<PAGE> 1
United States
Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-Q
(Mark One)
( X ) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31,1995
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ______________
Commission file number 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
Los Angeles, California 90025
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
</TABLE>
(310) 996-7000
----------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
----------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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
--- ---
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of latest practicable date.
<TABLE>
<S> <C>
Title of Each Class Number of Shares Outstanding
------------------- ----------------------------
Class A Common Stock, No Par Value 16,705,594
(As of March 31,1995)
</TABLE>
<PAGE> 2
THE FOOTHILL GROUP, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information Page No.
- ------------------------------ --------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . 3
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 4 to 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 6 to 13
Part II - Other Information
- ---------------------------
Items 1 to 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 3
THE FOOTHILL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 AND DECEMBER 31, 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
ITEM 1
------------------------------------------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
1995 1994
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Unaudited)
Cash and cash equivalents $ 12,851 $ 33,584
Equity, debt and partnership investments 42,026 38,301
Finance receivables:
Revolving loans 556,214 481,063
Term loans 189,091 178,293
------------------------------------------------------------------------------------------------------------------
Finance receivables 745,305 659,356
Allowance for credit losses 18,960 17,260
------------------------------------------------------------------------------------------------------------------
Finance receivables, net 726,345 642,096
Repossessed assets, net 556 556
Prepaid income taxes 7,985 10,463
Deferred fund and debt issuance costs, net 7,612 7,598
Property and equipment, at cost less accumulated depreciation and
amortization ($2,138 at March 31, 1995; $2,438 at December 31, 1994) 2,565 2,387
Other assets (principally monies due from loan participants) 11,303 3,205
------------------------------------------------------------------------------------------------------------------
$ 811,243 $ 738,190
==================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Commercial paper $ 259,177 $ 214,897
Other short term borrowings - 10,000
Senior notes payable 255,231 268,829
Accounts payable and accrued liabilities 61,369 21,504
Subordinated notes and debentures 50,550 50,550
------------------------------------------------------------------------------------------------------------------
Total liabilities 626,327 565,780
------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Convertible preferred stock, $1.00 par value, $30.00 per share liquidation
preference, 9% cumulative, 100,000 shares issued and outstanding 2,900 2,900
Class A common stock, no par value, 16,705,594 shares
issued and outstanding (16,420,410 at December 31, 1994) 100,684 99,048
Unrealized gains, net of tax, on marketable debt and equity securities 17,477 15,001
Retained earnings 63,855 55,461
------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 184,916 172,410
------------------------------------------------------------------------------------------------------------------
$ 811,243 $ 738,190
==================================================================================================================
</TABLE>
See accompanying notes.
1
<PAGE> 4
THE FOOTHILL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
1995 1994
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and fees earned $ 26,858 $ 17,857
Interest expense 9,947 5,177
------------------------------------------------------------------------------------------------------
Net interest revenue 16,911 12,680
Asset management fees 1,251 1,539
Gains from asset sales and managed partnerships 6,318 14,861
Provision for credit losses 3,538 2,415
General and administrative expenses 6,216 6,591
------------------------------------------------------------------------------------------------------
Income before income taxes 14,726 20,074
Provision for income taxes 6,332 8,632
------------------------------------------------------------------------------------------------------
Net income $ 8,394 $ 11,442
======================================================================================================
Per share data (shares in thousands):
Primary earnings per common share $ .50 $ .67
======================================================================================================
Fully diluted earnings per common share $ .48 $ .65
======================================================================================================
Number of shares used in per share computations:
Primary 16,770 16,962
======================================================================================================
Fully diluted 17,451 17,629
======================================================================================================
</TABLE>
See accompanying notes.
2
<PAGE> 5
THE FOOTHILL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
1995 1994
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 8,394 $ 11,442
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for credit losses 3,538 2,415
Depreciation and amortization 239 150
Amortization of deferred fund and debt issuance costs 588 560
Increase in accounts payable and accrued liabilities 39,513 11,794
Other (6,128) (3,709)
---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 46,144 22,652
---------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Net proceeds from investment sales and partnership distributions 2,121 2,132
Contributions made to partnerships and purchases of investments (595) (1,116)
Payments received from net finance receivables and sales of
repossessed assets 1,933,988 1,346,697
Disbursements made for net finance receivables and repossessed assets (2,022,512) (1,354,690)
Purchase of property and equipment (417) (120)
---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (87,415) (7,097)
---------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net decrease (increase) in deferred fund and debt issuance costs (603) 544
Proceeds from commercial paper sales 701,405 163,988
Payments on commercial paper maturities (657,125) (213,442)
Payments on senior notes payable and net bank borrowings (23,598) (599)
Dividends paid per common share ($.06 in 1995, $.05 in 1994) (983) (826)
Dividends paid on preferred stock (68) (68)
Issuance of common stock 1,510 309
---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 20,538 (50,094)
---------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (20,733) (34,539)
Cash and cash equivalents at beginning of period 33,584 50,907
---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 12,851 $ 16,368
===============================================================================================================
Cash paid during the period for:
Interest expense $ 6,522 $ 2,343
Income taxes $ 2,326 $ 196
===============================================================================================================
</TABLE>
See accompanying notes.
3
<PAGE> 6
THE FOOTHILL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1995
NOTE 1. BASIS OF PRESENTATION
The interim Financial Statements included herein have been prepared by
The Foothill Group, Inc. ("Registrant"; the Registrant together with its wholly
owned subsidiary, Foothill Capital Corporation, or "Foothill Capital", is
referred to as the "Company") without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
condensed or omitted pursuant to such SEC rules and regulations; nevertheless,
the Company believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's latest Annual Report. In the opinion of management,
all adjustments, including normal recurring adjustments necessary to present
fairly the financial position of the Company with respect to the interim
financial statements, and of the results of its operations for the three month
period ended March 31, 1995, have been included. Certain reclassifications
have been made to prior year amounts to conform to the 1995 presentation. The
results of operations for interim periods are not necessarily indicative of
results for the full year.
