0 326,373 63.4 186,422 47.3
- ------------------------------------------------------------------------------------------------------------------------------------
Term loans:
Foothill Capital 174,049 26.4 186,881 36.3 207,108 52.4
Parent Company 4,244 0.6 1,264 0.3 1,365 0.3
- ------------------------------------------------------------------------------------------------------------------------------------
Total term loans 178,293 27.0 188,145 36.6 208,473 52.7
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans $659,356 100.0% $514,518 100.0% $394,895 100.0%
====================================================================================================================================
</TABLE>
As shown in the previous table, revolving loans outstanding increased
$154,690,000 from $326,373,000 at December 31, 1993 to $481,063,000 at December
31, 1994. Revolving loans fluctuate on a daily basis and continue to be a
principal area of emphasis in Foothill Capital's lending operations. Term loans
decreased $9,852,000 from $188,145,000 at December 31, 1993 to $178,293,000 at
December 31, 1994. The overall increase in outstandings was primarily the result
of new business at Foothill Capital offset by loan repayments.
RESULTS OF OPERATIONS
Year ended December 31, 1994 compared to year ended December 31, 1993:
The Company recorded net income of $31,076,000 and $18,683,000 for the
years ended December 31, 1994 and 1993, respectively. Fully diluted earnings per
share were $1.77 and $1.08 for the years ended December 31, 1994 and 1993,
respectively.
19
<PAGE> 4
The increase in net income was due primarily to (a) a significant increase
in net interest revenue, (b) a substantial increase in gains from asset sales
and managed partnerships, and (c) a reduction in the provision for credit
losses, offset by increases in general and administrative expenses and the
provision for income taxes.
Year ended December 31, 1993 compared to year ended December 31, 1992:
The Company recorded net income of $18,683,000 and $12,145,000 for the
years ended December 31, 1993 and 1992, respectively. Fully diluted earnings per
share were $1.08 and $.82 for the years ended December 31, 1993 and 1992,
respectively.
The increase in net income was due primarily to (a) a significant increase
in net interest revenue and (b) an increase in gains from asset sales and
managed partnerships, offset by a loss on discontinued operations, increases in
general and administrative expenses, the provision for credit losses and the
provision for income taxes.
ANALYSIS OF NET INTEREST REVENUE
Net interest revenue is interest income plus loan related fees less
interest expense. See "Selected Consolidated Financial Data." The Company does
not currently record income on certain assets including a portion of discounted
finance receivables due from borrowers in reorganization (see Note 1 of Notes to
Consolidated Financial Statements), nonperforming finance receivables,
repossessed assets, and nonperforming investments, but does incur holding costs
(primarily interest expense), which adversely affect net interest revenue. Net
interest revenue is also impacted by a number of other factors including loan
pricing, the Company's liability structure and its ability to match interest
sensitive assets and liabilities.
Year ended December 31, 1994 compared to year ended December 31, 1993:
Net interest revenue increased to $58,569,000 in 1994 from $44,061,000 in
1993 and increased as a percent of average assets to 9.1% in 1994 from 8.7% in
1993. The increase resulted from (a) an increase in loan related fees as a
percent of average assets, and (b) a reduction in cost of funds in relation to
the prime interest rate at Foothill Capital due to a higher percentage of total
borrowings funded by lower cost commercial paper. Specifically, at Foothill
Capital, net interest revenue as a percent of average assets increased from 8.4%
in 1993 to 9.3% in 1994.
Year ended December 31, 1993 compared to year ended December 31, 1992:
Net interest revenue increased to $44,061,000 in 1993 from $30,720,000 in
1992 and increased as a percent of average assets to 8.7% in 1993 from 7.0% in
1992. The increase resulted from a decreased cost of funds at Foothill due to
the elimination of its senior and subordinated debt in late 1992, a significant
reduction in cost of funds at Foothill Capital due to an increase in outstanding
commercial paper and the effect of swap agreements. Specifically, at Foothill
Capital, net interest revenue as a percent of average assets increased from 7.3%
in 1992 to 8.4% in 1993.
Yearly net interest revenue comparisons are affected by, among other
things, differences in the amount of interest-free funds obtained by the Company
(for example, equity). The following table illustrates the source of funds
employed between interest-bearing borrowings and interest-free funds for the
past three years.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year ended
----------------------------------------------------------------------------
December 31, 1994 December 31, 1993 December 31, 1992
----------------- ----------------- -----------------
% OF % of % of
(Dollars in thousands) AMOUNT TOTAL Amount Total Amount Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average interest-bearing borrowings $473,621 73.7% $367,657 70.7% $336,118 74.9%
Average interest-free funds 168,858 26.3 152,448 29.3 112,823 25.1
- ------------------------------------------------------------------------------------------------------------------------------------
Total $642,479 100.0% $520,105 100.0% $448,941 100.0%
====================================================================================================================================
</TABLE>
ASSET MANAGEMENT FEES
The Company is a general partner of two limited partnerships. These
partnerships invest in debt instruments of companies in reorganization or in the
process of restructuring. The limited partners are required to pay the Company,
as a general partner, management fees based on the amount of subscribed capital.
Year ended December 31, 1994 compared to year ended December 31, 1993:
For the years ended December 31, 1994 and 1993, the Company recorded asset
management fees of $5,460,000 and $6,025,000, respectively. The decrease in 1994
was due primarily to a reduction in the level of assets managed, as Foothill
Fund and Foothill Recovery Fund were fully liquidated as of December 31, 1994.
Asset management fees received from Foothill Fund and Foothill Recovery Fund
were $467,000 and $763,000 for the years ended December 31, 1994 and 1993,
respectively.
Year ended December 31, 1993 compared to year ended December 31, 1992:
For the years ended December 31, 1993 and 1992, the Company recorded asset
management fees of $6,025,000 and $2,979,000, respectively. The increase in 1993
was due to a significant increase in the amount of money under management due to
the start of Foothill Partners II, L.P. in March 1993.
20
<PAGE> 5
GAINS FROM ASSET SALES AND MANAGED PARTNERSHIPS
Gains from asset sales are generated by sales or exchanges of finance
receivables and equity securities, and occur intermittently. Gains from managed
partnerships arise from profit distributions received from the Company's
investments in the Funds and vary by quarter, depending on the level of profits
generated within the partnerships. See additional information in "Investments."
Year ended December 31, 1994 compared to year ended December 31, 1993:
For the years ended December 31, 1994 and 1993, the Company recorded gains
from asset sales and managed partnerships of $24,899,000 and $18,260,000,
respectively. The increase in 1994 was due primarily to a significant increase
in profit distributions received from the Company's investments in the Funds and
a slight increase in net gains resulting from sales and exchanges of finance
receivables at Foothill Capital.
Year ended December 31, 1993 compared to year ended December 31, 1992:
For the years ended December 31, 1993 and 1992, the Company recorded gains
from asset sales and managed partnerships of $18,260,000 and $11,942,000,
respectively. The increase in 1993 was due primarily to a significant increase
in net gains resulting from sales and exchanges of finance receivables at
Foothill Capital and an increase in profit distributions received from the
Company's investment in the Funds.
INTEREST RATE FLUCTUATIONS
The Company attempts to minimize the effect of fluctuating interest rates
by approximately matching interest sensitive assets and liabilities. The
following table illustrates interest sensitive assets and liabilities at the
dates indicated:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
December 31,
--------------------------------------
(Dollars in thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets interest sensitive or maturing within 90 days $646,231 $517,584 $348,755
Liabilities interest sensitive or maturing within 90 days 524,495 446,871 322,415
- -----------------------------------------------------------------------------------------------------------------------------
Excess interest sensitive assets $121,736 $ 70,713 $ 26,340
=============================================================================================================================
</TABLE>
The Company monitors the relationship of interest sensitive assets and
liabilities in an attempt to minimize interest rate risk. The Company can also
"match" interest sensitive assets and liabilities through its balance between
lending to customers on a variable or fixed rate basis. During the last several
years at Foothill Capital, a number of fixed rate finance receivables and
investments were liquidated and replaced with interest sensitive assets. Since
1990, medium and long-term fixed rate indebtedness issued by Foothill Capital
has been converted into variable rate indebtedness through the use of interest
rate swaps which extend through the year 2001 and which totaled $285,000,000 at
December 31, 1994.
WRITEOFFS AND ALLOWANCE FOR CREDIT LOSSES
The Company maintains an allowance for possible losses at a level it
considers adequate to cover future potential losses on finance receivables. The
amount of the allowance is based on management's evaluation of numerous factors,
including historical loss experience and adequacy of collateral. The level of
the allowance is affected by the provision for losses charged to expense,
writeoffs and recoveries of amounts previously written off.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
December 31,
---------------------------------------
(Dollars in thousands) 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Finance receivables plus repossessed assets $659,912 $514,518 $396,677
Allowance for credit losses 17,260 14,057 10,527
Percent of such allowance to finance receivables plus repossessed assets 2.62% 2.73% 2.65%
Actual writeoffs during the year, net of recoveries 6,455 9,264 6,191
Provision for credit losses charged to income during the year 9,658 12,794 8,671
Percent of provision for credit losses to net writeoffs during the year 150% 138% 140%
Percent of net writeoffs to finance receivables plus repossessed assets 0.98% 1.80% 1.56%
=============================================================================================================================
</TABLE>
The provision for credit losses decreased from $12,794,000 at December 31,
1993 to $9,658,000 at December 31, 1994 due to a decrease in actual writeoffs at
Foothill Capital from $9,264,000 for the year ended December 31, 1993 to
$6,455,000 for the year ended December 31, 1994 combined with a slight decrease
in the general allowance for credit losses, as a percent of finance receivables
plus repossessed assets, from 2.73% to 2.62% at December 31, 1993 and 1994,
respectively.
NONPERFORMING FINANCE RECEIVABLES AND REPOSSESSED ASSETS
The following table contains information concerning delinquencies on loans
under which installments are more than sixty days past due, loans which are
contractually in default, other than discounted finance receivables, and for
which legal proceedings have been initiated to repossess or liquidate the
underlying collateral, and repossessed assets, all of which are classified as
nonperforming assets. Nonperforming assets have a significant negative effect on
interest margin and general and administrative expense since the
21
<PAGE> 6
Company does not recognize income on these accounts but does incur holding costs
(primarily interest expense). As the following table illustrates, the Company's
nonperforming assets as a percent of finance receivables plus repossessed assets
decreased from 3.17% at December 31, 1993 to 1.04% at December 31, 1994.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
December 31,
----------------------------------------
(Dollars in thousands) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Finance receivables plus repossessed assets $659,912 $514,518 $396,677
Loans more than 60 days past due 6,335 16,296 21,026
Percent of above to finance receivables plus repossessed assets 0.96% 3.17% 5.30%
Repossessed assets, net 556 - 1,782
Percent of above to finance receivables plus repossessed assets 0.08% - 0.45%
- ------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 6,891 $ 16,296 $ 22,808
- ------------------------------------------------------------------------------------------------------------------------------
Percent of above to finance receivables plus repossessed assets 1.04% 3.17% 5.75%
==============================================================================================================================
</TABLE>
As shown in the preceding table, nonperforming assets have decreased in
both dollars and as a percentage of finance receivables plus repossessed assets
in 1994. Historically, such percentage of nonperforming assets has generally
ranged between 3% and 6% of finance receivables plus repossessed assets and has
fluctuated within this range from quarter to quarter. Due to the Company's
increased emphasis on revolving loans and its ability to resolve and liquidate
problem accounts, nonperforming assets are currently 1.04% of finance
receivables plus repossessed assets. The Company expects continued fluctuations
in the amount of nonperforming assets. The Company's finance receivable
portfolio is well diversified within various industries, however, no assurances
can be given that nonperforming assets will not increase above the historical 3%
to 6% range. Material increases in nonperforming assets would have a significant
negative effect on the Company's net interest revenue and could also negatively
impact the Company's writeoff levels. See "Analysis of Net Interest Revenue" and
"Writeoffs and Allowance for Credit Losses."
The amount of loans more than 60 days past due can vary based on borrowers'
timeliness in servicing their obligations. Foreclosure proceedings can commence
at any time, but generally commence when no contractual payment has been made
within the past 91 days or more. Repossession occurs when the Company has taken
physical possession and title to the chattel or other property.
Repossessed assets and other nonperforming loans have been written down to
the lower of cost or fair value less selling costs. These values are based on
management's evaluation of numerous factors, including estimated holding costs
and periods prior to ultimate disposition, appraisals, sales of comparable
assets and estimated market conditions at projected disposal dates.
GENERAL AND ADMINISTRATIVE EXPENSE
The following table sets forth major items of general and administrative
expense for the periods indicated:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
---------------------------------------
(Dollars in thousands) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Employee related $17,384 $14,125 $11,194
Occupancy and office 2,167 1,908 1,589
Professional services 375 497 511
Data processing and communications 955 783 740
Credit and collection 2,227 1,041 1,040
Advertising 593 411 324
Insurance and bond premiums 473 371 342
Other 577 515 475
- ------------------------------------------------------------------------------------------------------------------------------
Total general and administrative expense $24,751 $19,651 $16,215
==============================================================================================================================
</TABLE>
Year ended December 31, 1994 compared to year ended December 31, 1993:
As a percent of average assets of continuing operations, general and
administrative expense remained constant at 3.9% for the years ended December
31, 1993 and 1994, respectively. In dollars, general and administrative expense
increased from $19,651,000 in 1993 to $24,751,000 in 1994. Foothill Capital had
an increase in general and administrative expense of $4,699,000 for the year
ended December 31, 1994 compared to the year ended December 31, 1993. The
increase in 1994 was primarily due to increases in employee compensation and
related expenses, data processing, occupancy, and credit and collection
expenses. Other categories remained relatively constant with prior years.
Year ended December 31, 1993 compared to year ended December 31, 1992:
As a percent of average assets of continuing operations, general and
administrative expense increased from 3.7% to 3.9% for the years ended December
31, 1992 and 1993, respectively. In dollars, general and administrative expense
increased from $16,215,000 in 1992 to $19,651,000 in 1993. Foothill Capital had
an increase in general and administrative expenses of $1,746,000 for the year
22
<PAGE> 7
ended December 31, 1993 compared to the year ended December 31, 1992. The
increase in 1993 was primarily due to increases in employee compensation levels
and related expenses and an increase in occupancy expense due to the lease of
additional office space.
PROVISION FOR INCOME TAXES
The 1994, 1993 and 1992 provision for income taxes was 43%, 42% and 41%,
respectively, which is based on combined state and federal statutory tax rates.
Effective January 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes." Under Statement No. 109, the liability method is
used in accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and the tax bases of assets and liabilities and are measured using the tax rates
that will be in effect when the differences are expected to reverse. Prior to
the adoption of Statement No. 109, income tax expense was determined using the
deferred method. Deferred tax expense was based on items of income and expense
that were reported in different years in the financial statements and tax
returns and were measured using the tax rate in effect in the year the
difference originated. As permitted by Statement No. 109, the Company has
elected not to restate the financial statements of any prior years. The effect
of the change on income at January 1, 1993 and for the year ended December 31,
1993 was not significant.
EXTRAORDINARY ITEMS
The extraordinary item in 1993 was due to the prepayment of approximately
$29,000,000 of 9.4% senior and 10.15% subordinated debt at Foothill Capital,
which was replaced with lower coupon debt. The nonrecurring extraordinary charge
resulted from prepayment penalties combined with the elimination of unamortized
deferred costs on the prepaid debt. The extraordinary item in 1993 is presented
net of provision for income taxes of $406,000. The extraordinary items in 1992
were due to the retirement of $9,229,000 face value of the Company's 14% senior
notes, $5,648,000 face value of the Company's 12.5% debentures and $9,375,000
face value of the Company's variable rate senior term note. These nonrecurring
extraordinary charges resulted from the elimination of unamortized deferred
costs on the aforementioned debt obligations which were retired in advance of
their scheduled maturities. The extraordinary items in 1992 are presented net of
provision for income taxes of $383,000.
CAPITAL RESOURCES
Growth of the Company's assets is dependent, in part, on its ability to
increase capital funds (common and/or preferred stock, retained earnings and
subordinated debt). The increase in capital funds in 1994 is due to the increase
in retained earnings resulting from continued profitability and the election of
a number of stock option holders to exercise their stock options, which
generated net proceeds of $1,262,000. These increases in capital funds were
offset by payments on subordinated notes, a decrease in equity arising from a
reduction in unrealized gains on marketable debt and equity securities, and the
repurchase and retirement of a portion of the Company's stock which totaled
$3,724,000. The increase in capital funds in 1993 was due to the issuance of
subordinated notes at Foothill Capital, the increase in retained earnings
resulting from continued profitability and the increase in equity as a result of
adoption of FASB Statement No. 115 (see Note 12 of Notes to Consolidated
Financial Statements). During 1993, a number of stock option holders also
elected to exercise their stock options, which generated $2,112,000 of capital
funds. The increase in capital funds in 1992 was due primarily to the sale of
3,450,000 Class A common shares of the Company which generated net proceeds of
$26,677,000. During 1992, a number of stock option holders also elected to
exercise their stock options. Exercise of these options generated proceeds of
$2,448,000, which increased the capital funds of the Company. Total capital
funds were as follows on the dates indicated:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31,
----------------------------------------------
(Dollars in thousands) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total capital funds $222,960 $205,872 $177,952
====================================================================================================================================
</TABLE>
Under the terms of various loan agreements, Foothill Capital cannot exceed
certain maximum senior debt to capital funds ratios. At December 31, 1994,
Foothill Capital was in compliance with such loan agreement covenants. Foothill
Capital had a ratio of senior debt to capital funds of 2.6:1 at December 31,
1994, which was less than the maximum 3.2:1, as defined and allowable under its
most restrictive loan agreements.
