============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
____________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File
December 31, 1993 Number 1-7543
____________________
GREYHOUND FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware 94-1278569
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
Dial Tower, Phoenix, Arizona 85077
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, Including Area Code - 602-207-6900
____________________
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
___________________ ___________________
Zero Coupon Senior Subordinated New York Stock Exchange
Notes due 1994
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and 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 filings requirements for the past 90 days.
Yes X No
_____ _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Registration S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
_____
As of March 1, 1994, 25,000 shares of Common Stock ($1.00 par value) and
2,500 shares of Series A Redeemable Preferred Stock ($10,000 par value) were
outstanding and were held by an affiliate.
Registrant meets the conditions set forth in General Instruction J(1)(a) and
(b) of Form 10-K and is therefore filing this Form with the reduced
disclosure format.
DOCUMENTS INCORPORATED BY REFERENCE
Part Where
Document Incorporated
- -------- ------------
1. Greyhound Financial Corporation Current Reports on
Form 8-K, dated January 21, 1994 and February 14,
1994, as amended I
2. Prospectuses and Prospectus Supplements dated
February 17, 1994 filed pursuant to SEC Rule 424(b) for
$100,000,000 of the Company's Floating-Rate Notes and
$250,000,000 of Medium-Term Notes, respectively I
============================================================================
TABLE OF CONTENTS
Name of Item
------------
Item # Page
- --------- ---------
Part I
Item 1 Business:
Introduction 1
General 1
Financial Services 1
Lines of Business 2
Investment in Financing Transactions 3
Cost and Utilization of Borrowed Funds 13
Credit Ratings 14
Interest and Other Core Income 14
Residual Realization Experience 14
Business Development and Competition 15
Credit Quality 16
Risk Management 16
Portfolio Management 17
Delinquencies and Workouts 17
Governmental Regulation 17
Employees 18
Item 2 Properties 18
Item 3 Legal Proceedings 18
Item 4 Submission of Matters to a Vote of Security
Holders 18
Optional Item
1. Pending Acquisition of TriCon Capital Corporation 18
2. TriCon Capital Corporation Audited
Financial Statements 20
Part II
Item 5 Market Price of and Dividends on the Registrant's
Common Equity & Related Stockholder Matters 40
Item 6 Selected Financial Data 40
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 40
Item 8 Financial Statements & Supplementary Data 40
Item 9 Changes in and Disagreements with Accountants
on Accounting & Financial Disclosure 40
Part III
Item 10 Directors & Executive Officers of the Registrant 40
Item 11 Executive Compensation 40
Item 12 Security Ownership of Certain Beneficial Owners
& Management 40
Item 13 Certain Relationships & Related Transactions 40
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 41
<PAGE>
PART I
ITEM 1. BUSINESS.
INTRODUCTION
The following discussion relates to Greyhound Financial Corporation
("GFC" or the "Company"), a wholly owned subsidiary of GFC Financial
Corporation ("GFC Financial").
On March 3, 1992, The Dial Corp's ("Dial") shareholders approved the
spin-off to its shareholders of GFC Financial, a newly-formed Delaware
corporation, which comprised Dial's former commercial lending and mortgage
insurance subsidiaries. In connection with the spin-off, the holders of
common stock of Dial received a distribution of one share of common stock of
GFC Financial for every two shares of Dial common stock (the
"Distribution").
Prior to the Distribution, Dial contributed its 100% ownership interest
in companies constituting the Greyhound European Financial Group ("GEFG")
and Greyhound BID Holding Corp. to GFC and contributed all of the common
stock of GFC to GFC Financial.
Certain contractual arrangements continue between Dial and GFC
Financial or its subsidiaries for a limited period of time following the
Distribution. GFC Financial and Dial entered into certain agreements
providing for (i) the orderly separation of GFC Financial from Dial and the
making of the Distribution; (ii) the provision by Dial of certain interim
services to GFC Financial; (iii) the assignment of the "Greyhound" and
"Image of the Running Dog" trademarks for use in all of GFC Financial's
business activities; (iv) a sublease of certain office space currently used
by GFC Financial; and (v) the administration of tax returns and allocation
of certain tax liabilities and benefits.
GENERAL
GFC was incorporated in 1965 in Delaware and is the successor to a
California corporation that commenced operations in 1954. GFC has conducted
business continuously since that time. Foreign financial services are
provided primarily in the United Kingdom, where GEFG has provided such
services since 1964. Domestic and foreign financial operations, prior to
the Distribution, had been conducted independently of each other for many
years. Following the Distribution, they have been conducted as a
consolidated enterprise; however, during the second quarter of 1992, GFC
announced its intention to phase out the London based financing operations
of GEFG. This phase out is expected to be substantially completed within a
two to three year period.
FINANCIAL SERVICES
The Company engages in the business of providing collateralized
financing of selected commercial and real estate activities in the United
States and intermediate-term lending on a secured basis in foreign
countries. The Company accomplishes this through secured loans and leases.