NOTE 2. INCOME TAXES
For both interim periods ended March 31, 1995 and 1994, the Company's
provision for income taxes was 43%, which is based on combined state and
federal statutory tax rates.
NOTE 3. EARNINGS PER COMMON SHARE
Primary earnings per common share were determined by dividing net
income applicable to common stock by the weighted average number of common
equivalent shares outstanding. 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.
NOTE 4. CONTINGENCIES
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 consolidated financial
position of the Company.
NOTE 5. EQUITY, DEBT AND PARTNERSHIP INVESTMENTS
Equity securities are generally received as a result of exchanges of
private debt instruments and discounted receivables for new securities of the
reorganized debtors. The Company has 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
taxes, included as a component of stockholder's equity. Current market values
of both equity securities and marketable debt securities are estimated by the
Company's management based on market quotations which may be available only
from a limited number of dealers (or, for some securities, are not available)
and may not represent firm bids of such dealers or prices for actual sales.
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 corporate marketable debt securities is believed to have
occurred.
4
<PAGE> 7
THE FOOTHILL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
MARCH 31, 1995
The Company has investments in two limited partnerships, Foothill
Partners, L.P. and Foothill Partners II, L.P. (the "Funds"), in which the
Registrant is a general partner. The 1% general partner interest in Foothill
Partners, L.P. is owned 60% by the Registrant and 40% by certain of its
officers as individuals. The 1% general partner interest in Foothill Partners
II, L.P. is owned 48% by the Registrant 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 Registrant's
investments in the Funds are accounted for on an equity basis.
Management fees from the Funds, net of amortization of deferred fund
issuance costs, totaled $1,251,000 and $1,539,000 for the three months ended
March 31, 1995 and 1994, respectively. Asset management fees will increase or
decrease depending on the amount of assets under management. Equity method
earnings recognized by the Registrant for its investments in the Funds for the
three months ended March 31, 1995 and 1994 totaled $1,475,000 and $4,007,000,
respectively, and are included in gains from asset sales and managed
partnerships. Additionally, the Registrant has received override allocations
totaling $3,880,000 (the maximum level as defined in the Foothill Partners II,
L.P. limited partnership agreement) resulting from its general partnership
interest in Foothill Partners II, L.P. Under the terms of the Foothill
Partners II, L.P. limited partnership agreement, these allocations are held in
the partnership and treated as a limited partnership investment by the
Registrant. These allocations will, if necessary, be used by the limited
partners to fulfill any shortage in their hurdle return distributions in the
final liquidating stages of the partnership. Due to the uncertainty of
ultimate receipt of these allocations, the Registrant has not recorded them as
earnings. The Registrant will earn income on these allocations in the future,
pro-rata, with all other limited partners. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Foothill Capital has agreements to jointly purchase loans with
Foothill Partners, L.P. and Foothill Partners II, L.P. At March 31, 1995,
loans outstanding which were purchased under these agreements by the Company
amounted to $36,717,000. Loan purchases under both of these agreements are
subject to Foothill Capital's normal due diligence and loan approval processes.
NOTE 6. NET INTEREST REVENUE
Net interest revenue is interest income plus loan related fees less
interest expense. 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 and nonaccrual
finance receivables and repossessed assets, but does incur holding costs,
primarily interest expense, which adversely affects net interest revenue. Fees
consist primarily of fees and charges related to finance receivables. These
fees and charges arise from the Company's commercial lending activities and
include servicing fees, prepayment penalties, commitment and guarantee fees,
unused line of credit fees and other miscellaneous charges. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
NOTE 7. GAINS FROM ASSET SALES AND MANAGED PARTNERSHIPS
Gains from asset sales arise from sales or exchanges of finance
receivables and equity securities, and occur irregularly. The Company often
does not control the timing of such sales or exchanges, which typically occur
in connection with the restructuring of discounted receivables held by the
Company and its managed partnerships. Gains from managed partnerships
represent equity method earnings from the Company's investment in the Funds.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
5
<PAGE> 8
ITEM 2
THE FOOTHILL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
The following tables illustrate selected financial data (dollars in
thousands):
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------------------------
1995 1994
------------------ -------------------
<S> <C> <C> <C> <C>
SELECTED OPERATING DATA*:
Interest and fees earned $26,858 14.29% $17,857 12.60%
Interest expense 9,947 5.29% 5,177 3.65%
-------------------------------------------------------------------------------------------------------------
Net interest revenue 16,911 9.00% 12,680 8.95%
Asset management fees 1,251 0.67% 1,539 1.09%
Gains from asset sales and managed partnerships 6,318 3.36% 14,861 10.47%
Provision for credit losses 3,538 1.88% 2,415 1.70%
General and administrative expenses 6,216 3.31% 6,591 4.65%
-------------------------------------------------------------------------------------------------------------
Income before income taxes 14,726 7.84% 20,074 14.16%
Provision for income taxes 6,332 3.37% 8,632 6.09%
-------------------------------------------------------------------------------------------------------------
Net income $ 8,394 4.47% $11,442 8.07%
=============================================================================================================
</TABLE>
*Percentages are computed using average assets of continuing
operations (excluding unrealized gains investments) and have been
annualized.
<TABLE>
<S> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets $811,243 $580,083
Average assets** 751,978 567,013
Average stockholders' equity** 162,294 139,961
Finance receivables 745,305 520,697
Average finance receivables** 689,606 520,821
============================================================================================================
Sources of funds employed:
Commercial paper $259,177 $ 98,829
Senior notes 255,231 236,806
Subordinated notes and debentures 50,550 53,725
Stockholders' equity 184,916 163,983
------------------------------------------------------------------------------------------------------------
Total funds employed $749,874 $553,343
============================================================================================================
</TABLE>
**Averages are for the three months ended. Average assets and
average equity exclude unrealized gains on marketable debt and
equity securities.