In addition to borrowing from external sources, Foothill Capital is
capitalized by loans and equity investments from Foothill. Repayment of such
loans or equity investments is subject to restrictions under the various loan
agreements mentioned above. At December 31, 1994, Foothill's aggregate equity
investment in Foothill Capital was $132,309,000 and its advances to Foothill
Capital were $8,750,000, which was in the form of subordinated debt.
LIQUIDITY
Liquidity is the ability to meet cash requirements such as payment of
maturing debt obligations or availability of loan funds for existing or new
customers' borrowing needs.
The primary source of Foothill Capital's short-term funding is commercial
paper and other short-term borrowings, which represented 41% of its total debt
outstanding as of December 31, 1994. During 1994, commercial paper borrowings
increased by
23
<PAGE> 8
$66,614,000 to $214,897,000 at December 31, 1994, and were used primarily to
fund growth in the finance receivable portfolio. Commercial paper borrowings are
supported by two committed revolving credit facilities with 23 banks, which
totaled $345,000,000 at December 31, 1994. As of February 1, 1995, the credit
facilities were increased to an aggregate of $375,000,000. The credit facilities
consist of a $230,000,000 multi-year revolving credit facility expiring on June
30, 1997 and a $115,000,000 revolving credit facility expiring on June 29, 1995.
The $115,000,000 revolving credit facility allows the Company to convert
outstanding borrowings into a one-year term loan prior to maturity. As of
December 31, 1994, Foothill Capital had $120,103,000 in availability (total
amount of credit facilities minus outstanding commercial paper and bank
borrowings) under its bank credit facility.
During 1994, Foothill Capital issued privately an aggregate total of
$60,000,000 in senior notes consisting of $35,000,000 of variable rate notes
with a maturity of one year, $5,000,000 of variable notes with a maturity of two
years, and $20,000,000 of fixed rate notes with a maturity of two and one-half
years. During 1993, Foothill Capital issued $70,000,000 of variable and fixed
rate senior notes with maturities ranging from one to seven years and
$25,000,000 in fixed rate senior subordinated notes with a final maturity of ten
years. Proceeds from these debt issuances were used to prepay approximately
$29,000,000 of higher coupon senior and subordinated debt, repay debt maturing
during 1993, and fund growth in Foothill Capital's finance receivable portfolio.
The prepayment of the higher coupon notes resulted in an extraordinary after tax
charge of $561,000 in the fourth quarter of 1993. During 1992, Foothill Capital
issued $100,000,000 of senior notes with maturities from three to seven years
and $10,000,000 of subordinated notes with final maturities of ten years. During
the past five years, Foothill Capital has reduced its overall reliance on
short-term sources of financing.
Foothill Capital's total capitalization of $684,139,000 at December 31,
1994 consisted of stockholder's equity of $132,309,000 and debt of $551,830,000.
Foothill Capital's debt-to-equity ratio at December 31, 1994 was 4.2 to 1
compared to 3.9 to 1 at December 31, 1993. Included in the debt of Foothill
Capital at December 31, 1994 was $8,750,000 of junior subordinated notes payable
to Foothill. Foothill Capital has paid no dividends to Foothill during the past
three years. The repayment of subordinated debt and payment of dividends are
limited by the provisions of Foothill Capital's debt agreements with its bank
and institutional lenders. Dividends to Foothill are currently limited to 50% of
net income and as of December 31, 1994, Foothill Capital could pay $26,712,000
in dividends to Foothill.
Foothill Capital, in the normal course of its operations, uses interest
rate swap transactions to effectively convert its fixed rate debt obligations to
floating rate in order to match its primarily floating rate finance receivable
portfolio and hedge the Company's exposure to interest rate fluctuations. At
December 31, 1994, Foothill Capital maintained interest rate swap agreements
with notional amounts aggregating $285,000,000 with seven major financial
institutions as counterparties. At December 31, 1994, each counterparty was
rated A or better by one or more major credit agencies. At December 31, 1994,
after giving effect to the interest rate swap agreements, Foothill Capital's
interest sensitive assets exceeded its interest sensitive liabilities by
approximately $86,267,000, which represented approximately 12% of its total
assets.
Foothill Capital's commercial paper is rated "A-2" by Standard and Poor's
Ratings Group, "D-2" by Duff & Phelps Credit Rating Co. and "F-2" by Fitch
Investors Service, Inc. The Company's senior debt rating is "BBB" by Standard
and Poor's and "BBB+" by Duff & Phelps. In addition, Foothill Capital's senior
obligations are rated "BBB+" by Fitch.
The Company believes that Foothill Capital's liquidity requirements in the
foreseeable future will be satisfied through internally generated funds,
commercial paper and term debt issuance, as well as with unused portions of its
bank lines of credit and revolving credit facilities.
The major cash outflows of Foothill have historically consisted of payments
of interest and principal on its indebtedness and taxes. However, Foothill
eliminated most of its senior indebtedness in 1992 using proceeds of the
previously noted common stock offering. Subordinated indebtedness was also
eliminated during 1992 as $13,473,000 in 9.5% convertible subordinated
debentures were converted to Class A common stock. The balance of the 9.5%
debentures totaling $601,000 as well as $4,948,000 in 12.5% subordinated
debentures were redeemed in 1992 for cash. In February 1993, the Company's Board
of Directors reinstituted its regular quarterly cash dividend. Cash dividends
declared by the Company's Board of Directors on its Class A Common Stock totaled
$.22 and $.14 for the years ended December 31, 1994 and 1993, respectively. In
1994, Foothill's cash requirements consisted primarily of expenditures for
general and administrative costs, tax payments, payments on its remaining
liabilities, and payment of preferred and common stock dividends. These
expenditures are funded largely through management fees and profits earned in
its asset management operations as well as by management fees and loan
repayments by Foothill Capital. Management believes these potential sources of
liquidity should be sufficient to meet its obligations for the foreseeable
future.
INFLATION
The Company attempts to protect itself from the impact of inflation on
interest rates by approximately matching interest sensitive assets with interest
sensitive liabilities. See "Interest Rate Fluctuations." Over the past several
years, inflation has caused moderate increases in general and administrative
expenses.
24
<PAGE> 9
PARTICIPATION IN HIGHLY LEVERAGED TRANSACTIONS
Since inception, Foothill and its subsidiaries have been in the commercial
finance business. This business includes revolving and term lending on a secured
basis. Such business has historically involved a higher degree of credit risk
than unsecured or partially secured commercial lending.
Foothill Capital's portfolio of finance receivables includes loans made to
highly leveraged borrowers and loans made in conjunction with corporate
recapitalizations and bankruptcy reorganizations. Foothill Capital has been
involved with transactions of this nature since 1972.
Foothill Capital has historically extended credit lines up to $70,000,000
by participating portions of these lines with other commercial finance lenders.
Under the terms of its various borrowing agreements, Foothill Capital's largest
allowable loan (net of participations) at December 31, 1994 was $28,741,000.
Foothill Capital's largest loan (net of participations) to any borrower and its
affiliates was $17,886,000 and $13,568,000 at December 31, 1994 and 1993,
respectively. Loans in this portfolio are made in industries including wholesale
trade, manufacturing, health care, real estate and numerous others.
Since Foothill and its subsidiary have been involved with highly leveraged
transactions since inception, it is unlikely that its involvement in
transactions of this nature will be curtailed in the foreseeable future.
INVESTMENTS
The Company had $38,301,000 and $32,842,000 at December 31, 1994 and 1993,
respectively, in its investment portfolio including some investments which are
in unrated or less than investment grade corporate securities. This portfolio
includes numerous debt and equity security positions as well as partnership
investment positions held by the Company. (See Note 1 of Notes to Consolidated
Financial Statements.) Some of these investments are in companies undergoing
reorganization or restructuring.
At December 31, 1993, the Company adopted the requirements of FASB
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," and classified its marketable debt and equity securities as
"available for sale." Accordingly, these securities have been marked-to-market,
with the increase in their carrying value, net of income tax, included as a
component of stockholders' equity. Estimated unrealized market appreciation
before income taxes as of December 31, 1994 and 1993 was $28,107,000 and
$37,805,000, respectively.
Foothill is also a general partner in two limited partnerships, Foothill
Partners, L.P., and Foothill Partners II, L.P. (the "Funds"). The Funds were
established to invest in performing and nonperforming senior bank debt of
distressed companies. Foothill's investments in the Funds are accounted for on
an equity basis. (See Note 1 of Notes to Consolidated Financial Statements.)
Investments in unrated or less than investment grade corporate securities
have different risks than other investments in corporate securities rated
investment grade. Risk of loss upon default by the borrower is significantly
greater with respect to such corporate securities than with other corporate
securities because these securities are generally unsecured and are often
subordinated to other creditors of the issuer, and because these issuers usually
have higher levels of indebtedness and are more sensitive to adverse economic
conditions, such as recession or increasing interest rates, than are investment
grade issuers. Current market values of corporate securities are estimated by
the Company's management based primarily on public market quotations for the
majority of the securities.
25
<PAGE> 10
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1994 and 1993 The Foothill Group, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 33,584,000 $ 50,907,000
Equity, debt and partnership investments 38,301,000 32,842,000
Finance receivables (Note 2):
Revolving loans 481,063,000 326,373,000
Term loans 178,293,000 188,145,000
- ------------------------------------------------------------------------------------------------------------------------------------
Finance receivables 659,356,000 514,518,000
Allowance for credit losses (Note 3) 17,260,000 14,057,000
- ------------------------------------------------------------------------------------------------------------------------------------
Finance receivables, net 642,096,000 500,461,000
Repossessed assets, net 556,000 -
Deferred income tax assets (Note 7) 10,463,000 9,009,000
Deferred fund and debt issuance costs, net 7,598,000 9,897,000
Property and equipment, at cost less accumulated depreciation and
amortization ($2,438,000 in 1994; $1,769,000 in 1993) 2,387,000 2,269,000
Other assets 3,205,000 1,122,000
- ------------------------------------------------------------------------------------------------------------------------------------
$738,190,000 $606,507,000
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Commercial paper (Note 4) $214,897,000 $148,283,000
Other short-term borrowings (Note 4) 10,000,000 -
Senior notes payable (Note 4) 268,829,000 237,404,000
Accounts payable and accrued liabilities 21,504,000 14,948,000
Subordinated notes and debentures (Note 5) 50,550,000 53,725,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 565,780,000 454,360,000
- ------------------------------------------------------------------------------------------------------------------------------------
Lease commitments (Note 8)
Contingencies (Note 10)
Stockholders' equity (Note 6):
Convertible preferred stock, $1.00 par value, $30.00 per share liquidation
preference, 9% cumulative, 100,000 shares issued and outstanding 2,900,000 2,900,000
Class A common stock, no par value, 16,420,410 shares issued and
outstanding (16,538,874 at December 31, 1993) 99,048,000 101,285,000
Unrealized gains, net of tax, on marketable debt and equity securities 15,001,000 19,672,000
Retained earnings 55,461,000 28,290,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 172,410,000 152,147,000
- ------------------------------------------------------------------------------------------------------------------------------------
$738,190,000 $606,507,000
====================================================================================================================================
</TABLE>
See accompanying notes.
26
<PAGE> 11
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31, 1994, 1993 and 1992 The Foothill Group, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and fees earned $87,088,000 $65,125,000 $54,988,000
Interest expense 28,519,000 21,064,000 24,268,000
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest revenue 58,569,000 44,061,000 30,720,000
Asset management fees 5,460,000 6,025,000 2,979,000
Gains from asset sales and managed partnerships 24,899,000 18,260,000 11,942,000
Provision for credit losses 9,658,000 12,794,000 8,671,000
General and administrative 24,751,000 19,651,000 16,215,000
- ---------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 54,519,000 35,901,000 20,755,000
Provision for income taxes (Note 7) 23,443,000 15,078,000 8,621,000
- ---------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 31,076,000 20,823,000 12,134,000
Income (loss) from discontinued operations - (1,579,000) 563,000
- ---------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary items 31,076,000 19,244,000 12,697,000
Extraordinary items (Note 11) - (561,000) (552,000)
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $31,076,000 $18,683,000 $12,145,000
=================================================================================================================================
Earnings per share:
Primary:
Income from continuing operations $ 1.83 $ 1.23 $ 0.89
Income (loss) from discontinued operations - (0.09) 0.04
Extraordinary items - (0.03) (0.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings per common and common equivalent share $ 1.83 $ 1.11 $ 0.89
=================================================================================================================================
Fully diluted:
Income from continuing operations $ 1.77 $ 1.20 $ 0.81
Income (loss) from discontinued operations - (0.09) 0.04
Extraordinary items - (0.03) (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings per common share assuming full dilution $ 1.77 $ 1.08 $ 0.82
=================================================================================================================================
Number of shares used in per share computations:
Primary 16,854,000 16,683,000 13,730,000
=================================================================================================================================
Fully diluted 17,527,000 17,363,000 15,650,000
=================================================================================================================================
</TABLE>
See accompanying notes.
27
<PAGE> 12
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years ended December 31, 1994, 1993 and 1992 The Foothill Group, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized
Convertible Class A Common Stock Gains on
Preferred --------------------- Securities Retained
Stock Shares Amount Available for Sale Earnings
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1991 $2,900,000 10,264,825 $56,370,000 $ - $15,235,000
Issuance of common stock (Note 6) - 3,450,000 26,677,000 - -
Conversion of 9.5% subordinated
debentures (Note 6) - 1,886,906 13,346,000 - -
Purchase of stock under employee stock
purchase plan (Note 6) - 33,251 168,000 - -
Exercise of stock options (Note 6) - 568,541 2,448,000 - -
Dividends on preferred stock - - - - (277,000)
Net income - - - - 12,145,000
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1992 2,900,000 16,203,523 99,009,000 - 27,103,000
Purchase of stock under employee stock
purchase plan (Note 6) - 19,460 164,000 - -
Exercise of stock options (Note 6) - 315,891 1,525,000 - -
Tax benefit from exercise of stock options - - 587,000 - -
Dividends on preferred stock - - - - (270,000)
Dividends declared on common stock ($.14 per share) - - - - (2,308,000)
Dividends on spin-off of discontinued operations - - - - (14,918,000)
Unrealized gains on securities available for sale
(Note 12) - - - 19,672,000 -
Net income - - - - 18,683,000
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1993 2,900,000 16,538,874 101,285,000 19,672,000 28,290,000
Purchase of stock under employee stock
purchase plan (Note 6) - 16,578 225,000 - -
Exercise of stock options (Note 6) - 158,126 828,000 - -
Tax benefit from exercise of stock options - - 434,000 - -
Repurchase and retirement of common stock - (293,168) (3,724,000)
Dividends on preferred stock - - - - (270,000)
Dividends declared on common stock ($.22 per share) - - - - (3,635,000)
Unrealized gains on securities available for sale
(Note 12) - - - (4,671,000) -
Net income - - - - 31,076,000
- ------------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1994 $2,900,000 16,420,410 $99,048,000 $15,001,000 $55,461,000
====================================================================================================================================
</TABLE>
See accompanying notes.
28
<PAGE> 13
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31, 1994, 1993 and 1992 The Foothill Group, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
------------------------------------------------------------
1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Income from continuing operations before extraordinary items $ 31,076,000 $ 20,823,000 $ 12,134,000
Adjustments to reconcile income from continuing operations before
extraordinary items to net cash provided by operating activities:
Provision for credit losses 9,658,000 12,794,000 8,671,000
Depreciation and amortization 732,000 560,000 524,000
Amortization of deferred fund and debt issuance costs 2,291,000 2,345,000 1,752,000
Increase in accounts payable and accrued liabilities 6,399,000 2,246,000 7,543,000
Net income (loss) from discontinued operations - (1,579,000) 563,000
Other (3,934,000) (444,000) 3,860,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 46,222,000 36,745,000 35,047,000
- ------------------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Net proceeds from investment sales and partnership distributions 2,285,000 10,299,000 2,914,000
Contributions made to partnerships and purchases of investments (5,748,000) (3,950,000) (3,125,000)
Payments received from net finance receivables
and sales of repossessed assets 7,490,842,000 4,613,538,000 3,729,191,000
Disbursements made for net finance receivables
and repossessed assets (7,648,962,000) (4,745,171,000) (3,737,457,000)
Purchase of property and equipment (850,000) (1,277,000) (642,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (162,433,000) (126,561,000) (9,119,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Net (increase) decrease in deferred fund and debt issuance costs 8,000 (4,550,000) (5,348,000)
Proceeds from commercial paper sales 1,676,022,000 786,633,000 661,540,000
Payments on commercial paper maturities (1,609,408,000) (703,265,000) (607,511,000)
Proceeds from senior notes payable and net bank borrowings 70,000,000 72,556,000 100,000,000
Payments on senior notes payable and net bank borrowings (28,576,000) (54,811,000) (167,235,000)
Proceeds from subordinated notes and debentures - 25,000,000 10,000,000
Payments on and retirements of subordinated notes and debentures (3,175,000) (21,215,000) (10,738,000)
Issuance of common stock, net of related costs 1,487,000 2,276,000 29,175,000
Repurchase and retirement of common stock (3,724,000) - -
Dividends paid per common share ($.21 in 1994, $.09 in 1993) (3,476,000) (1,396,000) -
Dividends paid on preferred stock (270,000) (270,000) (416,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 98,888,000 100,958,000 9,467,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (17,323,000) 11,142,000 35,395,000
Cash and cash equivalents at beginning of year 50,907,000 39,765,000 4,370,000
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 33,584,000 $ 50,907,000 $ 39,765,000
====================================================================================================================================
Cash paid during the year for:
Interest expense $ 27,529,000 $ 20,962,000 $ 23,654,000
Income taxes $ 24,463,000 $ 14,978,000 $ 12,140,000
====================================================================================================================================
</TABLE>
See accompanying notes.
29
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994 The Foothill Group, Inc.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Foothill Group, Inc. ("Foothill") is a financial services company
engaged principally in the commercial finance business through its wholly owned
subsidiary, Foothill Capital Corporation ("Foothill Capital"). Foothill also
engages in other activities including money management for institutional
investors through the operation of two limited partnerships. Unless the context
otherwise indicates, the "Company" refers to Foothill and its subsidiary. The
consolidated financial statements include the accounts of Foothill and Foothill
Capital. All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain reclassifications have been made to prior
year amounts to conform to the 1994 presentation. For purposes of the Statements
of Cash Flows, the Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
Effective December 23, 1993, Foothill completed the spin-off of its
Foothill Thrift and Loan subsidiary to Foothill shareholders. All previously
reported financial results of Foothill Thrift and Loan, through the record date
for the spin-off, are classified as discontinued operations. Revenues of
Foothill Thrift and Loan totaled $21,658,000 and $23,131,000 for the years ended
December 31, 1993 and 1992, respectively.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the year. Actual results in future periods could be different from those
estimates made in the current year. Estimates particularly susceptible to
significant change relate to the level of the allowance for credit losses and
the valuation of marketable debt and equity securities.
Equity, Debt and Partnership Investments
Equity securities were primarily received as a result of exchanges of
non-public debt and discounted receivables for new securities of the reorganized
debtors. At December 31, 1993, the Company adopted the requirements of FASB
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" and classified its marketable debt and equity securities as
"available for sale." Accordingly, these securities have been marked-to-market,
with the increase in their carrying value, net of income tax, included as a
component of stockholders' equity. The Company has recorded valuation
adjustments in cases where an "other than temporary" impairment in estimated net
realizable value below the Company's cost basis in investments is believed to
have occurred.
Included in partnership investments are two limited partnerships, Foothill
Partners, L.P. and Foothill Partners II, L.P. (the "Funds"), in which the
Foothill is a general partner. The 1% general partnership interest in Foothill
Partners, L.P. is owned 60% by the Company and 40% by certain of its officers as
individuals. The 1% general partnership interest in Foothill Partners II, L.P.
is owned 48% by the Company and 52% by certain of its officers as individuals.
The general partners make all investment decisions on behalf of the partnerships
and manage their operations. Foothill Partners, L.P. and Foothill Partners II,
L.P. were established to invest in performing and nonperforming senior bank
loans of distressed companies. The Foothill Fund and Foothill Recovery Fund were
fully liquidated as of December 31, 1994. The Company's investments in the Funds
are accounted for on an equity basis and totaled $2,449,000 and $1,892,000 at
December 31, 1994 and 1993, respectively.
Finance Receivables
Finance receivables are stated at the principal amount net of unearned
discounts and deferred fees (net of costs). Interest income includes interest on
finance receivables and investments, which is recognized as earned using the
interest method, and amortization of loan fees. Loan fees, net of incremental
direct costs, are deferred and recognized over the term of the loan commitment
using the interest method.
It is the Company's general policy to suspend the recognition of income on
term loans which are 61 days or more contractually delinquent. Recognition of
income is generally resumed, and suspended income is recognized when the loan
becomes contractually current or collection of suspended amounts is assured.
One of the Company's lending activities, primarily at Foothill Capital in
conjunction with managed partnerships, involves the purchase of discounted
finance receivables which are generally due from borrowers in reorganization or
in the midst of restructuring. The Company does not amortize discounts into
income but does recognize interest income as paid on a cash basis.
It is the Company's general policy to suspend recognition of income on debt
investments which become contractually delinquent as to timely payment of
principal or interest. Recognition of income may be resumed and suspended income
recognized when the investment becomes contractually current or collection of
suspended amounts is assured.
Allowance for Credit Losses
The Company maintains a general allowance for credit losses at an amount
deemed adequate to cover potential losses on finance receivables. The amount of
the allowance is based on management's evaluation of numerous factors, including
adequacy of collateral supporting finance receivables as well as historical loss
experience and reflects management's best estimate of the necessary level of the
allowance for credit losses.
30
<PAGE> 15
Repossessed Assets
Repossessed assets are included in the financial statements at the lower of
cost or fair value less selling costs. Estimated realizable values are based on
management's evaluation of numerous factors, including estimated holding costs
and periods, appraisals, sales of comparable assets and estimated market
conditions at projected disposal dates, and do not necessarily represent current
auction values. The Company's writeoff policy is based on a loan by loan review.
Repossessed assets, net of specific writedowns, were $556,000 as of December 31,
1994. The Company did not have any repossessed assets as of December 31, 1993.
Deferred Fund and Debt Issuance Costs
At December 31, 1994, there are $7,132,000 ($8,926,000 at December 31,
1993) in unamortized syndication costs, including fees to placement agents,
relating to the formation of partnerships managed by the Company. Such deferred
costs are amortized on a straight-line basis over the lives of the partnerships.
Debt issuance costs are amortized using the interest method over the applicable
lives of the debt instruments.
Asset Management Fees
Management fees from the Funds are recorded net of amortized deferred fund
issuance costs and totaled $5,460,000, $6,025,000 and $2,979,000 for the years
ended December 31, 1994, 1993 and 1992, respectively.
Recognition of Gains from Asset Sales and Managed Partnerships
Gains from asset sales result principally from sales and exchanges of
marketable debt and equity securities and totaled $16,618,000, $13,198,000 and
$9,356,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
The net gains in 1994, 1993 and 1992 were composed of gross realized gains of
$17,142,000, $13,602,000 and $10,230,000 and gross realized losses of $524,000,
$404,000 and $874,000, respectively, resulting from sales of these securities
whose gross sales proceeds totaled $70,077,000, $60,967,000 and $48,777,000,
respectively. Included in the 1994, 1993 and 1992 proceeds are cash proceeds of
$53,336,000, $45,673,000 and $45,726,000, respectively, and noncash proceeds of
$16,741,000, $15,294,000 and $3,051,000, respectively, which resulted from
investment reorganizations or exchanges.
The Company recognized earnings using the equity method for its investments
in the Funds during the years ended December 31, 1994, 1993 and 1992 of
$8,281,000, $5,062,000 and $2,586,000, respectively.
Income Taxes
The Company and its subsidiary file a consolidated federal income tax
return and combined state tax returns. Certain income and expense items,
primarily related to investments, exchange and repossession transactions and the
allowance for credit losses, are accounted for in different time periods for
financial reporting purposes as compared to income tax purposes. Appropriate
provisions are made in the consolidated financial statements for deferred or
prepaid taxes in recognition of these timing differences.
FASB Statement No. 109 "Accounting for Income Taxes" was implemented
effective January 1, 1993. Under the new rules, deferred taxes are recognized
using the liability method, and tax rates are applied to cumulative temporary
differences based on when and how they are expected to affect the tax return.
Deferred tax assets and liabilities are adjusted for tax rate changes. Under the
rules previously applied, deferred taxes were measured using tax rates in the
year in which timing differences arose and were not adjusted for tax rate
changes. Application of the new rule did not have a significant impact on the
Company's financial position or income from continuing operations.
Earnings Per Common Share and Income Applicable to Common Stock
In 1994, 1993 and 1992, primary earnings per common and common equivalent
share were determined by dividing net income by the weighted average number of
common and dilutive common equivalent shares outstanding. Fully diluted earnings
per share calculations in 1992 reflect the additional dilution of the 9.5%
convertible subordinated debentures and the resultant increased availability of
earnings due to the reduction of interest expense on these debentures, using the
"if converted" method. Fully diluted earnings per share are no longer impacted
in this fashion due to the elimination of these debentures in 1992. In 1994,
1993 and 1992, fully diluted earnings per share calculations also reflect the
additional dilution which would occur through the conversion of the Company's
convertible preferred stock and the resultant increased availability of earnings
due to the elimination of the cumulative dividend on this preferred stock.
Income applicable to common stock after deducting preferred stock dividends
of $270,000, $270,000 and $277,000 totaled $30,806,000, $18,413,000 and
$11,868,000 in 1994, 1993 and 1992, respectively.
NOTE 2. FINANCE RECEIVABLES
The Company is engaged primarily in the commercial finance business which
includes revolving and term lending. The Company's loans are secured by accounts
receivable, inventory, real estate and/or personal property, equipment and other
assets. The Company attempts to offset lending risk by providing credit only on
a fully collateralized basis.
The largest industry concentrations, as a percent of finance receivables,
at December 31, 1994, and as defined by the two digit standard industrial
classifications, were wholesale trade -- durable goods (12.0%), credit agencies
other than banks (7.3%); wholesale trade -- nondurable goods (7.2%); and
machinery (5.9%). With the exception of California, which represents 29.3% of
the finance receivable portfolio at December 31, 1994, the Company's loans are
not concentrated geographically.
Revolving loans are normally contractually due within three years under
revolving credit agreements. These loans, totaling $481,063,000 ($326,373,000 in
1993), are shown at the unpaid balance of cash advanced and are secured by
$1,888,934,000 of
31
<PAGE> 16
NOTE 2. FINANCE RECEIVABLES (Continued)
underlying trade accounts receivable and inventory at December
31, 1994 ($1,346,172,000 in 1993). The amounts of cash advanced under these
loans is based upon stated percentages of the borrowers' eligible trade accounts
receivable and specific advance rates on borrowers' eligible inventory. Yields
on revolving loans for the years ended December 31, 1994, 1993, and 1992
exceeded the average prime rate by 8.1%, 6.9% and 6.9%, respectively. The
average prime rates for the years ended December 31, 1994, 1993, and 1992 were
7.1%, 6.0% and 6.3%, respectively.
Generally, term loans are due over periods up to five years and are
collateralized by security agreements on various types of equipment, other
assets and/or mortgages on real property. This category includes term loans
originated by the Company to borrowers in conjunction with revolving loans, as
well as on a stand-alone basis. This category also includes nonoriginated loans,
primarily at Foothill Capital, which are defined as non-public debt instruments
including bank loans and private placements, public debt instruments including
registered bonds, notes and debentures, and discounted receivables (which
includes public debt instruments and non-public debt instruments acquired at
significant discounts and which were in contractual default at the time of the
Company's purchase) originated by other lenders and purchased by the Company. At
December 31, 1994 and 1993, nonoriginated loans totaled $35,388,000 and
$45,169,000, respectively. The Company generally becomes a member of a group of
several lenders with respect to each of these nonoriginated loans. Average
yields on term loans for the years ended December 31, 1994, 1993, and 1992 were
11.0%, 10.2% and 11.0%, respectively.
Finance receivables have been reduced by unearned income of $11,506,000 and
$7,160,000 at December 31, 1994 and 1993, respectively. Unearned finance income
is primarily composed of deferred loan fees on finance receivables.
The following table shows the net amounts due (excluding the allowance for
credit losses) in the various lending categories and the percentages of the
total represented by each category at December 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
1994 1993
------------------------- ----------------------------
% OF % of
AMOUNT TOTAL Amount Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revolving loans:
Originated loans $476,975,000 72.3% $315,990,000 61.4%
Purchased loans:
Discounted receivables 4,088,000 0.6 10,383,000 2.0
- ---------------------------------------------------------------------------------------------------------------------------------
Total revolving loans 481,063,000 72.9 326,373,000 63.4
- ---------------------------------------------------------------------------------------------------------------------------------
Term loans:
Originated loans:
Revolving related 67,925,000 10.4 52,555,000 10.2
Stand alone 79,068,000 12.0 100,804,000 19.6
Purchased loans:
Non-public debt instruments - - 4,587,000 0.9
Discounted receivables 31,300,000 4.7 30,199,000 5.9
Public debt instruments - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Total term loans 178,293,000 27.1 188,145,000 36.6
- ---------------------------------------------------------------------------------------------------------------------------------
$659,356,000 100.0% $514,518,000 100.0%
=================================================================================================================================
</TABLE>
At December 31, 1994 and 1993, finance receivables have been reduced by
nonrecourse loan participations of $210,774,000 and $98,260,000, respectively.
The approximate contractual principal maturities for loans, net of premiums
and discounts associated with purchased loans, by category are as follows at
December 31, 1994:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Term Loans
-----------------------------------------------
Revolving Loans Originated Loans Purchased
----------------------- ------------------ -----------
Discounted Revolving Stand Discounted
(Dollars in thousands) Originated Receivables Related Alone Receivables Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 $158,660 $1,419 $18,886 $17,621 $ 4,625 $201,211
1996 149,381 1,326 21,742 9,733 6,831 189,013
1997 116,797 1,041 5,809 31,789 2,677 158,113
1998 4,937 302 4,124 3,925 3,749 17,037
1999 46,841 - 17,364 7,320 5,500 77,025
Thereafter 359 - - 8,680 7,918 16,957
- ---------------------------------------------------------------------------------------------------------------------------------
Total $476,975 $4,088 $67,925 $79,068 $31,300 $659,356
=================================================================================================================================
</TABLE>
Foothill Capital has agreements to jointly purchase loans with Foothill
Partners, L.P. and Foothill Partners II, L.P., limited partnerships in which
Foothill is a general partner. At December 31, 1994, loans outstanding which
were purchased under these agree-
32
<PAGE> 17
ments by the Foothill Capital amounted to $33,056,000. Loan purchases, under
both of these agreements, are subject to Foothill Capital's normal due diligence
and loan approval processes.
At December 31, 1994 and 1993, income recognition was suspended on $405,000
and $10,366,000, respectively, of term loans. In addition, at December 31, 1994
and 1993, the Company had $5,930,000 in revolving loans in the process of
liquidation on which income had been deferred.
Discounted finance receivables which were paying interest currently totaled
$25,205,000 and $34,299,000 at December 31, 1994 and 1993, respectively.
Interest income is not accrued or recognized on the remaining discounted finance
receivables which totaled $10,183,000 and $6,283,000 at December 31, 1994 and
1993, respectively.
In May 1993, the Financial Accounting Standards Board issued Statement No.
114, "Accounting By Creditors for Impairment of a Loan." This Statement
addresses the accounting by creditors for impairment of certain loans. It
requires that values for impaired loans generally be measured based on the
present value of expected future cash flows discounted at the loan's effective
rate unless the loans are fully collateralized. This Statement is effective for
fiscal years beginning after December 15, 1994. Management believes that the
adoption of this pronouncement will not significantly impact the Company's
financial position or results of operations.
NOTE 3. ALLOWANCE FOR CREDIT LOSSES
Activity in the allowance for credit losses for the years ended December 31
is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance for credit losses on finance receivables:
Balance at beginning of year $14,057,000 $10,527,000 $ 8,047,000
Provision for credit losses 9,658,000 12,794,000 8,671,000
Actual writeoffs, net (6,455,000) (9,264,000) (6,191,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $17,260,000 $14,057,000 $10,527,000
====================================================================================================================================
</TABLE>
The Company maintains a general allowance for credit losses at an amount
deemed adequate to cover potential losses on finance receivables. The amount of
the allowance is based on management's evaluation of numerous factors, including
adequacy of collateral supporting finance receivables as well as historical loss
experience and reflects management's best estimate of the necessary level of the
allowance for credit losses.