6
<PAGE> 9
THE FOOTHILL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
SELECTED FINANCIAL DATA FOR FOOTHILL CAPITAL CORPORATION (DOLLARS IN
THOUSANDS):
<TABLE>
<CAPTION>
Three months ended March 31,
------------------------------------------------
1995 1994
-------------------- --------------------
<S> <C> <C> <C> <C>
SELECTED OPERATING DATA*:
Interest and fees earned $ 26,739 14.92% $ 17,527 13.14%
Interest expense 10,166 5.67% 5,425 4.07%
-----------------------------------------------------------------------------------------------------------------
Net interest revenue 16,573 9.25% 12,102 9.07%
Gains from asset sales 4,628 2.58% 9,322 6.99%
Provision for credit losses 3,538 1.97% 2,415 1.81%
General and administrative expenses 5,351 2.99% 5,199 3.90%
-----------------------------------------------------------------------------------------------------------------
Income before income taxes 12,312 6.87% 13,810 10.35%
Provision for income taxes 5,294 2.95% 5,938 4.45%
-----------------------------------------------------------------------------------------------------------------
Net income $ 7,018 3.92% $ 7,872 5.90%
=================================================================================================================
</TABLE>
*Percentages are computed using average assets (excluding
unrealized gains on investments) and have been annualized
<TABLE>
<S> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets $768,567 $538,292
Average assets** 717,010 533,470
Finance receivables 735,331 513,563
Average finance receivables** 681,998 513,412
=================================================================================================================
Sources of funds employed:
Commercial paper $259,177 $ 98,829
Senior notes 254,633 233,817
Subordinated notes and debentures 58,300 63,225
Stockholders' equity 138,734 121,424
-----------------------------------------------------------------------------------------------------------------
Total funds employed $710,844 $517,295
=================================================================================================================
</TABLE>
**Averages are for the three months ended. Average assets exclude
unrealized gains on marketable debt and equity securities.
<TABLE>
<S> <C> <C>
SELECTED BALANCE SHEET DATA:
Nonperforming finance receivables
and repossessed assets*** $ 6,679 $ 15,382
Allowance for credit losses $ 18,657 $ 14,457
Actual writeoffs during the period $ 1,838 $ 1,815
Number of employees 139 111
=================================================================================================================
</TABLE>
***Includes repossessed assets and loans that have contractual
installments more than sixty days past due.
7
<PAGE> 10
THE FOOTHILL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
FINANCE RECEIVABLES OUTSTANDING
Finance receivables increased $85,949,000 between December 31, 1994
and March 31, 1995 from $659,356,000 to $745,305,000. This increase in
outstanding loans was primarily the result of new business at Foothill Capital,
offset by normal loan repayments, payoffs and liquidations during the three
month period.
Included in finance receivables at March 31, 1995 and December 31,
1994 are purchased receivables totaling $36,794,000 and $35,388,000,
respectively. These loans, including several which can be valued using market
quotations, have an estimated market value of $38,753,000 and $37,060,000,
which is $1,944,000 and $1,672,000 more than the carrying value at March 31,
1995 and December 31, 1994, respectively.
NET INCOME
The Company recorded net income of $8,394,000 for the three months
ended March 31, 1995 compared to $11,442,000 for the three months ended March
31, 1994. The decrease in net income for the three months ended March 31, 1995
as compared to the three months ended March 31, 1994 was primarily due to a
decrease in gains from asset sales and managed partnerships offset by an
increase in net interest revenue. Quarterly results of operations are not
necessarily indicative of results of future quarters.
ANALYSIS OF NET INTEREST REVENUE
Net interest revenue is interest income plus loan related fees less
interest expense. Net interest revenue increased to $16,911,000 for the three
months ended March 31, 1995 from $12,680,000 for the same period in the
previous year, and increased as a percentage of average assets to 9.00% from
8.95%. For the three months ended March 31, 1995, the increase in net interest
revenue in dollars was primarily due to a higher level of average finance
receivables. The increase as a percentage of average assets was due to an
increase in loan related fees as a percentage of average assets at Foothill
Capital and a reduction in cost of funds at Foothill Capital relative to the
prime interest rate. Loan related fees were $3,820,000 and $2,711,000 for the
three months ended March 31, 1995 and 1994, respectively.
ASSET MANAGEMENT FEES
For the three months ended March 31, 1995 and 1994, the Company
recorded asset management fees of $1,251,000 and $1,539,000, respectively. The
decrease for the three month period ended March 31, 1995 was due to a decrease
in the average level of assets managed by the Company as Foothill Fund and
Foothill Recovery Fund, two partnerships in which the Company was also a
managing general partner, were fully liquidated on December 31, 1994.
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 irregularly. Gains from managed
partnerships arise from profit distributions received from the Registrant's
investments in the Funds and vary by quarter, depending on the level of profits
generated by the Funds.
For the three months ended March 31, 1995 and 1994, the Company
recorded gains from asset sales and managed partnerships of $6,318,000 and
$14,861,000, respectively. The 1994 first quarter gains from asset sales were
composed principally of gains from the sale of debt and equity positions in G.
Heileman Brewing Company, Inc.
8
<PAGE> 11
THE FOOTHILL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
WRITEOFFS AND ALLOWANCE FOR CREDIT LOSSES
The Company maintains an allowance for 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 provision for credit losses increased from $2,415,000 for the
three months ended March 31, 1994 to $3,538,000 for the three months ended
March 31, 1995. As shown in the table below, the increase in the provision was
due principally to growth in the finance receivable portfolio during the three
month period ending March 31, 1995. The general allowance for credit losses as
a percentage of finance receivables plus repossessed assets decreased from
2.81% at March 31, 1994 to 2.54% at March 31, 1995.
The following chart illustrates the level of the allowance, the
provision charged to expense and net credit losses:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------
(Dollars in thousands) 3/31/95 12/31/94 3/31/94
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Finance receivables plus repossessed assets $ 745,861 $ 659,912 $ 520,697
Allowance for credit losses 18,960 17,260 14,657
Percent of such allowance to finance receivables plus repossessed 2.54% 2.62% 2.81%
Actual writeoffs during the period, net of recoveries 1,838 1,369 1,815
Provision for credit losses charged to income during the period 3,538 1,669 2,415
Percent of provision for credit losses to net writeoffs during the 192% 122% 133%
Percent of net writeoffs to finance receivables plus repossessed assets 0.25% 0.21% 0.35%
Annualized percent of net writeoffs to finance receivables plus
repossessed assets 0.99% 0.83% 1.39%
==================================================================================================================
</TABLE>
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 effect on
interest margin and general and administrative expense since the 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 1.04% at December 31, 1994 to 0.90% at March 31, 1995:
<TABLE>
<CAPTION>
(Dollars in thousands) 3/31/95 12/31/94 3/31/94
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Finance receivables plus repossessed assets $ 745,861 $ 659,912 $ 520,697
Loans more than 60 days past due 6,123 6,335 15,382
Percent of above to finance receivables plus repossessed assets 0.83% 0.96% 2.95%
Repossessed assets, net 556 556 -
Percent of above to finance receivables plus repossessed assets 0.07% 0.08% -
------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 6,679 $ 6,891 $ 5,382
==================================================================================================================
Percent of above to finance receivables plus repossessed assets 0.90% 1.04% 2.95%
==================================================================================================================
</TABLE>
9
<PAGE> 12
THE FOOTHILL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
As shown in the preceding table, nonperforming assets have decreased
in both dollars and as a percentage of finance receivables plus repossessed
assets since December 31, 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 at 0.90% 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 and geographic locations. This diversification should reduce the
risk that nonperforming assets will increase materially, however, no assurances
can be given that nonperforming assets will not increase above the historical
3% to 6% range.
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 payments are past due 91 days
or more. Repossession occurs when the Company has taken physical possession
and title to the chattel or other property.
Repossessed assets and loans more than 60 days past due have been
written down to estimated realizable values. These values are based on
management's evaluation of numerous factors, including costs and length of time
held prior to ultimate disposition, appraisals, sales of comparable assets and
estimated market conditions at projected disposal dates.
Effective January 1, 1995, the Company adopted FASB Statement No. 114,
"Accounting by Creditors for Impairment of a Loan." Under Statement No. 114,
loans are deemed impaired when, based on current information and events, it is
probable that a creditor will be unable to collect all amounts due according to
the contractual terms of the loan agreement. Impairment is measured based on
the present value of expected future cash flows to be received from the
borrower, or alternatively, the market price of the loan or the fair value of
the collateral if the loan is collateral dependent. The Company has
historically ceased recognizing interest on loans (even though borrowers are
contractually current) when it determines that the value of the collateral
securing the loan may not be adequate to cover the outstanding principal less
any deferred and unearned income. When a loan is placed on nonaccrual status,
unpaid interest credited to income in the current year is reversed. In
addition, any interest or fee payments received while on nonaccrual status are
not currently recognized in income. Generally, loans are restored to accrual
status when all obligations are brought current, clients maintain their
performance in accordance with the contractual terms for a reasonable period of
time, and the value of the collateral securing the obligation exceeds the net
obligation owed by a reasonable level. At March 31, 1995, these nonaccrual
loans totaled $10,327,000.
GENERAL AND ADMINISTRATIVE EXPENSES
The following table sets forth major items of general and
administrative expenses for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------
(Dollars in thousands) 3/31/95 12/31/94 3/31/94
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Employee related $ 4,603 $ 4,409 $ 4,992
Occupancy and office 599 558 540
Professional services 176 109 81
Data processing and communications 291 325 202
Credit and collection 108 1,193 417
Advertising 153 221 108
Insurance and bond premiums 110 119 118
Other 176 162 133
------------------------------------------------------------------------------------------------------------------
Total general and administrative expenses $ 6,216 $ 7,096 $ 6,591
==================================================================================================================
</TABLE>
10
<PAGE> 13
THE FOOTHILL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
General and administrative expenses decreased from $6,591,000 for the
three months ended March 31, 1994 to $6,216,000 for the three months ended
March 31, 1995. As a percent of average assets, general and administrative
expenses decreased from 4.65% to 3.31% for the three months ended March 31,
1994 and 1995, respectively.
The decreases in dollars for the three months ended March 31, 1995
over the comparable period in the preceding year were primarily due to
decreases in incentive compensation accrual levels and related expenses at
Foothill Capital and the Registrant along with a decrease in credit and
collection expense.
PROVISION FOR INCOME TAXES
For the three months ended March 31, 1995 and 1994, the Company's
provision for income taxes was 43%, which is based on combined state and
federal statutory tax rates.
CAPITAL RESOURCES AND LIQUIDITY
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). Liquidity is the ability to meet cash requirements such as
payment of maturing debt obligations or availability of funds for existing or
new customers' borrowing needs.
Foothill Capital maintains short-term assets in excess of short-term
liabilities and finances its growth primarily through the issuance of
commercial paper and medium term debt. The primary source of Foothill
Capital's short term funding is commercial paper borrowings. During the three
months ended March 31, 1995, commercial paper borrowings increased by
$44,280,000 to $259,177,000. Commercial paper borrowings are supported by two
committed bank credit facilities with 26 banks, which totaled $375,000,000 as
of March 31, 1995. The credit facilities consist of a $250,000,000 multi-year
revolving credit facility expiring on June 30, 1997, and a $125,000,000
revolving credit facility expiring on June 29, 1995. The $125,000,000
revolving credit facility allows Foothill Capital to convert outstanding
borrowings into a one-year term loan prior to maturity. As of March 31, 1995,
Foothill Capital had $115,823,000 in availability (total amount of credit
facilities minus outstanding commercial paper and other short term borrowings)
under its bank credit facilities.
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. Proceeds from these debt issuances were primarily used to fund
growth in Foothill Capital's finance receivable portfolio as well as to repay
maturing debt.
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 mainly floating rate finance
receivable portfolio and hedge the Company's exposure to interest rate
fluctuations. At March 31, 1995, Foothill Capital maintained interest rate
swap agreements with notional amounts aggregating $271,000,000 with six major
financial institutions as counterparties. At March 31, 1995, each counterparty
was rated A or better by one or more major credit rating agency.