NOTE 4. SENIOR NOTES PAYABLE AND COMMERCIAL PAPER
Commercial paper, other short-term borrowings and senior notes payable
consist of the following at December 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial paper $214,897,000 $148,283,000
Other short-term borrowings 10,000,000 -
Senior notes payable:
Notes with interest at 9.25% payable semiannually, principal payable in annual
installments of $8,000,000 commencing March 1995 through March 1998,
with the balance due in March 1999 40,000,000 40,000,000
Notes with interest at 9.8% payable semiannually, principal payable in annual
installments of $5,850,000 through December 1998, with balance due in
December 1999 29,300,000 35,150,000
Notes with interest ranging from 5.54% to 10.35% payable semiannually with
principal maturities ranging from January 1995 to November 2000 158,000,000 148,000,000
Notes with floating interest payable quarterly with principal maturities
ranging from June 1995 to September 1996 41,196,000 3,587,000
Notes with floating interest paid in 1994 - 10,000,000
Notes with interest at 13.125% payable semiannually, principal payable in
semiannual installments of $167,000 through November 1995 333,000 667,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total senior notes payable 268,829,000 237,404,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total senior notes payable, other short-term borrowings and commercial paper $493,726,000 $385,687,000
====================================================================================================================================
</TABLE>
Foothill Capital has committed revolving credit facilities with banks
totaling $345,000,000 ($235,000,000 in 1993) which are used primarily to support
commercial paper outstanding. Interest rates under these facilities are based on
the prime lending rate or, at Foothill Capital's option, at a certain spread
over the London Interbank Offered Rate ("LIBOR"). The credit facilities consist
of a $230,000,000 multi-year revolving credit facility expiring on June 30, 1997
and a $115,000,000 revolving credit facility expiring on June 29, 1995. The
$115,000,000 revolving credit facility allows Foothill Capital to convert
outstanding borrowings into a one-year term loan prior to maturity. Foothill
Capital also has two uncommitted lines of credit with banks totaling $30,000,000
which are used for overnight borrowings. The interest rates under these lines
are based on the daily Federal Funds rate.
33
<PAGE> 18
NOTE 4. SENIOR NOTES PAYABLE AND COMMERCIAL PAPER (CONTINUED)
Except for a floating rate note of $1,196,000 with a final maturity of June
1995, all notes above are obligations of Foothill Capital. Most loan agreements
relating to the notes and the subordinated notes discussed in Note 5 have
covenants which must be met. At December 31, 1994 and during the year then
ended, Foothill Capital was in compliance with such covenants. Under the more
restrictive provisions of the agreements, Foothill Capital must maintain minimum
net worth levels, payments to Foothill, including dividends, are limited and
certain defined senior and subordinated debt ratios must be met. At December 31,
1994, the Company's investment in Foothill Capital amounted to $132,309,000 of
which $105,597,000 was restricted by certain loan agreements. Dividends to
Foothill are currently limited to 50% of net income and as of December 31, 1994,
Foothill Capital could pay $26,712,000 in dividends to Foothill.
Foothill Capital has investment grade ratings on its commercial paper and
senior debt. During 1994, Foothill Capital issued commercial paper with
maturities generally ranging from 15 to 266 days. At December 31, 1994, interest
rates on commercial paper ranged from 5.20% to 6.90%.
In order to better match rate sensitive assets and liabilities, Foothill
Capital executes interest rate swaps to effectively convert the fixed rates on
senior and subordinated notes to floating rates. Under these swap agreements,
Foothill Capital is required to pay interest semiannually at variable rates
calculated at the average monthly Federal Reserve commercial paper composite
rate or the one, three and six month LIBOR rates on aggregate principal
balances. In return, Foothill Capital receives interest payments semi-annually
on the same principal balances at fixed rates. The differential to be paid or
received on all swap agreements is accrued as interest rates change. At December
31, 1994, 1993 and 1992, the weighted average interest rates at Foothill Capital
on fixed rate long-term debt, including the effect of interest rate swaps were
6.21%, 5.91% and 7.04%, respectively. Foothill Capital's credit risk with
respect to these swaps is the risk of nonperformance by the counterparties to
the agreements. Foothill Capital does not anticipate nonperformance because such
counterparties to these agreements are major banks. As of December 31, 1994,
Foothill Capital had swap agreements with notional amounts totaling
$285,000,000.
At December 31, 1994, the annual installments due in the next five years on
notes payable, excluding notes payable under lines of credit and other
short-term borrowings, are approximately as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
1995 $71,379,000
1996 45,850,000
1997 66,850,000
1998 38,850,000
1999 30,900,000
Thereafter 15,000,000
=============================================================================================================================
</TABLE>
NOTE 5. SUBORDINATED NOTES AND DEBENTURES
Subordinated notes and debentures, which are subordinated to all other
indebtedness of the Company, consist of the following at December 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Senior subordinated:
Notes with interest at 7.46% payable semiannually, principal payable in annual
installments of $4,167,000 commencing November 1998 through November
2002 with the balance due in November 2003 $25,000,000 $25,000,000
Notes with interest at 8.93% payable semiannually, principal payable in annual
installments of $1,143,000 commencing December 1996 through December
2001 with the balance due in December 2002 8,000,000 8,000,000
Notes with interest at 11.26% payable semiannually, principal payable in annual
installments of $700,000 through April 1999 with the balance due in April 2000 4,300,000 5,000,000
Notes with interest at 10.6% payable semiannually, principal payable in annual
installments of $575,000 through December 1998 with the balance due in December 1999 2,850,000 3,425,000
Notes with interest at 13.625% payable semiannually, principal payable in
semiannual installments of $250,000 through November 1995 500,000 1,000,000
Junior subordinated:
Notes with interest at 12.26% payable semiannually, principal payable in annual
installments of $700,000 through April 1999 with the balance due in April 2000 4,300,000 5,000,000
Notes with interest at 11.82% payable quarterly, principal payable in annual
installments of $700,000 through December 1998 with the balance due in December 1999 3,600,000 4,300,000
Notes with interest at 9.93% payable semiannually, principal payable in annual
installments of $286,000 commencing December 1996 through December
2001 with the balance due in December 2002 2,000,000 2,000,000
- -----------------------------------------------------------------------------------------------------------------------------
Total subordinated notes payable $50,550,000 $53,725,000
=============================================================================================================================
</TABLE>
34
<PAGE> 19
The subordinated notes in the above table are obligations of Foothill
Capital and have the same restrictions as set forth in Note 4.
At December 31, 1994, the annual installments due on subordinated notes and
debentures in the next five years are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1995 $ 3,175,000
1996 4,104,000
1997 4,104,000
1998 8,271,000
1999 8,346,000
Thereafter 22,550,000
====================================================================================================================================
</TABLE>
NOTE 6. STOCKHOLDERS' EQUITY
Common and Preferred Stock
At December 31, 1994, 22,000,000 shares of Class A common stock were
authorized of which 16,420,410 shares were issued and outstanding. At December
31, 1994, 960,600 shares were reserved for issuance for employee stock option
and stock purchase plans, and 666,666 shares were reserved for issuance upon
conversion of the Company's convertible preferred stock.
In May 1992, the Company sold 3,450,000 shares of its Class A common stock
through a public offering. Net proceeds to the Company totaled approximately
$26,677,000 and were used to eliminate Foothill's senior debt obligations of
$18,604,000 and for general corporate purposes.
During July and September 1992, holders of $13,473,000 of the Company's
9.5% convert ible subordinated debentures converted their debentures into a
total of 1,886,906 shares of the Company's Class A Common Stock. Each debenture
was converted into 140.056 shares of Common Stock using the adjusted conversion
price of $7.14 per share.
At December 31, 1994, there were 1,000,000 shares of preferred stock, $1
par value, authorized for issuance of which 100,000 shares are issued and
outstanding. The outstanding shares of preferred stock are convertible at the
holders' option into an aggregate of 666,666 shares of Class A common stock
using the current conversion price of $4.50 per share. This conversion price is
subject to certain antidilution adjustments. The holders of preferred stock are
entitled to receive cumulative quarterly dividends which commenced April 1,
1992, payable in cash or common stock (based on fair market value) at the annual
rate of $2.70 per share. The holders of the preferred stock are entitled to
elect, as a class, one member of the Company's Board of Directors. On other
matters, the holders of the preferred stock are entitled to vote with common
stockholders on an as converted basis. In the event of any liquidation or
winding up of the Company, holders of the preferred stock are entitled to
receive an amount equal to $30.00 per preferred share before any payments or
distributions are made to common stockholders of the Company.
Employee Stock Option and Stock Purchase Plans
At December 31, 1994, no shares of the Company's Class A common stock were
available for future grants under the Company's 1978 non-qualified and incentive
stock option plan, as amended. Options previously issued to employees are
generally exercisable at a price that is not less than 95% of fair market value
at date of grant, are exercisable in varying increments during each year of
employment and expire up to ten years from date of grant.
In 1990, the Board of Directors of the Company adopted, and stockholders
approved, the 1990 Foothill Performance and Equity Incentive Plan. This plan is
an "omnibus" plan and is used to promote and advance the interests of the
Company and its stockholders by enabling the Company to attract, retain and
reward key employees. The plan offers stock and cash incentive awards as well as
stock options (which may be discounted below fair market value at the date of
grant). There were 206,000 and 205,500 options granted under this plan during
1994 and 1993, respectively. At January 1, 1995, there were 183,473 shares of
the Company's Class A common stock available for future grant under this plan.
35
<PAGE> 20
NOTE 6. STOCKHOLDERS' EQUITY (Continued)
The following is a summary of changes in employee stock options during the
years ended December 31, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1978 Non-Qualified and
1990 Plan Incentive Options
-------------------------- -----------------------------
Shares Price Range Shares Price Range
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1991 196,900 $3.19-$ 3.94 1,213,612 $3.73-$5.21
Granted 5,000 5.00 - -
Exercised (191,900) 3.19 (376,641) 3.74-5.21
Cancelled - - (31,417) 5.09-5.14
- -------------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1992 10,000 3.94- 5.00 805,554 3.73-5.21
Granted 205,500 9.38 - -
Exercised (5,000) 3.94- 5.00 (310,891) 4.44-5.14
Cancelled - - (2,979) 5.02-5.09
- -------------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1993 210,500 3.94- 9.38 491,684 4.44-5.14
Granted 206,000 13.875 - -
Exercised (14,549) 9.38 (143,577) 4.44-5.14
Cancelled (5,667) 9.38- 13.875 (2,193) 4.44-5.14
- -------------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1994 396,284 $3.94-$13.875 345,914 $5.02-$5.14
- -------------------------------------------------------------------------------------------------------------------------------
Options exercisable at December 31, 1994 195,507 $3.94-$13.875 340,775 $5.02-$5.14
===============================================================================================================================
</TABLE>
Under the 1979 Employee Stock Purchase Plan, employees may purchase shares
of the Company's Class A common stock at the lower of fair market value at the
beginning of the Plan year or 90% of fair market value at the end of the Plan
year. Employees' purchases may not exceed the lesser of $25,000 or 15% of their
annual base compensation. Shares of common stock purchased under the Plan are
not issuable until the end of the year. During 1994, 1993 and 1992, employees
purchased 16,578, 19,460 and 33,251 shares, respectively, and at December 31,
1994, 30,711 shares were available for future purchases. On January 14, 1992,
the Board of Directors adopted an amendment, approved by stockholders at the
Company's 1992 annual meeting, to increase the number of shares of common stock
covered by the 1979 plan by 100,000 to a total of 250,000.
NOTE 7. INCOME TAXES
The 1994, 1993 and 1992 provision for income taxes was 43%, 42% and 41%,
respectively, which is equal to the combined state and federal statutory rates,
with no other rate differences.
The provision (credit) for income taxes consists of the following for the
years ended December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $19,647,000 $12,174,000 $ 7,606,000
Deferred (2,746,000) (1,045,000) (1,268,000)
- --------------------------------------------------------------------------------------------------------------------------------
16,901,000 11,129,000 6,338,000
- --------------------------------------------------------------------------------------------------------------------------------
State:
Current 7,245,000 4,233,000 2,269,000
Deferred (703,000) (284,000) 14,000
- --------------------------------------------------------------------------------------------------------------------------------
6,542,000 3,949,000 2,283,000
- --------------------------------------------------------------------------------------------------------------------------------
$23,443,000 $15,078,000 $ 8,621,000
================================================================================================================================
</TABLE>
Significant temporary differences that give rise to deferred tax assets and
liabilities as of December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
1994 1993
------------------------- -------------------------------
Asset Liability Asset Liability
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for credit losses $ 7,153,000 $ - $ 6,178,000 $ -
Investment valuation adjustments 2,550,000 - 2,176,000 -
Organization cost amortization 1,974,000 975,000
State taxes 924,000 - 873,000 -
Deferred compensation 976,000 - 847,000 -
Effect of debt exchange transactions - 806,000 - 773,000
Other, net - 2,308,000 - 1,267,000
- --------------------------------------------------------------------------------------------------------------------------------
$13,577,000 $3,114,000 $11,049,000 $2,040,000
================================================================================================================================
</TABLE>
36
<PAGE> 21
NOTE 8. COMMITMENTS
Lease Commitments
The following is a schedule by year of future minimum rental payments
required under operating leases for the Company's office facilities that have
initial and remaining noncancelable terms in excess of one year as of December
31, 1994. The major lease contains one five-year renewal option and requires the
Company to pay a share of the facilities common operating expenses.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1995 $1,096,000
1996 1,212,000
1997 1,212,000
1998 1,212,000
1999 1,212,000
Thereafter 606,000
- ------------------------------------------------------------------------------------------------------------------------------------
$6,550,000
====================================================================================================================================
</TABLE>
The total rental expense for all operating leases, except those with
remaining terms of a month or less that were not renewed, for the years ended
December 31, 1994, 1993 and 1992 was approximately $1,104,000, $1,072,000 and
$942,000, respectively.
Unfunded Commitments
In the normal course of business, the Company continually extends unfunded
commitments associated primarily with its accounts receivable lending activities
at Foothill Capital. These unfunded commitments vary on a daily basis and are
based on the eligibility for advances of the borrowers' receivables. As of
December 31, 1994, the Company had unfunded commitments of $240,104,000.
In addition, the Company had approved new loan commitments totaling
$19,250,000 at December 31, 1994. However, funded amounts for these commitments
are expected to be less because actual advances will be based on the borrowers'
eligible collateral at the time of funding.
NOTE 9. RETIREMENT SAVINGS AND SUPPLEMENTAL BENEFIT PLANS
The Company sponsors an employee savings plan under section 401(k) of the
Internal Revenue Code. This plan covers substantially all employees. Employees
may contribute up to 15% of their salary (to a maximum of $9,240 for calendar
1994) and the Company matches employee contributions for 100% of the first 6% of
compensation contributed by each participant. Amounts charged to expense for
these matching contributions were $467,000, $368,000 and $326,000 for the years
ended December 31, 1994, 1993 and 1992, respectively.
In 1991, the Company established an unfunded supplemental benefit plan for
certain directors and officers that provides for payment to participants upon
retirement from the Company's service. The charges to expense for this unfunded
plan, using an actuarial determination of the present values of the estimated
future payments were $563,000, $526,000 and $309,000 for the years ended
December 31, 1994, 1993 and 1992, respectively.
NOTE 10. CONTINGENCIES
Letters of Credit and Guarantees
Foothill Capital has two committed letter of credit issuance facilities
totaling $95,000,000 under which it guarantees letters of credit issued for the
benefit of its borrowers. These facilities have committed terms of one year. As
of December 31, 1994, the Company had issued guarantees and letters of credit to
its borrowers totaling $65,332,000, net of participants' commitments totaling
$41,214,000. Letters of credit are an integral part of the Company's business
and contingent liabilities under these letters of credit are collateral ized by
pledges of borrowers' eligible accounts receivable.
Litigation
There are several lawsuits and claims pending against the Company which
management considers incidental to normal operations, some of which seek
substantial monetary damages. Management, after review, including consultation
with counsel, believes that any ultimate liability which could arise from these
lawsuits and claims would not materially affect the financial position or
results of operations of the Company.
NOTE 11. EXTRAORDINARY ITEMS
The extraordinary item in 1993 was due to the prepayment of approximately
$29,000,000 of senior and subordinated debt at Foothill Capital resulting in
prepayment fees along with the elimination of unamortized deferred costs on this
prepaid debt. The extraordinary item in 1993 is presented net of provision for
income taxes of $406,000. The extraordinary items in 1992 were due to
37
<PAGE> 22
NOTE 11. EXTRORDINARY ITEMS (CONTINUED)
the retirement of $9,229,000 face value of the Company's 14% senior notes,
$5,648,000 face value of the Company's 12.5% debentures and $9,375,000 face
value of the Company's variable rate senior term notes. These nonrecurring
extraordinary charges resulted from the elimination of unamortized deferred
costs on the aforementioned debt obligations which were retired in advance of
their scheduled maturities. The extraordinary items in 1992 are presented net of
provision for income taxes of $383,000.
NOTE 12. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimates are required under Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of Financial
Instruments." These estimates may not represent values which would be received
should these financial instruments be sold, liquidated or otherwise terminated.