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 major cash outflows of the Registrant consist primarily of
expenditures for general and administrative costs, tax payments and payment of
preferred and common stock dividends. These expenditures are funded largely
through management fees and profits earned in its asset management operations
and by management fees and loan repayments from Foothill Capital. Management
believes these potential sources of liquidity should be sufficient to meet its
obligations for the foreseeable future.
There have been no other significant changes in the Company's capital
resources and liquidity from those discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's
December 31, 1994 Annual Report to Stockholders.
11
<PAGE> 14
THE FOOTHILL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
PARTICIPATION IN HIGHLY LEVERAGED TRANSACTIONS
Since its inception, the Registrant and Foothill Capital have been in
the commercial finance business. This business includes revolving credit and
term lending on a secured basis. Such business has historically been perceived
to contain a higher degree of credit risk than unsecured or partially secured
commercial lending.
Since 1972, Foothill Capital's portfolio of finance receivables has
included loans made to highly leveraged borrowers and loans made in conjunction
with corporate recapitalizations and bankruptcy reorganizations. 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 March 31, 1995 was $29,555,000.
Foothill Capital's largest loan (net of participations) to any borrower and its
affiliates was $17,628,000 and $15,428,000 at March 31, 1995 and 1994,
respectively. Loans in this portfolio are made in numerous industries and
geographic locations throughout the United States.
The Company has been involved with highly leveraged transactions since
inception and presently intends to continue its involvement in transactions of
this nature.
INVESTMENTS
The Company had $42,026,000 and $38,301,000 at March 31, 1995 and
December 31, 1994, respectively, in its investment portfolio, including some
investments which are in unrated or less than investment grade corporate
securities. This portfolio includes several debt and equity positions as well
as partnership investment positions held by the Company. Some of these
investments are in companies undergoing reorganization or restructuring.
Unrealized market appreciation for this portfolio as of March 31, 1995 and
December 31, 1994, before income taxes, was $28,754,000 and $26,454,000,
respectively.
The Registrant is a general partner in two limited partnerships,
Foothill Partners, L.P. and Foothill Partners II, L.P. ("the Funds"). Foothill
Partners, L.P. and Foothill Partners II, L.P. were established to invest in
performing and nonperforming senior bank debt of distressed companies. The
Registrant's investments in the Funds are accounted for on an equity basis.
Investments in unrated or less than investment grade corporate
securities have different risks than 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. These issuers also 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. There is only a thinly traded market for some of these
securities and market quotes are generally available only from a limited number
of dealers which may not represent firm bids of such dealers or prices for
actual sales.
12
<PAGE> 15
THE FOOTHILL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
COMPANY ENTERS MERGER AGREEMENT WITH NORWEST CORPORATION
On May 15, 1995, the Company entered into a merger agreement with
Norwest Corporation ("Norwest"), a bank holding corporation formed under the
laws of the State of Delaware, pursuant to which the Company will be a wholly
owned subsidiary of Norwest. Under the terms of the Agreement each share of
the Company's Class A Common Stock will be exchanged for .92 shares of Norwest
Common Stock, and each share of the Company's Series A Preferred Stock will be
exchanged for 6.133272 shares of Norwest Common Stock. Based on the total
number of the Company's common and preferred shares outstanding and assuming
the exercise of all outstanding options, Norwest will issue a total of
16,415,890 shares representing a purchase price of approximately $445 million.
The merger agreement was also approved by the Company's Board of Directors on
May 15, 1995, subject to the receipt by the Board of a fairness opinion that
the merger consideration is fair to the Company's common and preferred
shareholders from a financial point of view. Completion of the merger is
subject to certain regulatory approvals and customary closing conditions. The
merger agreement is also subject to approval by an affirmative vote of a
majority of the Company's common and preferred stockholders. As a condition to
the merger agreement, the Company entered into a stock option agreement with
Norwest pursuant to which Norwest has the option to purchase up to 18.5% of the
Company's authorized and outstanding Class A Common Stock. Any newly issued
Class A common stock sould be purchased under the option at the Company's
closing price on May 15, 1995 if certain triggering events occur, including
entering into an acquisition agreement with or the acquisition of 20% of the
Company's outstanding Common Stock by someone other than Norwest. The merger
is expected to close in the fourth quarter of 1995.
13
<PAGE> 16
PART II - OTHER INFORMATION
ITEMS 1 TO 5 NOT APPLICABLE
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 10.43 - Floating Rate Note with a principal
amount of $10,000,000 due April 29, 1996.
Exhibit 10.44 - Floating Rate Note with a principal
amount of $15,000,000 due May 1, 1998.
Exhibit 10.45 - Floating Rate Note with a principal
amount of $5,000,000 due May 4, 1998.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K:
<TABLE>
<S> <C> <C>
Item(s) Financial Statements
Date of Report Reported Filed
- -------------- -------- --------------------
2/9/95 7 None
</TABLE>
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE FOOTHILL GROUP, INC.
Date: May 15, 1995 s/ Henry K. Jordan
-----------------------------
Henry K. Jordan
Senior Vice President;
Chief Financial Officer and
Corporate Secretary
Date: May 15, 1995 s/ Kevin D. Gary
-----------------------------
Kevin D. Gary
Vice President and Controller
15
<PAGE> 1
Exhibit 10.43
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.
Index Maturity Initial Interest Rate Original Issue Date
- -------------- --------------------- -------------------
Three month 6.4375% April 28, 1995
Spread Base Rate Maturity Date
------ --------- -------------
25 basis points USD LIBOR April 29, 1996
Interest Payment Dates Interest Reset Dates
- ---------------------- --------------------
7/28/95; 10/30/95; 1/29/96 7/29/95; 10/30/95;
and 4/29/96 and 1/29/96
1
<PAGE> 2
For value received, Foothill Capital Corporation, a California corporation (the
"Company"), promises to pay to the order of Westdeutsche Landesbank
Girozentrale (the "Noteholder") the principal amount of $10,000,000.00 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.
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
nearest 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 of (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.
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
2
<PAGE> 3
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 Company 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 of 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.