The estimated fair values for the Company's financial assets and related
off-balance sheet financial instruments at December 31, 1994 and 1993 are
summarized below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1994 1993
---------------------------- ---------------------------
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE Amount Fair Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 33,584,000 $ 33,584,000 $ 50,907,000 $ 50,907,000
Revolving loans:
Originated loans $476,975,000 $484,355,000 $315,990,000 $321,722,000
Purchased:
Discounted receivables 4,088,000 5,348,000 10,383,000 11,141,000
- -----------------------------------------------------------------------------------------------------------------------------
Total revolving loans 481,063,000 489,703,000 326,373,000 332,863,000
- -----------------------------------------------------------------------------------------------------------------------------
Term loans:
Originated loans:
Revolving related 67,925,000 69,321,000 52,555,000 52,863,000
Stand alone 79,068,000 82,869,000 100,804,000 110,371,000
Purchased:
Non-public debt instruments - - 4,587,000 4,592,000
Discounted receivables 31,300,000 31,712,000 30,199,000 34,751,000
Public debt instruments - - - -
- -----------------------------------------------------------------------------------------------------------------------------
Total term loans 178,293,000 183,902,000 188,145,000 202,577,000
- -----------------------------------------------------------------------------------------------------------------------------
Total finance receivables $659,356,000 $673,605,000 $514,518,000 $535,440,000
=============================================================================================================================
Equity securities - available for sale $ 38,301,000 $ 39,321,000 $ 32,842,000 $ 35,095,000
=============================================================================================================================
Commitments to extend credit
(Committed amount: $259,354,000 at 12/31/94;
$110,386,000 at 12/31/93) $ 1,475,000 $ 916,000
Guarantees and letters of credit
(Contract amount: $65,332,000 at 12/31/94;
$36,486,000 at 12/31/93) $ 1,116,000 $ 591,000
=============================================================================================================================
</TABLE>
Estimated fair values are calculated as follows:
Cash and cash equivalents:
The carrying amounts for cash and cash equivalents approximate fair value.
Originated loans:
Fair value and carrying value for the accounts receivable and variable-rate
originated loan portfolios are similar as these portfolios reprice frequently.
The estimated fair value of the fixed-rate portion of the originated loan
portfolio is calculated by discounting scheduled cash flows through contractual
maturity using estimated market discount rates that reflect the credit and
interest rate risk inherent in the loans.
Purchased loans:
Purchased loans above have an estimated market value of $37,060,000, which
is $1,672,000 more than carrying value at December 31, 1994. At December 31,
1993, these loans had an estimated market value of $50,484,000, which was
$5,315,000 more than carrying value. Management has classified purchased loans
as "available for sale," and has thus included the unrealized gains and losses
from this portfolio, net of tax, as a separate component of stockholders' equity
as specified in FASB Statement No. 115. Market values are based on available
market information which may be limited as certain loans are rarely or
infrequently
38
<PAGE> 23
traded on the open market. Management estimates market values based on
discussions with brokers, investment bankers or market makers, as well as on
prices of recent trades of identical or similar debt instruments. Such estimates
may not necessarily represent actual trades. Market values may not be indicative
of collateral values supporting such loans.
Equity, debt and partnership investments:
Current market values of both equity securities and marketable debt
securities are estimated by the Company's management based primarily on public
market quotations for the majority of the securities. Partnership investments of
$2,449,000 and $1,892,000 at December 31, 1994 and 1993, respectively, are
accounted for on an equity basis and, therefore, fair value and carrying value
are identical.
Commitments to extend credit:
The fair value of commitments to extend credit is calculated by combining
commitment fees collected but unearned as of December 31, 1994 with an estimate
of unused line fees to be earned during 1995. The actual level of unused line
fees earned during 1995 will vary based on actual line usage as well as growth
of the finance receivable portfolio.
Guarantees and letters of credit:
Fair value is the estimated net amount of letters of credit and guarantee
fees to be earned during 1995, assuming historical experience continues as to
letters of credit drawings, replacements, and fee levels. The actual level of
guarantee and letters of credit income will vary based on actual drawings and
replacements as well as the growth of the finance receivable portfolio.
The estimated fair values for the Company's financial liabilities and
related interest rate swap agreements at December 31, 1994 and 1993 are
summarized below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1994 1993
---------------------------- -------------------------
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE Amount Fair Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial paper $214,897,000 $214,897,000 $148,283,000 $148,283,000
Other short-term borrowings 10,000,000 10,000,000 - -
Long-term senior notes payable 268,829,000 261,972,000 237,404,000 245,158,000
Long-term subordinated notes and debentures 50,550,000 48,119,000 53,725,000 54,413,000
Interest rate swap agreements
(Notional amount: $285,000,000 at 12/31/94;
$285,000,000 at 12/31/93) - (9,941,000) - 8,759,000
====================================================================================================================================
</TABLE>
Estimated fair values are calculated as follows:
Commercial paper and other short-term borrowings:
Fair value and carrying value are identical due to the short maturity and
repricing of these instruments.
Senior notes payable and subordinated notes and debentures:
Fair value is calculated by discounting scheduled cash flows through
contractual maturity using estimated market discount rates.
Interest rate swap agreements:
Fair value is obtained from dealer quotes. These values represent the
estimated amount the Company would receive (pay) to terminate the agreements,
taking into account current interest rates and, when appropriate, the
creditworthiness of the counterparties. The Company does not intend to terminate
these agreements as they are used to effectively convert the fixed rates on
long-term debt to floating rates and match interest sensitive assets and
liabilities.
39
<PAGE> 24
NOTE 13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited quarterly financial data for 1994 is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Three months ended
--------------------------------------------------------------
March 31 June 30 September 30 December 31
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994:
Interest and fees earned $17,857,000 $19,177,000 $22,149,000 $27,905,000
Interest expense 5,177,000 5,973,000 7,649,000 9,720,000
- ------------------------------------------------------------------------------------------------------------------------------
Net interest revenue 12,680,000 13,204,000 14,500,000 18,185,000
Asset management fees 1,539,000 1,316,000 1,302,000 1,303,000
Gain from asset sales and managed partnerships 14,861,000 5,650,000 2,284,000 2,104,000
Provision for credit losses 2,415,000 2,513,000 3,061,000 1,669,000
General and administrative expenses 6,591,000 6,072,000 4,992,000 7,096,000
- ------------------------------------------------------------------------------------------------------------------------------
Income before taxes 20,074,000 11,585,000 10,033,000 12,827,000
Provision for income taxes 8,633,000 4,981,000 4,314,000 5,515,000
- ------------------------------------------------------------------------------------------------------------------------------
Net income $11,441,000 $ 6,604,000 $5,719,000 $ 7,312,000
==============================================================================================================================
Primary earnings per share $ 0.67 $ 0.39 $ 0.34 $ 0.43
==============================================================================================================================
Fully diluted earnings per share $ 0.65 $ 0.37 $ 0.33 $ 0.42
==============================================================================================================================
</TABLE>
Unaudited quarterly financial data for 1993 is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Three months ended
---------------------------------------------------------------
March 31 June 30 September 30 December 31
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993:
Interest and fees earned $14,789,000 $15,617,000 $16,805,000 $17,914,000
Interest expense 4,940,000 5,073,000 5,455,000 5,596,000
- ------------------------------------------------------------------------------------------------------------------------------
Net interest revenue 9,849,000 10,544,000 11,350,000 12,318,000
Asset management fees 1,704,000 1,523,000 1,479,000 1,319,000
Gain from asset sales and managed partnerhsips 1,323,000 7,650,000 5,063,000 4,224,000
Provision for credit losses 3,403,000 2,759,000 3,582,000 3,050,000
General and administrative expenses 4,277,000 5,377,000 4,385,000 5,612,000
- ------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before taxes 5,196,000 11,581,000 9,925,000 9,199,000
Provision for income taxes - continuing operations 2,187,000 4,870,000 4,151,000 3,870,000
- ------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 3,009,000 6,711,000 5,774,000 5,329,000
Income (loss) from discontinued operations 410,000 (629,000) (124,000) (1,236,000)
- ------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary items 3,419,000 6,082,000 5,650,000 4,093,000
Extraordinary items (1) - - - (561,000)
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 3,419,000 $ 6,082,000 $ 5,650,000 $ 3,532,000
==============================================================================================================================
Primary earnings per share:
Income from continuing operations $ 0.18 $ 0.41 $ 0.33 $ 0.31
Income (loss) from discontinued operations 0.02 (0.04) - (0.07)
Extraordinary items (1) - - - (0.03)
- ------------------------------------------------------------------------------------------------------------------------------
Earnings per common and common equivalent share $ 0.20 $ 0.37 $ 0.33 $ 0.21
- ------------------------------------------------------------------------------------------------------------------------------
Fully diluted earnings per share:
Income from continuing operations $ 0.18 $ 0.39 $ 0.33 $ 0.30
Income (loss) from discontinued operations 0.03 (0.04) (0.01) (0.07)
Extraordinary items (1) - - - (0.03)
- ------------------------------------------------------------------------------------------------------------------------------
Earnings per common share assuming full dilution $ 0.21 $ 0.35 $ 0.32 $ 0.20
==============================================================================================================================
</TABLE>
(1) See Note 11 "Extraordinary Items."
40
<PAGE> 25
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
The Foothill Group, Inc.
We have audited the accompanying consolidated balance sheets of The Foothill
Group, Inc. as of December 31, 1994 and 1993 and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Foothill
Group, Inc. at December 31, 1994 and 1993 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Notes to the Financial Statements, in 1993 the Company changed
its method of accounting for income taxes and certain debt and equity
securities.
/s/ ERNST & YOUNG LLP
---------------------
Los Angeles, California
January 26, 1995
STOCK INFORMATION
The Common Stock of The Foothill Group, Inc. is listed on the New York
Stock Exchange. The NYSE symbol is FGI.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Quarterly Stock Prices
----------------------
High Low
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Calendar Quarters 1994:
First Quarter $17-7/8 $12-3/4
Second Quarter 14-5/8 11-3/4
Third Quarter 15-7/8 11-3/4
Fourth Quarter 15-3/4 14-3/8
- ------------------------------------------------------------------------------------------------------------------------------------
Calendar Quarters 1993:
First Quarter $ 9-7/8 $ 7-1/2
Second Quarter 11-3/8 8-7/8
Third Quarter 13-3/8 10-5/8
Fourth Quarter 17-1/2 12-1/8
====================================================================================================================================
</TABLE>
During the year ended December 31, 1994, the Board of Directors declared
quarterly cash dividends on its Class A Common Stock of $.05 per common share
with record dates of March 20, June 20 and $.06 per common share with record
dates of September 20 and December 20.
During the year ended December 31, 1993, the Board of Directors declared
quarterly cash dividends on its Class A Common Stock of $.03 per common share
with record dates of March 20, July 20 and October 20. On December 17, 1993, the
Board of Directors declared a quarterly cash dividend on its Class A Common
Stock of $.05 per common share with a record date of December 28, 1993. No
dividends on common shares were paid or declared during 1992.
REGISTRAR AND TRANSFER AGENT
Harris Trust Company of California, 601 South Figueroa Street, Suite 4900,
Los Angeles, California 90017, (213) 239-0672.
STOCKHOLDERS OF RECORD
As of February 21, 1995, there were 725 Foothill Class A Common
stockholders of record.
41
<PAGE> 1
EXHIBIT 22.1
THE FOOTHILL GROUP, INC.
SUBSIDIARIES OF THE REGISTRANT
The following list sets forth the subsidiaries of the Company at December
31, 1994, all of which are wholly owned and are included in the Consolidated
Financial Statements of the Company:
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
- ----------------------------- ----------------------
<S> <C>
Foothill Capital Corporation California
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of The Foothill Group, Inc. of our report dated January 26, 1995 included
in the 1994 Annual Report to Shareholders of The Foothill Group, Inc.
Our audits also included the financial statement schedules of The Foothill
Group Inc. listed in Item 14(a). These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements (S-8's number 2-63196, 2-91151, 2-65632, 33-03476, 33-22370, 2-69595,
33-35852 and 33-50168) pertaining to The Foothill Group, Inc.'s employee stock
option and stock purchase plans and in the related Prospectuses, of our report
dated January 26, 1995 with respect to the consolidated financial statements and
financial statement schedules of The Foothill Group, Inc. included and
incorporated by reference in this Annual Report (Form 10-K) for the year ended
December 31, 1994.
ERNST & YOUNG LLP
Los Angeles, California
March 21, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
THE FOOTHILL GROUP, INC
FINANCIAL DATA SCHEDULE FOR COMMERCIAL
AND INDUSTRIAL COMPANIES*
* This schedule contains summary financial information extracted from the
Consolidated Balance Sheets at December 31, 1994 and the Consolidated Statement
of Income at December 31, 1994 and is qualified in its entirety by references
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> 33,584
<SECURITIES> 38,301
<RECEIVABLES> 659,356
<ALLOWANCES> 17,260
<INVENTORY> 0
<CURRENT-ASSETS> 713,981
<PP&E> 5,381
<DEPRECIATION> 2,438
<TOTAL-ASSETS> 738,190
<CURRENT-LIABILITIES> 246,401
<BONDS> 319,379
<COMMON> 154,509
0
2,900
<OTHER-SE> 15,001
<TOTAL-LIABILITY-AND-EQUITY> 738,190
<SALES> 117,447
<TOTAL-REVENUES> 117,447
<CGS> 0
<TOTAL-COSTS> 24,751
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,658
<INTEREST-EXPENSE> 28,519
<INCOME-PRETAX> 54,519
<INCOME-TAX> 23,443
<INCOME-CONTINUING> 31,076
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,076
<EPS-PRIMARY> 1.83
<EPS-DILUTED> 1.77
</TABLE>
<PAGE> 1
EXHIBIT 28
FOOTHILL CAPITAL
CORPORATION
A FINANCIAL AND
OPERATIONAL REVIEW
DECEMBER 31, 1994
[FOOTHILL LOGO]
<PAGE> 2
FOOTHILL CAPITAL CORPORATION
INDEX TO FINANCIAL REVIEW
<TABLE>
<CAPTION>
Page
Reference
---------
<S> <C>
Five-Year Financial Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Income and Retained Earnings . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 7-18
Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . 19-27
</TABLE>
<PAGE> 3
FOOTHILL CAPITAL CORPORATION
FIVE YEAR FINANCIAL SUMMARY
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Finance Receivables $648,763 $506,673 $393,530 $389,521 $407,134
Total Assets $701,421 $572,630 $437,867 $408,713 $416,584
Capital Funds $191,609 $178,358 $145,317 $132,089 $125,348
Stockholder's Equity $132,309 $114,133 $ 83,127 $ 73,669 $ 70,498
Ratio of Total Debt to Stockholder's Equity 4.2:1 3.9:1 4.1:1 4.5:1 4.8:1
Ratio of Senior Debt to Capital Funds 2.6:1 2.1:1 1.9:1 2.1:1 2.3:1
-------- -------- -------- -------- --------
Operating Data:
Income Before Taxes and Extraordinary Item $ 39,950 $ 26,093 $ 16,307 $ 10,493 $ 10,785
Net Income $ 22,772 $ 14,573 $ 9,458 $ 6,191 $ 6,471
Net Int. Rev. as a Percent of Avg. Assets * 9.3% 8.4% 7.3% 6.4% 6.8%
Pretax Return on Average Assets * 6.6% 5.3% 3.8% 2.5% 2.7%
Return on Average Assets * 3.8% 2.9% 2.2% 1.5% 1.6%
</TABLE>
* Average assets exclude unrealized gains on marketable debt and equity
1
<PAGE> 4
FOOTHILL CAPITAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
2
<PAGE> 5
[LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Foothill Capital Corporation
We have audited the accompanying consolidated balance sheets of Foothill
Capital Corporation (the "Company") as of December 31, 1994 and 1993, and the
related consolidated statements of income and retained earnings, and cash flows
for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Foothill Capital
Corporation at December 31, 1994 and 1993 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Notes to the Financial Statements, in 1993, the Company changed
its methods of accounting for income taxes and certain debt and equity
securities.
ERNST & YOUNG LLP
January 26, 1995
3
<PAGE> 6
FOOTHILL CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(Dollars in thousands)
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 31,876 $ 45,498
Equity securities 25,386 25,003
Finance receivables:
Revolving loans 474,714 319,792
Term loans 174,049 186,881
-------- --------
Finance receivables 648,763 506,673
Allowance for credit losses 16,957 13,857
-------- --------
Finance receivables, net 631,806 492,816
Repossessed assets, net 556 -
Property and equipment, at cost less accumulated depreciation
and amortization ($2,438 in 1994; $1,769 in 1993) 2,387 2,269
Other assets 9,410 7,044
-------- --------
$701,421 $572,630
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Commercial paper $214,897 $148,283
Other short term borrowings 10,000 -
Senior notes payable 267,633 233,817
Accounts payable and accrued liabilities 17,282 12,172
Subordinated notes and debentures 59,300 64,225
-------- --------
Total liabilities 569,112 458,497
-------- --------
Commitments and contingencies
Stockholder's equity:
Common stock, $1 par value, 3,000,000 shares authorized,
1,575,000 shares issued and outstanding 1,575 1,575
Capital in excess of par value 41,950 41,950
Unrealized gains, net of tax, on marketable debt and equity securities 11,837 16,433
Retained earnings 76,947 54,175
-------- --------
Total stockholder's equity 132,309 114,133
-------- --------
$701,421 $572,630
======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 7
FOOTHILL CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in thousands)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Interest and fees earned $85,713 $63,951 $54,575
Interest expense 29,494 22,218 23,113
------- ------- -------
Net interest revenue 56,219 41,733 31,462
Gains from asset sales 14,549 13,179 8,305
Provision for credit losses 9,554 12,254 8,641
General and administrative expenses 21,264 16,565 14,819
------- ------- -------
Income before provision for income taxes 39,950 26,093 16,307
Provision for income taxes 17,178 10,959 6,849
------- ------- -------
Net income before extraordinary item 22,772 15,134 9,458
Extraordinary item - (561) -
------- ------- -------
Net income 22,772 14,573 9,458
Retained earnings, beginning of year 54,175 39,602 30,144
Dividends paid to parent company - - -
------- ------- -------
Retained earnings, end of year $76,947 $54,175 $39,602
======= ======= =======
</TABLE>
See accompanying notes.
5
<PAGE> 8
FOOTHILL CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in thousands)
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income before extraordinary item $ 22,772 $ 15,134 $ 9,458
Adjustments to reconcile net income before extraordinary
item to net cash provided by operating activities:
Provision for credit losses 9,554 12,254 8,641
Depreciation and amortization 732 560 524
Amortization of debt issuance costs 596 800 823
Increase in accounts payable and accrued liabilities 5,110 278 5,450
Other (2,796) (1,460) 2,176
----------- ----------- ----------
Net cash provided by operating activities 35,968 27,566 27,072
----------- ----------- ----------
INVESTING ACTIVITIES:
Proceeds received from finance receivables and
sales of repossessed assets 7,454,710 4,597,475 3,727,092
Disbursements made for net finance receivables
and repossessed assets (7,610,081) (4,722,288) (3,734,757)
Proceeds from sales of investments 1,126 4,851 1,468
Purchase of property and equipment (850) (1,277) (642)
----------- ----------- ----------
Net cash used in investing activities (155,095) (121,239) (6,839)
----------- ----------- ----------
FINANCING ACTIVITIES:
Proceeds from commercial paper sales 1,676,022 786,633 661,540
Payments on commercial paper maturities (1,609,408) (703,265) (607,511)
Proceeds from senior notes payable and net bank borrowings 70,000 70,000 100,000
Payments on senior notes payable and net bank borrowings (26,184) (52,743) (143,553)
Proceeds from subordinated notes - 25,000 10,000
Payments on subordinated notes (4,925) (22,965) (6,230)
Dividends paid to parent company - - -
----------- ----------- ----------
Net cash provided by financing activities 105,505 102,660 14,246
----------- ----------- ----------
Net increase (decrease) in cash and cash equivalents (13,622) 8,987 34,479
Cash and cash equivalents at beginning of year 45,498 36,511 2,032
----------- ----------- ----------
Cash and cash equivalents at end of year $ 31,876 $ 45,498 $ 36,511
=========== =========== ==========
Cash paid during the year for:
Interest expense $ 30,518 $ 22,041 $ 21,911
Income taxes (paid to parent company) $ 18,807 $ 10,936 $ 8,417
=========== =========== ==========
</TABLE>
See accompanying notes.
6
<PAGE> 9
FOOTHILL CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
Foothill Capital Corporation ("Foothill Capital" or the "Company"), a
wholly owned subsidiary of The Foothill Group, Inc. (the "Parent"), is engaged
in the commercial finance business, which includes revolving and term lending
secured by accounts receivable, inventory, real estate and /or personal
property and equipment. The consolidated financial statements include the
accounts of FCC Holdings Limited, a wholly owned subsidiary of Foothill Capital
Corporation. All intercompany accounts and transactions have been eliminated
in consolidation. Certain reclassifications have been made to prior year
amounts to conform to the 1994 presentation. For purposes of the Statement of
Cash Flows, the Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.
Securities available for sale
At December 31, 1993, the Company adopted the requirements of FASB
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" and classified its marketable debt and equity securities as
"available for sale." Accordingly, these securities have been
marked-to-market, with the increase in their carrying value, net of income tax,
included as a component of stockholder's equity. The equity securities at
December 31, 1994 and 1993 were received as a result of several exchanges of
non- public debt instruments and discounted receivables for new securities of
the reorganized debtors.
Finance receivables
Finance receivables are generally stated at the principal amount net
of unearned discounts and deferred fees (net of costs). Interest income
includes interest on finance receivables, which is recognized as earned
(interest method), and amortization of loan fees. Loan fees, net of initial
direct costs, are deferred and recognized over the term of the loan commitment
using a similar method.
It is the Company's general policy to suspend the recognition of
income on term loans which are 61 days or more contractually delinquent.
Recognition of income is generally resumed, and suspended income is recognized,
when the loan becomes contractually current or collection of suspended amounts
is assured.
One of the Company's lending activities involves the purchase of
significantly discounted finance receivables which are generally due from
borrowers in reorganization or in the midst of restructuring. The Company does
not amortize these discounts into income, but does recognized interest income
on a cash basis.
Allowance for credit losses
The Company maintains a general allowance for credit losses at an
amount deemed adequate to cover potential losses on finance receivables. The
amount of the allowance is based on management's evaluation of numerous
factors, including adequacy of collateral supporting finance receivables and
historical loss experience, and reflects management's best estimate of the
necessary level of the allowance for credit losses.
7
<PAGE> 10
FOOTHILL CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
Repossessed assets
Repossessed assets are included in the financial statements at the
lower of cost or estimated realizable value. Estimated realizable values are
based on management's evaluation of numerous factors, including estimated
holding periods and costs, appraisals, sales of comparable assets and estimated
market conditions at projected disposal dates, and do not necessarily represent
current auction values. The Company's write-off policy is based on a loan by
loan review. Repossessed assets, net of specific writedowns, were $556,000 at
December 31, 1994. The Company did not have any repossessed assets as of
December 31, 1993.
Income Taxes
The Company and its Parent file a consolidated federal income tax
return and combined state tax returns. Income taxes are allocated by the
Parent to the Company as though the Company filed separate income tax returns.
Effective January 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes." Under Statement No. 109, the liability method
is used in accounting for income taxes. Under this method, deferred tax assets
and liabilities are determined based on differences between the financial
reporting and the tax bases of assets and liabilities and are measured using
the enacted tax rates that will be in effect when the differences are expected
to reverse. Prior to the adoption of Statement No. 109, income tax expense
was determined using the deferred method. Deferred tax expense was based on
items of income and expense that were reported in different years in the
financial statements and tax returns, and were measured using the tax rate in
effect in the year the difference originated. As permitted by Statement
No. 109, the Company has elected not to restate the financial statements for any
prior years. The effect of the change on income at January 1, 1993, and for
the year ended December 31, 1993 was not significant.
Recognition of Gains
Gains from asset sales result principally from sales and exchanges of
marketable debt and equity securities and totaled $14,549,000, $13,179,000 and
$8,305,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
The net gains in 1994, 1993 and 1992 were comprised of gross realized gains of
$15,073,000, $13,583,000 and $9,145,000 and gross realized losses of $524,000,
$404,000 and $840,000 resulting from sale and exchange transactions having
proceeds of $67,592,000, $45,039,000 and $45,158,000, respectively. Gain or
loss is determined based on the difference between proceeds and the carrying
cost for each security liquidated.
Certain of these gains resulted from reorganizations by borrowers in
which the Company exchanged receivables purchased at a discount primarily for
new debt or equity securities of the reorganized borrowers. The new securities
received were recorded at fair value, if determinable, when issued to the
Company. The excess of fair value, if any, over the Company's cost of the
receivable is recorded as a gain upon reorganization. Net gains resulting from
exchange transactions included above totaled $376,000, $2,924,000 and
$3,819,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
8
<PAGE> 11
FOOTHILL CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 2. FINANCE RECEIVABLES
The Company is engaged primarily in the commercial finance business,
which includes revolving and term lending secured by accounts receivable,
inventory, real estate and/or personal property and equipment. The Company
attempts to offset lending risk by providing credit only on a fully
collateralized basis.
The following table shows the net amounts due (before allowance for
credit losses) in the various lending categories and the percentages of the
total represented by each category at December 31:
<TABLE>
<CAPTION>
1994 1993
--------------------------- ----------------------------
% of % of
(Dollars in thousands) Amount Total Amount Total
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Revolving loans:
Originated loans $ 470,626 72.5% $ 309,409 61.1%
Purchased loans:
Discounted receivables 4,088 0.6% 10,383 2.0%
--------- ----- --------- -----
Total revolving loans 474,714 73.1% 319,792 63.1%
--------- ----- --------- -----
Term loans:
Originated loans:
Revolving related 66,996 10.4% 52,198 10.3%
Stand alone 78,085 12.0% 100,804 19.9%
Purchased loans:
Non-public debt instruments - - 4,587 0.9%
Discounted receivables 28,968 4.5% 29,292 5.8%
Public debt instruments - - - -
--------- ----- --------- -----
Total term loans 174,049 26.9% 186,881 36.9%
--------- ----- --------- -----
$ 648,763 100.0% $ 506,673 100.0%
========= ===== ========= =====
</TABLE>
The approximate maturities of loans, net of discounts associated with
purchased loans, for the various categories are as follows at December 31,
1994:
<TABLE>
<CAPTION>
(Dollars in thousands) Term Loans
-------------------------------------------------
Revolving Loans Originated Loans Purchased
------------------------ -------------------- ------------------------
Discounted Revolving Stand Non-public Discounted
Originated Receivables Related Alone Debt Instr. Receivables Total
---------- ----------- --------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 $ 158,660 $ 1,419 $ 18,886 $ 17,621 $ - $ 3,958 $ 200,544
1996 143,032 1,326 20,813 9,733 - 6,831 181,735
1997 116,797 1,041 5,809 31,789 - 2,677 158,113
1998 4,937 302 4,124 3,925 - 3,749 17,037
1999 46,841 - 17,364 6,337 - 3,931 74,473
Thereafter 359 - - 8,680 - 7,822 16,861
--------- ------- -------- -------- --- -------- ---------
Total $ 470,626 $ 4,088 $ 66,996 $ 78,085 $ - $ 28,968 $ 648,763
========= ======= ======== ======== === ======== =========
</TABLE>
9
<PAGE> 12
FOOTHILL CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
The Company extends credit lines of up to $100,000,000 by
participating portions of these lines with other commercial finance lenders.
Under the terms of its various borrowing agreements, Foothill Capital's largest
allowable loan (net of participations) at December 31, 1994 was $28,741,000.
The Company's largest loan (net of participations) to any borrower and its
affiliates was $17,886,000 and $13,568,000 at December 31, 1994 and 1993,
respectively. Loans are made in numerous industries. The largest industry
loan concentrations at December 31, 1994 were wholesale trade - durable goods
(12.8%), credit agencies other than banks (7.7%), wholesale trade - nondurable
goods (7.6%), and machinery (6.3%). With the exception of California, which
represented 29.7% of the finance receivable portfolio at December 31, 1994,
headquarters of the Company's borrowers are not concentrated geographically.
Revolving loans are normally contractually due within three years
under revolving credit agreements. These loans, totaling $474,714,000
($319,792,000 in 1993), are shown at the unpaid balance of cash advanced and
are secured by $1,888,934,000 of underlying trade accounts receivable and
inventory at December 31, 1994 ($1,346,172,000 at December 31, 1993). The
amounts of cash advanced under these loans are based upon stated percentages of
the borrowers' eligible trade accounts receivable and specific advance rates on
borrowers' eligible inventory. At December 31, 1994 and 1993, the amounts
shown on the balance sheets have been reduced by nonrecourse loan
participations of $187,617,000 and $92,229,000, respectively. Included in
these nonrecourse loan participations are participations sold to the Parent
totaling $6,454,000 and $6,581,000 at December 31, 1994 and 1993, respectively.
Generally, term loans are due over periods up to five years and are
collateralized by security agreements on various types of equipment, other
assets and/or mortgages on real property. This category includes term loans
originated by the Company to borrowers in conjunction with making revolving
loans, as well as on a stand alone basis. This category also includes
purchased receivables which are defined as non-public debt instruments
including bank loans and private placements, public debt instruments including
registered bonds, notes and debentures, and discounted receivables (which
includes public debt instruments and non-public debt instruments acquired at
significant discounts and which were in contractual default at the time of the
Company's purchase) originated by other lenders and purchased by the Company.
The Company generally becomes a member of a group of several lenders with
respect to each of these purchased receivables. At December 31, 1994 and 1993,
the term loans have been reduced by nonrecourse loan participations of
$30,435,000 and $15,517,000, respectively, including amounts sold without
recourse to the Parent of $967,000 and $2,545,000 at December 31, 1994 and
1993, respectively.
Finance receivables have been reduced by unearned income of
$11,506,000 and $7,160,000 at December 31, 1994 and 1993, respectively.
Unearned finance income is primarily composed of deferred loan fees and
deferred income on finance receivables.
At December 31, 1994 and 1993, income recognition was suspended on
$405,000 and $10,366,000, respectively, of term loans. In addition, at
December 31, 1994 and 1993, the Company had $5,930,000 in revolving loans in
the process of liquidation on which income had been deferred.
Discounted finance receivables which were paying interest currently
totaled $25,205,000 and $33,708,000 at December 31, 1994 and 1993,
respectively. Interest income is not accrued or recognized on the remaining
discounted finance receivables which totaled $7,851,000 and $5,967,000 at the
same dates. Gains or losses, as appropriate, are recorded with respect to
these receivables as they are liquidated through sale, exchange or other
distributions received upon borrowers' reorganization or restructuring.
10
<PAGE> 13
FOOTHILL CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
In May 1993, the Financial Accounting Standards Board issued Statement
No. 114, "Accounting by Creditors for Impairment of a Loan." This Statement
addresses the accounting by creditors for impairment of certain loans. It
requires that impaired loans generally be measured based on the present value
of expected future cash flows discounted at the loan's effective rate. This
Statement is effective for fiscal years beginning after December 15, 1994.
Management believes that the adoption of this pronouncement will not
significantly impact the Company's financial statements.
NOTE 3. ALLOWANCE FOR CREDIT LOSSES
Activity in the allowance for credit losses is as follows for the
years ended December 31:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1994 1993 1992
-------- -------- ---------
<S> <C> <C> <C>
Allowance for credit losses on finance receivables:
Balance at beginning of year $13,857 $10,527 $ 8,047
Provision for credit losses 9,554 12,254 8,641
Actual writeoffs, net (6,454) (8,924) (6,161)
------- ------- -------
Balance at end of year $16,957 $13,857 $10,527
======= ======= =======
</TABLE>
NOTE 4. SENIOR NOTES PAYABLE AND COMMERCIAL PAPER
Commercial paper, other short term borrowings and senior notes payable consist
of the following at December 31:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1994 1993
-------- ---------
<S> <C> <C>
Commercial paper $214,897 $148,283
Other short term borrowings 10,000 -
Senior notes payable:
Notes with interest at 9.25% payable semiannually, principal payable in annual
installments of $8,000 commencing March 1995 through March 1998, with
the balance due in March 1999 40,000 40,000
Notes with interest at 9.8% payable semiannually, principal payable in annual
installments of $5,850 through December 1998, with balance due in
December 1999 29,300 35,150
Notes with interest ranging from 5.54% to 10.35% payable semiannually with
principal maturities ranging from January 1995 to November 2000 158,000 148,000
Notes with floating interest payable quarterly with principal balance
ranging from September 1995 to September 1996 40,000 -
Notes with floating interest payable quarterly with the principal balance due
in August 1994 - 10,000
Notes with interest at 13.125% payable semiannually, principal payable in
semiannual installments of $167 through November 1995 333 667
-------- --------
Total senior notes payable 267,633 233,817
-------- --------
Total senior notes payable, other short term borrowings and commercial paper $492,530 $382,100
======== ========
</TABLE>
11
<PAGE> 14
FOOTHILL CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
The Company has committed revolving credit facilities with banks
totaling $345,000,000 ($235,000,000 in 1993) which are used primarily to
support commercial paper outstanding. Interest rates under these facilities
are based on the prime lending rate or, at the Company's option, at a certain
spread over the London Interbank Offered Rate ("LIBOR"). The credit facilities
consist of a $230,000,000 multi-year revolving credit facility expiring on June
30, 1997 and a $115,000,000 revolving credit facility expiring on June 29,
1995. The $115,000,000 revolving credit facility allows the Company to convert
outstanding borrowings into a one-year term loan prior to maturity.
The Company has two uncommitted lines of credit with banks totaling
$30,000,000 which are used for overnight borrowings. The interest rates under
these lines are based on the daily Federal Funds rate.
During 1994, the Company issued commercial paper with maturities
generally ranging from 7 to 266 days. At December 31, 1994, interest rates on
commercial paper ranged from 5.20% to 6.90%.
In order to better match rate sensitive assets and liabilities, the
Company executes interest rate swaps to effectively convert its fixed rate
senior and subordinated debt obligations to floating rates. Under these swap
agreements, the Company is required to pay interest semiannually at floating
rates calculated at the average monthly Federal Reserve commercial paper
composite rate or the one, three and six-month LIBOR rates on aggregate
principal balances. In return, Foothill Capital receives interest payments
semiannually on the same principal balances at fixed rates. The differential
to be paid or received on all swap agreements is accrued currently as interest
rates change. At December 31, 1994 and 1993, the weighted average interest
rates on fixed rate long-term debt, including the effect of interest rate
swaps, were 6.21% and 5.91%, respectively. The Company's credit risk with
respect to these swaps is the risk of nonperformance by the counterparties to
the agreements. The Company does not anticipate nonperformance because such
counterparties to these agreements are major banks. As of December 31, 1994,
Foothill Capital had swap agreements totaling $285,000,000.