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 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
3
<PAGE> 4
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, at 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: /s/ KENT W. DAHL
-------------------------
4
<PAGE> 5
EXHIBIT 'A'
UNANIMOUS WRITTEN CONSENT
OF THE BOARD OF DIRECTORS OF
FOOTHILL CAPITAL CORPORATION
The undersigned, being all of the directors of Foothill Capital
Corporation, a California corporation ("Company"), pursuant to Section 307(b)
of the California Corporation Code and Article III, Section 14 of the By-Laws
of this Company, do hereby adopt the following resolution by their unanimous
written consent:
RESOLVED, that this Company be, and it hereby is authorized to borrow
up to $10,000,000 under a certain Floating Rate Note payable to Westdeutsche
Landesbank Girozentrale dated as of April 28, 1995 with a maturity up to three
years (the "Note"), at such time or times as the President and Chief Operating
Officer, Senior Vice President and Chief Financial Officer or the Senior Vice
President and Treasurer shall determine, any one of said officers being hereby
authorized to execute and deliver in the name of and on behalf of this Company
such Note and such other documents and instruments as may be required to
evidence such borrowings; and
FURTHER RESOLVED, that the Note and other related documents executed
and delivered by the President and Chief Operating Officer, the Senior Vice
President and Chief Financial Officer or the Senior Vice President and
Treasurer in the name and on behalf of this Company, are hereby ratified in all
respects; and
FURTHER RESOLVED, that the appropriate officers of this Company or any
other employee of the Company who they delegate be, and each of them hereby is,
authorized, directed and empowered, in the name and on behalf of this Company,
to do and perform all such further acts and to sign all such further documents,
instruments and certificates and to take all such other steps as may be
necessary, advisable, convenient or proper to carry out the intent of the
foregoing resolutions and fully perform the Company's obligations under the
Note.
<PAGE> 6
This Unanimous Written Consent may be executed in one or more
counterparts, each of which shall be an original and all of which together
shall constitute one document.
Date: April 21, 1995
/s/ JOHN F. NICKOLL
---------------------------
John F. Nickoll
/s/ PETER E. SCHWAB
---------------------------
Peter E. Schwab
/s/ DAVID C. HILTON
---------------------------
David C. Hilton
<PAGE> 7
CERTIFICATE OF SECRETARY
OF FOOTHILL CAPITAL CORPORATION
I, Henry K. Jordan, hereby certify that I am the duly elected, acting
and qualified Corporate Secretary of Foothill Capital Corporation, a California
corporation (the "Company"), and do further certify that:
Attached as Exhibit A hereto is a full, true, and correct copy of the
resolutions duly adopted by the board of directors of the Company by a
unanimous written consent dated April 21, 1995 which resolutions have not been
amended and rescinded and are in full force and effect on the date hereof.
IN WITNESS WHEREOF, I have hereunto set my hand on April 28, 1995.
/s/ HENRY K. JORDAN
----------------------
HENRY K. JORDAN
Senior Vice President, Chief
Financial Officer
and Corporate Secretary
<PAGE> 8
INCUMBENCY CERTIFICATE
The undersigned, Henry K. Jordan, being the Senior Vice President and
Chief Financial Officer and Corporate Secretary of Foothill Capital
Corporation, a California corporation (the "Company"), does hereby certify that
the persons listed below were, on April 21, 1995, and have been at all times
since that date to and including the date hereof, duly elected, qualified, and
acting officers of the Company holding the offices set forth opposite their
names below, and that genuine signatures are reflected opposite their names.
<TABLE>
<CAPTION>
NAME TITLE SIGNATURE
---- ----- ---------
<S> <C> <C>
Peter E. Schwab President and Chief /s/ PETER E. SCHWAB
Operating Officer -------------------
Henry K. Jordan Senior Vice President and /s/ HENRY K. JORDAN
Chief Financial Officer -------------------
Kent W. Dahl Senior Vice President and /s/ KENT W. DAHL
Treasurer -------------------
</TABLE>
IN WITNESS WHEREOF, the undersigned has executed this Incumbency
Certificate as of April 28, 1995.
/s/ HENRY K. JORDAN
---------------------------------------------
Henry K. Jordan, Senior Vice President, Chief
Financial Officer and Corporate Secretary
The undersigned, Peter E. Schwab, being the President and Chief
Operating Officer of the Company, does hereby certify that Henry K. Jordan was,
on April 21, 1995, and has been at all times since that date to and including
the date hereof, the duly elected, qualified, and acting Senior Vice President,
Chief Financial Officer and Corporate Secretary of the Company, and that his
signature above is genuine.
IN WITNESS WHEREOF, the undersigned has executed this certificate as of
April 28, 1995.
/s/ PETER E. SCHWAB
---------------------------------------------
Peter E. Schwab, President and Chief
Operating Officer
<PAGE> 1
Exhibit 10.44
PROMISSORY NOTE
Principal Amount
$15,000,000.00
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.
Index Maturity Initial Interest Rate Original Issue Date
- -------------- --------------------- -------------------
Three month 6.6375% May 1, 1995
Spread Base Rate Maturity Date
------ --------- -------------
45 basis points USD LIBOR May 1, 1998
Interest Payment Dates Interest Reset Dates
---------------------- --------------------
8/1/95; 11/1/95; 2/1/96; 8/1/95; 11/1/95; 2/1/96;
5/1/96; 8/1/96; 11/1/96; 5/1/96; 8/1/96; 11/1/96;
2/3/97; 5/1/97; 8/1/97; 2/3/97; 5/1/97; 8/1/97;
11/3/97; 2/2/98 and 5/1/98 11/3/97; and 2/2/98
1
<PAGE> 2
For value received, Foothill Capital Corporation, a California corporation (the
"Company"), promises to pay to the order of Bank of America National Trust and
Savings Association (the "Noteholder") the principal amount of $15,000,000.00
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 judgment) 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 other than a
Saturday or Sunday on which the Noteholder is open for business in California,
New York and London and dealing in Offshore Dollars. 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
nearest 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:
The "USD LIBOR" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All
amounts in the calculation will be determined by the Noteholder as of
the first day of the interest period.)