Loan agreements relating to the revolving credit facilities, senior
notes and subordinated notes discussed in Notes 4 and 5 contain restrictive
covenants which must be met. At December 31, 1994 and during the year then
ended, the Company was in compliance with such covenants. Under the more
restrictive provisions of the agreements, the Company must maintain defined
minimum net worth levels and certain defined leverage ratios must be met.
Dividend payments to its Parent are also limited. Amounts available for
dividends to the Parent under these agreements at December 31, 1994 total
$26,712,000.
During 1993, the Company prepaid approximately $29,000,000 of senior
and subordinated notes. This prepayment of debt resulted in an extraordinary
after tax charge of $561,000 in the fourth quarter of 1993. These nonrecurring
extraordinary charges included early repayment penalties along with the
elimination of unamortized deferred costs on the aforementioned debt
obligations.
At December 31, 1994, the annual principal installments due in the
next five years on senior notes payable are follows:
<TABLE>
<S> <C>
(DOLLARS IN THOUSANDS)
- ----------------------
1995 $ 70,183
1996 45,850
1997 66,850
1998 38,850
1999 30,900
Thereafter 15,000
--------
$267,633
========
</TABLE>
12
<PAGE> 15
FOOTHILL CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 5. SUBORDINATED NOTES AND DEBENTURES
Subordinated notes and debentures, which are subordinated to all other
indebtedness of the Company, consist of the following at December 31:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1994 1993
- ---------------------- -------- -------
<S> <C> <C>
Senior subordinated:
Notes with interest at 7.46% payable semiannually, principal payable in annual
installments of $4,167 commencing November 1998 through November
2002 with the balance due in November 2003 $25,000 $25,000
Notes with interest at 8.93% payable semiannually, principal payable in annual
installments of $1,143 commencing December 1996 through December
2001 with the balance due in December 2002 8,000 8,000
Notes with interest at 11.26% payable semiannually, principal payable in annual
installments of $700 through April 1999 with balance due in April 2000 4,300 5,000
Notes with interest at 10.6% payable semiannually, principal payable in annual
installments of $575 through December 1998 with balance due in December 1999 2,850 3,425
Notes with interest at 13.625% payable semiannually, principal payable in
semiannual installments of $250 through November 1995 500 1,000
Junior subordinated:
Debentures payable to Parent with interest at 12.5% payable semiannually,
principal payable in annual installments of $750 through October 1997 with
the balance due in October 1998 4,750 5,500
Notes payable to Parent with interest at 10.83% payable quarterly, principal
payable in annual installments of $1,000 through February 1998 4,000 5,000
Notes with interest at 12.26% payable semiannually, principal payable in annual
installments of $700 through April 1999 with balance due in April 2000 4,300 5,000
Notes with interest at 11.82% payable quarterly, principal payable in annual
installments of $700 through December 1998 with balance due in December 1999 3,600 4,300
Notes with interest at 9.93% payable semiannually, principal payable in annual
installments of $286 commencing December 1996 through December
2001 with the balance due in December 2002 2,000 2,000
------- -------
Total subordinated notes payable $59,300 $64,225
======= =======
</TABLE>
The subordinated notes, with the exception of notes and debentures
payable to the Parent, have the same restrictions as set forth in Note 4. At
December 31, 1994, the annual principal installments due on subordinated notes
and debentures in the next five years are as follows:
<TABLE>
<S> <C>
(DOLLARS IN THOUSANDS)
- ---------------------
1995 $ 4,925
1996 5,854
1997 5,854
1998 11,771
1999 8,346
Thereafter 22,550
-------
$59,300
=======
</TABLE>
13
<PAGE> 16
FOOTHILL CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 6. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimates are required under FASB Statement No. 107,
"Disclosures About Fair Value of Financial Instruments." These estimates may
not represent values which would be received should these financial instruments
be sold, liquidated or otherwise terminated. The estimated fair values for the
Company's financial assets, and related off-balance sheet financial instruments
at December 31, 1994 and 1993 are summarized below:
<TABLE>
<CAPTION>
1994 1993
----------------------------- -----------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
(DOLLARS IN THOUSANDS) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- ---------------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 31,876 $ 31,876 $ 45,498 $ 45,498
======== ======== ======== ========
Revolving loans:
Originated loans $470,626 $478,006 $309,409 $315,141
Purchased:
Discounted receivables 4,088 5,348 10,383 11,141
-------- ---------- -------- ----------
Total revolving loans 474,714 483,354 319,792 326,282
-------- ---------- -------- ----------
Term loans:
Originated loans:
Revolving related 66,996 68,392 52,198 52,506
Stand alone 78,085 81,886 100,804 110,371
Purchased:
Non-public debt - - 4,587 4,592
Discounted receivables 28,968 29,675 29,292 33,747
Public debt - - - -
-------- ---------- -------- ----------
Total term loans 174,049 179,953 186,881 201,216
-------- ---------- -------- ----------
Total Finance $648,763 $663,307 $506,673 $527,498
======== ======== ======== ========
Equity securities - available $ 25,386 $ 26,406 $ 25,003 $ 26,640
======== ======== ======== ========
Commitments to extend credit
(Committed amount: $259,354 at 12/31/94; $ 1,475 $ 916
Guarantees and letters of
(Contract amount: $65,332 at 12/31/94; $ 1,116 $ 591
======== ========
</TABLE>
14
<PAGE> 17
FOOTHILL CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
Estimated fair values are calculated as follows:
- - Cash and cash equivalents: The carrying amounts for cash and cash
equivalents approximate fair value.
- - Originated loans: Fair value and carrying value for the revolving and
variable-rate originated loan portfolios are similar as these
portfolios reprice frequently. The estimated fair value of the
fixed-rate portion of the originated loan portfolio is calculated by
discounting scheduled cash flows through contractual maturity using
estimated market discount rates that reflect the credit and interest
rate risk inherent in the loans.
- - Purchased loans: Purchased loans above have an estimated market value
of $35,023,000, which is $1,967,000 more than carrying value at
December 31, 1994. At December 31, 1993, these loans had an estimated
market value of $49,479,000, which was $5,218,000 more than carrying
value. Management has classified purchased loans as "available for
sale," and has thus included the unrealized gains and losses from this
portfolio, net of tax, as a separate component of stockholder's equity
as specified in FASB Statement No. 115. Market values are based on
available market information which may be limited as certain loans are
rarely or infrequently traded on the open market. Management estimates
market values based on discussions with brokers, investment bankers or
market makers, as well as on prices of recent trades of identical or
similar debt instruments. Such estimates may not necessarily
represent actual trades. Market values may not be indicative of
collateral values supporting such loans.
- - Equity securities: Current market values of equity securities are
estimated by the Company's management based primarily on public market
quotations for the majority of the securities.
- - Commitments to extend credit: The fair value of commitments to extend
credit is calculated by combining commitment fees collected but
unearned as of December 31, 1994 with an estimate of unused line fees
to be earned during 1995. The actual level of unused line fees earned
during 1995 will vary based on actual line usage as well as growth of
the finance receivable portfolio.
- - Guarantees and letters of credit: Fair value is the estimated net
amount of letters of credit and guarantee fees to be earned during
1995 assuming historical experience continues as to letters of credit
drawings, replacements, and fee levels. The actual level of guarantee
and letters of credit income will vary based on actual drawings and
replacements as well as the growth of the finance receivable
portfolio.
The estimated fair values for the Company's financial liabilities and
related interest rate swap agreements at December 31, 1994 and 1993 are
summarized below:
<TABLE>
<CAPTION>
1994 1993
----------------------------- ----------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
(DOLLARS IN THOUSANDS) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Commercial paper $ 214,897 $ 214,897 $ 148,283 $148,283
Other short term borrowings 10,000 10,000 - -
Long-term senior notes payable 267,633 260,776 233,817 241,571
Long-term subordinated notes and debentures 59,300 57,216 64,225 65,827
Interest rate swap agreements
(Notional amount: $285,000 at 12/31/94;
$285,000 at 12/31/93 (9,941) 8,759
========== ========== ========== =========
</TABLE>
15
<PAGE> 18
FOOTHILL CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
Estimated fair values are calculated as follows:
- - Commercial paper and other short term borrowings: Fair value and
carrying value are identical due to the short maturity and repricing
of these instruments.
- - Senior notes payable and subordinated notes and debentures: Fair
value is calculated by discounting scheduled cash flows through
contractual maturity using estimated market discount rates.
- - Interest rate swap agreements: Fair value is obtained from dealer
quotes. These values represent the estimated amount the Company would
receive to terminate the agreements, taking into account current
interest rates and, when appropriate, the current credit worthiness of
the counterparties. The Company does not intend to unwind these
agreements as they are used to effectively convert the fixed rates on
long-term debt to variable rates and match interest sensitive assets
and liabilities. (See Note 4.)
NOTE 7. INCOME TAXES
The provision for income taxes was 43% and 42% for the years ended
December 31, 1994 and 1993, respectively, and was based on combined state and
federal statutory rates.
The provision for income taxes for the years ended December 31, 1994,
1993 and 1992 consists of the following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Federal:
Current $14,353 $ 8,316 $ 6,538
Deferred (1,969) (227) (1,646)
------- ------- -------
12,384 8,089 4,892
------- ------- -------
State:
Current 5,260 2,876 2,453
Deferred (466) (6) (496)
------- ------- -------
4,794 2,870 1,957
------- ------- -------
$17,178 $10,959 $ 6,849
======= ======= =======
</TABLE>
Significant temporary differences that give rise to deferred tax
assets and liabilities as of December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
--------------------- -----------------------
(DOLLARS IN THOUSANDS) ASSET LIABILITY ASSET LIABILITY
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Allowance for credit losses $7,014 $ - $5,574 $ -
Debt exchange transactions - 1,051 - 951
State taxes 1,129 - 778 -
Leasing - 32 - 56
Other, net 114 - 341 -
------ ------ ------ ------
$8,257 $1,083 $6,693 $1,007
====== ====== ====== ======
</TABLE>
16
<PAGE> 19
FOOTHILL CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 8. TRANSACTIONS WITH AFFILIATES
During the years ended December 31, 1994, 1993 and 1992, the Company
was charged $750,000 annually in management fees by the Parent.
The Company has $4,750,000 in 1994 ($5,500,000 in 1993) in
subordinated debentures and $4,000,000 ($5,000,000 in 1993) in subordinated
notes payable to the Parent. Interest expense paid to the Parent for the years
ended December 31, 1994, 1993 and 1992 amounted to $1,135,000, $1,315,000 and
$1,529,000, respectively.
The Company has agreements to jointly purchase loans with Foothill
Partners, L.P. and Foothill Partners II, L.P., limited partnerships in which
the Parent is a general partner. At December 31, 1994, loans outstanding which
were purchased under these agreements by the Company amounted to $33,056,000.
Loan purchases under these agreements are subject to the Company's normal due
diligence and loan approval processes.
NOTE 9. RETIREMENT SAVINGS AND SUPPLEMENTAL BENEFIT PLANS
The Company sponsors an employee savings plan under section 401(k) of
the Internal Revenue Code. This plan covers substantially all employees.
Employees may contribute up to 15% of their salary (to a maximum of $9,240 for
calendar 1994) and the Company matches employee contributions equal to 100% of
the first 6% of compensation contributed by each participant. Amounts charged
against income were $390,000, $308,000 and $289,000 for the years ended
December 31, 1994, 1993 and 1992, respectively.
In 1991, the Company established an unfunded supplemental benefit plan
for certain officers that provides for payment to participants upon retirement
from the Company's service. The charge to expense, using an actuarial
determination of the present values of the estimated future payments was
$292,000, $254,000 and $233,000 in 1994, 1993 and 1992, respectively.
NOTE 10. COMMITMENTS AND CONTINGENCIES
Rentals
The following is a schedule by years of future minimum rental payments
required under the operating leases for the Company's office facilities. This
lease contains one five-year renewal option and requires the Company to pay a
share of the building's common operating expenses.
<TABLE>
<S> <C>
(DOLLARS IN THOUSANDS)
1995 $1,096
1996 1,212
1997 1,212
1998 1,212
1999 1,212
Thereafter 606
------
$6,550
======
</TABLE>
The total rental expense for all leases, except those with remaining
terms of a month or less that were not renewed, for the years ended December
31, 1994, 1993 and 1992 was approximately $984,000, $952,000 and $942,000,
respectively.
17
<PAGE> 20
FOOTHILL CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
Letters of Credit and Guarantees
The Company has two committed letter of credit issuance facilities
with banks totaling $95,000,000 under which the Company guarantees letters of
credit issued for the benefit of its borrowers. These facilities have terms of
one year. As of December 31, 1994, the Company had issued guarantees and
letters of credit on behalf of its borrowers totaling $65,332,000, net of
participants' commitments totaling $41,214,000. Letters of credit are an
integral part of the Company's business and contingent liabilities under these
letters of credit are collateralized by borrowers' collateral.
Unfunded Commitments
In the normal course of business, the Company has unfunded commitments
associated with its revolving lending activities. These unfunded commitments
vary on a daily basis and are based on the eligibility of the borrowers'
receivables. As of December 31, 1994, the Company had unfunded commitments of
$240,104,000 in the revolving loan portfolio.
In addition, the Company had approved new loan commitments totaling
$19,250,000 at December 31, 1994. However, funded amounts are expected to be
less because actual advances will be based on the borrowers' eligible
collateral at the time of funding.
Litigation
There are several lawsuits and claims pending against the Company
which management considers incident to normal operations, some of which seek
substantial monetary damages. Management, after review, including consultation
with counsel, believes that any ultimate liability which could arise from these
lawsuits and claims would not materially affect the financial position or
results of operations of the Company.
18
<PAGE> 21
FOOTHILL CAPITAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(NOT COVERED BY REPORT OF INDEPENDENT AUDITORS)
19
<PAGE> 22
FOOTHILL CAPITAL CORPORATION
SELECTED FINANCIAL DATA
THREE YEARS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1994 1993 1992
-------------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA (1):
Interest and fees earned $ 85,713 14.1% $ 63,951 12.9% $ 54,575 12.7%
Interest expense 29,494 4.8% 22,218 4.5% 23,113 5.4%
-------------------------- ----------------------- ----------------------
Net interest revenue 56,219 9.3% 41,733 8.4% 31,462 7.3%
Gains from asset sales 14,549 2.4% 13,179 2.6% 8,305 1.9%
Provision for credit losses 9,554 1.6% 12,254 2.5% 8,641 2.0%
General and admin. expenses 21,264 3.5% 16,565 3.3% 14,819 3.4%
-------------------------- ----------------------- ----------------------
Income before income taxes 39,950 6.6% 26,093 5.2% 16,307 3.8%
Provision for income taxes 17,178 2.8% 10,959 2.2% 6,849 1.6%
-------------------------- ----------------------- ----------------------
Income before extraordinary 22,772 3.8% 15,134 3.0% 9,458 2.2%
Extraordinary items - - (561) (0.1)% - -
-------------------------- ----------------------- ----------------------
Net income $ 22,772 3.8% $ 14,573 2.9% $ 9,458 2.2%
========================== ======================= ======================
SELECTED BALANCE SHEET DATA:
Total assets $701,421 $572,630 $437,867
Average assets (2) 608,856 495,501 431,120
Finance receivables 648,763 506,673 393,530
Average finance receivables (2) 581,315 476,382 412,203
========================== ======================= ======================
</TABLE>
<TABLE>
<CAPTION>
% of Total % of Total % ofTotal
Funds Funds Funds
Sources of Funds Employed: Employed Employed Employed
---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Commercial paper $214,897 31.4% $148,283 26.5% $ 64,915 15.2%
Other short term borrowings 10,000 1.5% - - - -
Senior notes 267,633 39.2% 233,817 41.6% 216,560 50.7%
Long term subordinated notes:
Senior subordinated 40,650 5.9% 42,425 7.6% 37,940 8.9%
Junior subordinated 18,650 2.7% 21,800 3.9% 24,250 5.7%
Stockholders' equity 132,309 19.3% 114,133 20.4% 83,127 19.5%
-------------------------- ----------------------- ----------------------
Total funds employed $684,139 100.0% $560,458 100.0% $426,792 100.0%
========================== ======================= ======================
Ratio of Total Debt to Equity 4.2:1 3.9:1 4.1:1
Ratio of Senior Debt to Capital 2.6:1 2.1:1 1.9:1
========================== ======================= ======================
</TABLE>
(1) Percentages are computed using average assets (excluding unrealized gains
on investments).
(2) Average assets and net finance receivables are a monthly average.
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS
Foothill Capital Corporation ("Foothill Capital" or the "Company") was
incorporated in 1971 in the State of California and operates its business
primarily from one office located in Los Angeles, California. The Company is
primarily engaged in making secured revolving credit and term loans to
companies which have adequate collateral in the form of accounts receivable,
inventory, equipment and other assets.
Foothill Capital provides asset-based financing primarily to
manufacturers, wholesale dealers, distributors and service enterprises. The
Company's borrowers use the financing for working capital, restructurings,
reorganizations, purchasing fixed assets and acquisitions. Foothill Capital
operates its business according to clearly-defined formal credit approval,
underwriting, collateral evaluation, credit monitoring and collection
procedures. The Company's strength is its experience in analyzing complex
transactions, appraising realizable (liquidation) asset values, creating
innovative financing solutions, and then monitoring and controlling credit
situations after a loan is made.
Foothill Capital's "core" business consists of its traditional
asset-based financing where loans are directly originated and serviced by the
Company. The revolving loans are normally provided for up to three year
periods and are secured primarily by accounts receivable and inventory. The
Company typically advances to its clients between 50% and 85% of the amounts of
eligible accounts receivable and between 15% and 50% of the amounts of eligible
inventory. Eligible accounts receivable and inventory are determined by the
Company based on the amount projected to be received in the event of a
liquidation of the borrowers' assets. Term loans are frequently made in
conjunction with revolving loans, are generally due within five years, and are
secured by plant, equipment, real estate and other assets. Term loan amounts
are based on the estimated net realizable value of the collateral securing the
finance receivable in the event of a liquidation of the borrowers' assets.
Both revolving and term loans are made with full recourse to the borrower.
Although Foothill Capital's primary business is originating its own
finance receivables, the Company has also purchased, since 1983, senior secured
debt instruments from other parties. These purchased receivables consist of
public debt instruments, non-public debt instruments, and discounted
receivables (primarily senior secured bank debt purchased at a discount from
its principal amount from the original lender). During the past four years,
the Company's principal emphasis in its purchased receivables portfolio has
been the purchase of discounted receivables under co-investment arrangements
with Foothill Partners, L.P. and Foothill Partners II, L.P., institutional
limited partnerships in which The Foothill Group, Inc. is a general partner.
At December 31, 1994, Foothill Capital's purchased receivables portfolio
represented 4.7% of total assets.
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ANALYSIS OF FINANCE RECEIVABLES DUE BY CATEGORIES
The following table shows the net amounts due (before allowance for
credit losses) as well as new loans funded and liquidations for the year ended
December 31, 1994:
<TABLE>
<CAPTION>
BALANCE AT NET CHANGE IN BALANCE AT
DEC. 31, NEW CLIENTS BORROWINGS FOR DEC. 31,
(DOLLARS IN THOUSANDS) 1993 FUNDED EXISTING CLIENTS PAYOFFS 1994
---------- ----------- ---------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revolving loans:
Originated loans $309,409 $238,012 $(13,255) $ (63,540) $470,626
Purchased loans:
Discounted receivables 10,383 4,824 (11,119) - 4,088
--------- -------- -------- --------- --------
Total revolving loans 319,792 242,836 (24,374) (63,540) 474,714
--------- -------- -------- --------- --------
Term loans:
Originated loans:
Revolving related 52,198 46,436 (9,276) (22,362) 66,996
Stand alone 100,804 18,867 (18,365) (23,221) 78,085
Purchased loans:
Non-public debt 4,587 - - (4,587) -
Discounted receivables 29,292 20,316 (6,260) (14,380) 28,968
Public debt instruments - - - - -
-------- -------- -------- --------- --------
Total term loans 186,881 85,619 (33,901) (64,550) 174,049
--------- -------- -------- --------- --------
Total finance $506,673 $328,455 $(58,275) $(128,090) $648,763
======== ======== ======== ========= ========
</TABLE>
Originated revolving and related term loans increased as a percent of
total finance receivables from 71.4% at December 31, 1993 to 82.9% at December
31, 1994. Originated stand alone term loans and purchased loans decreased as a
percent of finance receivables from 28.6% at December 31, 1993 to 17.1% at
December 31, 1994.
RESULTS OF OPERATIONS
Year ended December 31, 1994 compared to year ended December 31, 1993:
The Company recorded net income of $22,772,000 for the year ended
December 31, 1994 compared to net income of $14,573,000 for the year ended
December 31, 1993.
The increase in net income was due primarily to (a) a significant
increase in average finance receivables outstanding during 1994, (b) an
increase in net interest revenue as a percent of average assets, (c) an
increase in gains from asset sales, and (d) a decrease in the provision for
credit losses, offset by increases in general and administrative expenses and
the provision for income taxes as a percent of average assets.
Year ended December 31, 1993 compared to year ended December 31, 1992:
The Company recorded net income of $14,573,000 for the year ended
December 31, 1993 compared to net income of $9,458,000 for the year ended
December 31, 1992.
22
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The increase in net income was due primarily to (a) a significant
increase in average finance receivables outstanding during 1993, (b) an
increase in net interest revenue as a percent of average assets, and (c) a
significant increase in gains from asset sales as a percent of average assets,
offset by (d) increases in the provision for credit losses, general and
administrative expenses and the provision for income taxes as a percent of
average assets.
ANALYSIS OF NET INTEREST REVENUE
Net interest revenue is interest income plus loan related fees less
interest expense. See "Selected Financial Data". The Company does not
currently accrue income on certain assets including discounted finance
receivables due from certain borrowers in reorganization or in the midst of
restructuring, nonperforming finance receivables and repossessed assets, but
does incur holding costs (primarily interest expense), which adversely affect
net interest revenue. Fees consist of fees and charges related to finance
receivables. These fees arise from the Company's commercial lending activities
and include servicing fees, prepayment penalties, commitment and guaranty fees,
unused line of credit fees and other miscellaneous items.
Year ended December 31, 1994 compared to year ended December 31, 1993:
Net interest revenue increased to $56,219,000 in 1994 from $41,733,000
in 1993 and increased as a percent of average assets to 9.3% in 1994 from 8.4%
in 1993. The increase in net interest revenue as a percent of average assets
was due primarily to (a) an increase in loan related fees as a percent of
average assets, and (b) a reduction in cost of funds in relation to the prime
interest rate due to a higher percentage of total borrowings funded by lower
cost commercial paper. Loan related fees were $12,196,000 in 1994 compared to
$7,315,000 in 1993.
Year ended December 31, 1993 compared to year ended December 31, 1992:
Net interest revenue increased to $41,733,000 in 1993 from $31,462,000
in 1992 and increased as a percent of average assets to 8.4% in 1993 from 7.3%
in 1992. The increase in net interest revenue as a percent of average assets
was due primarily to (a) a significant reduction in cost of funds due to
increases in outstanding commercial paper and the effect of swap agreements,
and (b) an increase in the level of average interest free funds.
Yearly net interest revenue comparisons are affected by, among other
things, differences in the amount of interest-free funds (for example, equity).
The following table illustrates the source of funds employed between
interest-bearing borrowings and interest-free funds for the past three years.
<TABLE>
<CAPTION>
1994 1993 1992
------------------ ------------------- ------------------
% OF % OF % OF
(DOLLARS IN THOUSANDS) AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Average interest-bearing borrowings $486,876 80.0% $390,925 78.9% $343,094 79.6%
Average interest-free funds 121,980 20.0% 104,576 21.1% 88,026 20.4%
-------- ----- -------- ----- -------- -----
Total $608,856 100.0% $495,501 100.0% $431,120 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
23
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESTULTS OF OPERATIONS (CONTINUED)
GAINS FROM ASSET SALES
Gains from asset sales arise from sales or exchanges of finance
receivables and equity securities, and occur irregularly. The Company
periodically receives investment securities in connection with the
restructuring of discounted receivables. The Company often does not control
the timing of such restructurings.
Total gains from asset sales were $14,549,000, $13,179,000, and
$8,305,000 for the three years ending December 31, 1994, 1993, and 1992,
respectively. As a percentage of average assets, total gains from asset sales
were 2.4%, 2.6% and 1.9% for the three years ending December 31, 1994, 1993,
and 1992, respectively.
WRITEOFFS AND ALLOWANCE FOR CREDIT LOSSES
The Company maintains an allowance for possible credit losses at a
level it considers adequate to cover future potential losses on finance
receivables. The amount of the allowance is based on management's evaluation
of numerous factors, including historical loss experience and adequacy of
collateral. The level of the allowance is affected by the provision for losses
charged to expense, writeoffs and recoveries of amounts previously written off.
The following table illustrates the level of the allowance for credit
losses, the provision charged to expense and writeoffs for the three years
ended December 31, 1994:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
(DOLLARS IN THOUSANDS) 1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Finance receivables plus repossessed assets $649,319 $506,673 $395,312
Allowance for credit losses $ 16,957 $ 13,857 $ 10,527
Percent of such allowance to finance receivables plus
repossessed assets 2.61% 2.73% 2.66%
Actual writeoffs during the period, net of recoveries $ 6,454 $ 8,924 $ 6,161
Percent of actual writeoffs to finance receivables plus
repossessed assets 0.99% 1.76% 1.56%
Provision for credit losses charged to income during the period $ 9,554 $ 12,254 $ 8,641
Percent of provision for credit losses to net writeoffs 148% 137% 140%
</TABLE>
24
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESTULTS OF OPERATIONS (CONTINUED)
The provision for credit losses decreased from $12,254,000 for the
year ended December 31, 1993 to $9,554,000 for 1994. This decrease was
primarily due to (a) a slight decrease in the general allowance for credit
losses as a percent of finance receivables plus repossessed assets from 2.73%
to 2.61% at December 31, 1993 and 1994, respectively, and (b) a significant
decrease in actual writeoffs. Details of net writeoffs by portfolio type are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
(DOLLARS IN THOUSANDS) 1994 1992 1992
-------- -------- ---------
<S> <C> <C> <C>
Revolving loans:
Originated loans $ $ 434 $ 771
Purchased loans:
Discounted receivables - - -
Total revolving loans (86) 434 771
Term loans:
Originated loans:
Revolving related 150 - 1,368
Stand alone 6,509 6,162 3,132
Purchased loans:
Non-public debt instruments (119) (69) -
Discounted receivables - - -
Public debt instruments - 2,397 890
------- ------- -------
Total term loans 6,540 8,490 5,390
------- ------- -------
Total finance receivables $ 6,454 $ 8,924 $ 6,161
======= ======= =======
</TABLE>
NONPERFORMING FINANCE RECEIVABLES AND REPOSSESSED ASSETS
The following table contains information concerning delinquencies on
term loans under which installments are more than sixty days past due and
repossessed assets, both of which are classified as nonperforming assets.
Nonperforming assets have a significant negative effect on interest margin and
general and administrative expense. See "General and Administrative Expense".
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
(DOLLARS IN THOUSANDS) 1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Finance receivables plus repossessed assets $ 649,319 $ 506,673 $ 395,312
========= ========= =========
Repossessed assets, net $ 556 $ - $ 1,782
Percent of preceding line to finance receivables plus
repossessed assets 0.09% - 0.45%
Net balance on loans as to which installments are past due
more than 60 days and on which income is being deferred $ 6,335 $ 16,296 $ 20,275
Percent of preceding line to finance receivables plus
repossessed assets 0.98% 3.22% 5.13%
--------- --------- ---------
Total nonperforming assets $ 6,891 $ 16,296 $ 22,057
========= ========= =========
Percent of above to finance receivables plus repossessed assets 1.06% 3.22% 5.58%
==== ==== ====
</TABLE>
25
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESTULTS OF OPERATIONS (CONTINUED)
Repossessed assets and other deferred loans have been written down,
where appropriate, to estimated realizable values. These values are based on
management's evaluation of numerous factors, including estimated holding costs
and periods prior to ultimate disposition, appraisals, sales of comparable
assets and estimated market conditions at projected disposal dates.
GENERAL AND ADMINISTRATIVE EXPENSE
The following table sets forth major items of general and
administrative expense:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
(DOLLARS IN THOUSANDS) 1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Employee related $14,404 $11,497 $ 9,920
Occupancy and office 1,838 1,631 1,460
Professional services 218 281 328
Data processing and communications 927 756 730
Credit and collection 2,226 1,006 1,040
Advertising 463 317 273
Other (Primarily allocated expense from the Parent) 1,188 1,077 1,068
------- ------- -------
Total general and administrative expense $21,264 $16,565 $14,819
======= ======= =======
</TABLE>
Year ended December 31, 1994 compared to year ended December 31, 1993:
As a percent of average assets, general and administrative expense
increased from 3.3% to 3.5% for the years ended December 31, 1993 and 1994,
respectively. In dollars, general and administrative expense increased from
$16,565,000 in 1993 to $21,264,000 in 1994. The increase in dollars was
primarily due to increases in employee compensation and related expenses, data
processing, occupancy, and credit and collection expenses. Other categories
remained relatively constant with prior years.
Year ended December 31, 1993 compared to year ended December 31, 1992:
As a percent of average assets, general and administrative expense
decreased from 3.4% to 3.3% for the years ended December 31, 1992 and 1993,
respectively. In dollars, general and administrative expense increased from
$14,819,000 in 1992 to $16,565,000 in 1993. The increase in dollars was
primarily due to increases in employee compensation and related expenses and
increases in occupancy and office expenses. Other categories remained
relatively constant with prior years.
PROVISION FOR INCOME TAXES
The Company and its parent file a consolidated federal income tax
return and combined state tax returns. Income taxes, which are allocated to
the Company by the parent, approximate amounts which would be provided in the
accompanying financial statements if the Company filed separate income tax
returns. Timing differences, the tax effects of which are recorded by the
Company, are the result of differences between income for financial statement
and tax return purposes and are principally related to the Company's allowance
for credit losses, state income taxes, debt exchange transactions, and
repossession transactions.
The provision for income taxes increased in dollars from $10,959,000
to $17,178,000 for the years ended December 31, 1993 and 1994, respectively,
with an effective tax rate of 42% in 1993 and 43% for 1994, which is based on
the combined state and federal statutory tax rates.
26
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESTULTS OF OPERATIONS (CONTINUED)
CAPITAL RESOURCES AND LIQUIDITY
Foothill Capital maintains liquidity in order to meet its commitments
under customer borrowing arrangements, to repay maturing debt obligations and
to fund growth in its finance receivable portfolio. Liquidity is enhanced by
the Company's ability to generate cash flow from operations and to raise funds
in the money and capital markets.
The primary source of Foothill Capital's short term funding is
commercial paper borrowings and other short term borrowings, which represented
41% of total debt outstanding as of December 31, 1994. Commercial paper
borrowings are supported by two committed revolving credit facilities with 23
banks, which totaled $345,000,000 as of December 31, 1994. The credit
facilities consist of a $230,000,000 multi-year revolving credit facility
expiring on June 30, 1997 and a $115,000,000 revolving credit facility expiring
on June 29, 1995. The $115,000,000 revolving credit facility allows the
Company to convert outstanding borrowings into a one-year term loan prior to
maturity. As of December 31, 1994, the Company had $120,103,000 in
availability (total amount of credit facilities minus outstanding commercial
paper and bank borrowings) under its bank credit facilities. As of February 1,
1995, the bank credit facilities were increased to an aggregate of
$375,000,000.
During 1994, Foothill Capital issued privately an aggregate total of
$60,000,000 in senior notes consisting of $35,000,000 of variable rate notes
with a maturity of one year, $5,000,000 of variable rate notes with a maturity
of two years, and $20,000,000 of fixed rate notes with a maturity of two and
one-half years. During 1993, the Company issued privately $70,000,000 of
variable and fixed rate senior notes with maturities ranging from one to seven
years and $25,000,000 in fixed rate senior subordinated notes with a final
maturity of ten years. Proceeds from these debt issuances were used to fund
growth in the Company's finance receivable portfolio as well as repay maturing
debt.
Total capitalization of $684,139,000 at December 31, 1994 consisted of
stockholder's equity of $132,309,000 and debt of $551,830,000. The
debt-to-equity ratio at December 31, 1994 was 4.2 to 1 compared to 3.9 to 1 at
December 31, 1993. The Company has paid no dividends to Foothill Group since
the first quarter of 1991. The repayment of subordinated debt and dividends
are limited by the provisions of the Company's debt agreements with its bank
and institutional lenders. Dividends are currently limited to 50% of net
income and as of December 31, 1994, Foothill Capital could pay $26,712,000 in
dividends to Foothill Group.
Foothill Capital, in the normal course of its operations, uses
interest rate swap transactions to effectively convert its fixed rate debt
obligations to floating rate in order to match its primarily floating rate
finance receivable portfolio and hedge the Company's exposure to interest rate
fluctuations. At December 31, 1994, Foothill Capital maintained interest rate
swap agreements with notional amounts aggregating $285,000,000 with seven major
financial institutions as counterparties. At December 31, 1994, each
counterparty was rated A or better by one or more major credit agencies. At
December 31, 1994, after giving effect to the interest rate swap agreements,
Foothill Capital's interest sensitive assets exceeded its interest sensitive
liabilities by approximately $86,267,000, which represented approximately 12%
of total assets.
Foothill Capital's commercial paper is rated "A-2" by Standard and
Poor's Ratings Group, "D-2" by Duff & Phelps Credit Rating Co. and "F-2" by
Fitch Investors Service, Inc. The Company's senior debt rating is "BBB" by
Standard and Poor's and "BBB+" by Duff & Phelps. In addition, Foothill
Capital's senior obligations are rated "BBB+" by Fitch.
27