London Rate
USD LIBOR = ---------------------------
(1.00 - Reserve Percentage)
Where,
(i) "London Rate" means the interest rate (rounded upward to the
nearest 1/16th of one percent) at which the Noteholder's London Branch,
London, Great Britain, would offer U.S. Dollar deposits for the
applicable interest period to other major banks in the London
inter-bank market at approximately 11:00 a.m. London time two (2)
banking days before the commencement of the interest periods.
(ii) "Reserve Percentage" means the total of maximum reserve
percentages for determining the reserves to be maintained by member
banks of the Federal Reserve System for Eurocurrency Liabilities, as
defined in Federal Reserve Board Regulation D, rounded upward to the
nearest 1/100 of one percent. The percentage will be expressed as a
decimal, and will include, but not be limited to, marginal, emergency,
supplemental, special, and other reserve percentages.
Each prepayment of a LIBOR Rate portion, whether voluntarily, by reason of
acceleration or otherwise, will be accompanied by the amount of accrued
interest on the amount prepaid and a prepayment fee as described below. A
"prepayment" is a payment of an amount on a date earlier than the scheduled
Interest Payment Date for such amount as required by this Note. The prepayment
fee shall be equal to the amount (if any) by which:
(i) the additional interest which would have been payable during
the interest period on the amount prepaid had it not been prepaid,
exceeds
(ii) the interest which would have been recoverable by the Noteholder
by placing the amount prepaid on deposit in the London inter-market for
a period starting on the date on which it was prepaid and ending on the
last day of the interest period for such portion (or the scheduled
payment date for the amount prepaid, if earlier).
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
3
<PAGE> 4
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 Company 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
agreements under this Note which continues for a period of 30 days after notice
to it by the Noteholder; (vi) 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 non-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
4
<PAGE> 5
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, at 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: /s/ KENT W. DAHL
------------------------
5
<PAGE> 6
Exhibit A
(a) Liens on Property existing on May 1, 1995 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 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;
6
<PAGE> 7
(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 the terms in this Exhibit 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.
7
<PAGE> 1
Exhibit 10.45
PROMISSORY NOTE
Principal Amount
$5,000,000.00
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.
Index Maturity Initial Interest Rate Original Issue Date
-------------- --------------------- -------------------
Three month 6.4375% May 3, 1995
Spread Base Rate Maturity Date
------ --------- -------------
45 basis points USD LIBOR May 4, 1998
Interest Payment Dates Interest Reset Dates
- -------------------------- ------------------------
8/3/95; 11/3/95; 2/5/96; 8/3/95; 11/3/95; 2/5/96;
5/3/96; 8/5/96; 11/3/96; 5/3/96; 8/5/96; 11/3/96;
2/3/97; 5/5/97; 8/4/97; 2/3/97; 5/5/97; 8/4/97;
11/3/97; 2/3/98 and 5/4/98 11/3/97 and 2/3/98
1
<PAGE> 2
For value received, Foothill Capital Corporation, a California corporation (the
"Company"), promises to pay to the order of Sanwa Bank of California (the
"Noteholder") the principal amount of $5,000,000.00 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 judgment) 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.
For the purposes of this Note, "Business Day" means any day other than a
Saturday or Sunday on which the Noteholder is open for business in California,
New York and London and dealing in Offshore Dollars. 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
nearest 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:
The "USD LIBOR" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All
amounts in the calculation will be determined by the Noteholder as of
the first day of the interest period.)
London Rate
USD LIBOR = ---------------------------
(1.00 - Reserve Percentage)
Where,
(i) "London Rate" means the interest rate (rounded upward to the
nearest 1/16th of one percent) at which U.S. Dollar deposits are
offered for the applicable interest period to other major banks in the
London inter-bank market appearing on page 3750 (or such other page as
may replace page 3750) of the Telerate screen at 11:00 a.m. (London
time) two (2) Business Days before the commencement of the interest
period.
(ii) "Reserve Percentage" means the total of maximum reserve
percentages for determining the reserves to be maintained by member
banks of the Federal Reserve System for Eurocurrency Liabilities, as
defined in Federal Reserve Board Regulation D, rounded upward to the
nearest 1/100 of one percent. The percentage will be expressed as a
decimal, and will include, but not be limited to, marginal, emergency,
supplemental, special, and other reserve percentages.
Each prepayment of a LIBOR Rate portion, whether voluntarily, by reason of
acceleration or otherwise, will be accompanied by the amount of accrued
interest on the amount prepaid and a prepayment fee as described below. A
"prepayment" is a payment of an amount on a date earlier than the scheduled
Interest Payment Date for such amount as required by this Note. The prepayment
fee shall be equal to the amount (if any) by which:
(i) the additional interest which would have been payable during
the interest period on the amount prepaid had it not been prepaid,
exceeds
(ii) the interest which would have been recoverable by the Noteholder
by placing the amount prepaid on deposit in the London inter-market for
a period starting on the date on which it was prepaid and ending on the
last day of the interest period for such portion (or the scheduled
payment date for the amount prepaid, if earlier).
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
3
<PAGE> 4
jurisdiction where the nature of its respective business requires such
qualification; (ii) the execution, delivery and performance of this Note by the
Company 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
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 non-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
4
<PAGE> 5
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 subsection (iv) of 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, at 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: /s/ KENT W. DAHL
------------------------
5
<PAGE> 6
Exhibit A
(a) Liens on Property existing on May 3, 1995 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 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;
6
<PAGE> 7
(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 the terms in this Exhibit 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.
7
<PAGE> 8
EXHIBIT 'A'
UNANIMOUS WRITTEN CONSENT
OF THE BOARD OF DIRECTORS OF
FOOTHILL CAPITAL CORPORATION
The undersigned, being all of the directors of Foothill Capital
Corporation, a California corporation ("Company"), pursuant to Section 307(b)
of the California Corporation Code and Article III, Section 14 of the By-Laws
of this Company, do hereby adopt the following resolution by their unanimous
written consent:
RESOLVED, that this Company be, and it hereby is authorized to borrow
up to $5,000,000 under a certain Floating Rate Note payable to Sanwa Bank
California dated as of May 3, 1995 with a maturity up to three years (the
"Note"), at such time or times as the President and Chief Operating Officer,
Senior Vice President and Chief Financial Officer or the Senior Vice President
and Treasurer shall determine, any one of said officers being hereby authorized
to execute and deliver in the name of and on behalf of this Company such Note
and such other documents and instruments as may be required to evidence such
borrowings; and
FURTHER RESOLVED, that the Note and other related documents executed
and delivered by the President and Chief Operating Officer, the Senior Vice
President and Chief Financial Officer or the Senior Vice President and Treasurer
in the name and on behalf of this Company, are hereby ratified in all
respects; and
FURTHER RESOLVED, that the appropriate officers of this Company or any
other employee of the Company who they delegate be, and each of them hereby is,
authorized, directed and empowered, in the name and on behalf of this Company,
to do and perform all such further acts and to sign all such further documents,
instruments and certificates and to take all such other steps as may be
necessary, advisable, convenient or proper to carry out the intent of the
foregoing resolutions and fully perform the Company's obligations under the
Note.
<PAGE> 9
This Unanimous Written Consent may be executed in one or more
counterparts, each of which shall be an original and all of which together
shall constitute one document.
Date: April 21, 1995
/s/ JOHN F. NICKOLL
---------------------------
John F. Nickoll
/s/ PETER E. SCHWAB
---------------------------
Peter E. Schwab
/s/ DAVID C. HILTON
---------------------------
David C. Hilton
<PAGE> 10
CERTIFICATE OF SECRETARY
OF FOOTHILL CAPITAL CORPORATION
I, Henry K. Jordan, hereby certify that I am the duly elected, acting
and qualified Corporate Secretary of Foothill Capital Corporation, a California
corporation (the "Company"), and do further certify that:
Attached as Exhibit A hereto is a full, true, and correct copy of the
resolutions duly adopted by the board of directors of the Company by a
unanimous written consent dated April 21, 1995 which resolutions have not been
amended and rescinded and are in full force and effect on the date hereof.
IN WITNESS WHEREOF, I have hereunto set my hand on April 21, 1995.
/s/ HENRY K. JORDAN
----------------------
HENRY K. JORDAN
Senior Vice President, Chief
Financial Officer
and Corporate Secretary
<PAGE> 11
INCUMBENCY CERTIFICATE
The undersigned, Henry K. Jordan, being the Senior Vice President and
Chief Financial and Corporate Secretary of Foothill Capital Corporation, a
California corporation (the "Company"), does hereby certify that the persons
listed below were, on April 21, 1995, and have been at all times since that date
to and including the date hereof, duly elected, qualified, and acting officers
of the Company holding the offices set forth opposite their names below, and
that genuine signatures are reflected opposite their names.
<TABLE>
<CAPTION>
NAME TITLE SIGNATURE
---- ----- ---------
<S> <C> <C>
Peter E. Schwab President and Chief /s/ PETER E. SCHWAB
Operating Officer -------------------
Henry K. Jordan Senior Vice President and /s/ HENRY K. JORDAN
Chief Financial Officer -------------------
Kent W. Dahl Senior Vice President and /s/ KENT W. DAHL
Treasurer -------------------
</TABLE>
IN WITNESS WHEREOF, the undersigned has executed this Incumbency
Certificate as of April 21, 1995.
/s/ HENRY K. JORDAN
---------------------------------------------
Henry K. Jordan, Senior Vice President, Chief
Financial Officer and Corporate Secretary
The undersigned, Peter E. Schwab, being the President and Chief
Operating Officer of the Company, does hereby certify that Henry K. Jordan was,
on April 21, 1995, and has been at all times since that date to and including
the date hereof, the duly elected, qualified, and acting Senior Vice President,
Chief Financial Officer and Corporate Secretary of the Company, and that his
signature above is genuine.
IN WITNESS WHEREOF, the undersigned has executed this certificate as of
April 21, 1995.
/s/ PETER E. SCHWAB
---------------------------------------------
Peter E. Schwab, President and Chief
Operating Officer
<PAGE> 1
Exhibit 11
THE FOOTHILL GROUP, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Dollars and shares in thousands, except per share data)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
1995 1994
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY:
Net income $ 8,394 $ 11,441
Less preferred stock dividends (67) (67)
----------------------------------------------------------------------------------------------------------
Net income for primary calculation $ 8,327 $ 11,374
==========================================================================================================
Weighted average number of common shares outstanding 16,532 16,555
Effect of dilutive stock options 238 407
----------------------------------------------------------------------------------------------------------
Number of common shares used in computation 16,770 16,962
==========================================================================================================
Primary earnings per common share $0.50 $0.67
==========================================================================================================
FULLY DILUTED:
Net income for fully diluted calculation $ 8,394 $ 11,441
==========================================================================================================
Weighted average number of shares outstanding 16,532 16,555
Effect of dilutive stock options 252 407
Shares issued upon assumed conversion of convertible preferred stock 667 667
----------------------------------------------------------------------------------------------------------
Number of shares used in computation 17,451 17,629
==========================================================================================================
Fully diluted earnings per share $0.48 $0.65
==========================================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets, the Consolidated Statements of Income and the
Consolidated Statements of Cash Flows and is qualified in its entirety by
references to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 12,850
<SECURITIES> 42,026
<RECEIVABLES> 745,305
<ALLOWANCES> 18,960
<INVENTORY> 0
<CURRENT-ASSETS> 781,222
<PP&E> 4,703
<DEPRECIATION> 2,138
<TOTAL-ASSETS> 811,243
<CURRENT-LIABILITIES> 320,546
<BONDS> 305,781
<COMMON> 164,539
0
2,900
<OTHER-SE> 17,477
<TOTAL-LIABILITY-AND-EQUITY> 811,243
<SALES> 34,427
<TOTAL-REVENUES> 34,427
<CGS> 0
<TOTAL-COSTS> 6,216
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,538
<INTEREST-EXPENSE> 9,947
<INCOME-PRETAX> 14,726
<INCOME-TAX> 6,332
<INCOME-CONTINUING> 8,394
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,394
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.48
</TABLE>