The Company generates interest and other income through charges
assessed on outstanding loans, loan servicing, leasing and other fees. The
Company's primary expenses are the costs of funding its loan business
(including interest paid on debt), provisions for possible credit losses,
marketing expenses, salaries and employee benefits, servicing and other
operating expenses and income taxes.
The Company's current emphasis is on secured lending to businesses in
specific industry niches, where the group's expertise in evaluating the
needs and creditworthiness of prospective customers enables it to provide
specialized financing services. The Company's strategy has been to seek to
maintain a high-quality portfolio using clearly defined underwriting
standards in an effort to minimize the level of nonearning assets and write-
offs.
Lines of Business
The Company's activities now include the following lines of business:
- Corporate Finance. The Corporate Finance group provides
financing, generally in the range of $2 million to $25
million, focusing on middle market businesses nationally,
including distribution, wholesale, retail, manufacturing and
services industries. The group's lending is primarily in the
form of term loans secured by the assets of the borrower,
with significant emphasis on cash flow as the source of
repayment of the secured loan.
- Transportation Finance. Through the Transportation Finance
group, the Company structures secured financings for
specialized areas of the transportation industry, principally
involving domestic and foreign used aircraft, as well as
domestic short-line railroads and used rail equipment.
Typical transactions involve financing up to 80% of the fair
market value of used equipment in the $3 million to $30
million range. Traditionally focused on the domestic
marketplace, Transportation Finance established a London,
England office in 1992, broadening its product line to
include international aircraft loans.
- Communications Finance. The Communications Finance group
specializes in radio and television. Other markets include
cable television, print and outdoor media services in the
United States. The Company extends secured loans to
communications businesses requiring funds for
recapitalization, refinancing or acquisition. Loan sizes
generally are from $3 million to $35 million.
- Commercial Real Estate Finance. The Commercial Real Estate
group provides cash-flow-based financing primarily for
acquisitions and refinancings to experienced real estate
developers and owner tenants of income-producing properties
in the United States and the United Kingdom. The Company
concentrates on secured financing opportunities, generally
between $3 million and $30 million, involving senior mortgage
term loans on owner-occupied commercial real estate. The
Company's portfolio of real estate leveraged leases is also
managed as part of the commercial real estate portfolio.
- Resort Finance. The Resort Finance group focuses on
successful, experienced resort developers, primarily of
timeshare resorts, second home resort communities, golf
resorts and resort hotels. Extending funds through a variety
of lending options, the Resort Finance group provides loans
and lines of credit ranging from $3 million to $30 million
for construction, acquisitions, receivables financing and
purchases and other uses. Through its subsidiary, GFC
Portfolio Services, Inc. ("GPSI"), the Resort Finance group
offers expanded convenience and service to its customers.
Professional receivables collections and cash management
gives developers the ability of having loan-related
administrative functions performed for them by GFC.
- Asset Based Finance. Acquired in early 1993, the Asset Based
Finance group ("ABF") offers a full range of nationwide
collateral-oriented lending programs to middle-market
businesses including manufacturers, wholesalers and
distributors. GFC's ABF group mainly provides revolving
lines of credit ranging between $2 million and $25 million,
often partnering with the Corporate Finance group to offer
convenient "one-stop" financing to businesses.
- Consumer Rediscount Group. The Consumer Rediscount Group
("CRG") offers $2 million to $25 million revolving credit
lines to regional consumer finance companies, which in turn
extend credit to consumers. GFC's customers provide credit
to consumers to finance home improvements, automobile
purchases, insurance premiums and for a variety of other
financial needs.
- Ambassador Factors. On February 14, 1994, GFC purchased
Fleet Factors Corp, better known as Ambassador Factors
Corporation ("Ambassador") from Fleet Financial Group, Inc.
Ambassador provides accounts receivable factoring and asset-
based lending principally to small and medium-sized textile
and apparel manufacturers and importers. See Note N of Notes
to Consolidated Financial Statements included in Annex A.
- TriCon Capital Corporation. On March 4, 1994, GFC Financial
announced the signing of a definitive purchase agreement
under which GFC will acquire all the stock of TriCon Capital
Corporation ("TriCon"), an indirect wholly-owned subsidiary
of Bell Atlantic Corporation ("Bell Atlantic"), in an all
cash transaction. This transaction is subject to regulatory
approvals and certain other conditions. TriCon is a $1.8
billion niche-oriented provider of commercial and equipment
leasing services. TriCon's marketing orientation fits well
with GFC's emphasis on value-added products and services in
focused niches of the commercial finance business and further
diversifies GFC's asset base. See Pending Acquisition of
TriCon Capital Corporation under Optional Items in Part I and
Note N of Notes to Consolidated Financial Statements included
in Annex A.
In conjunction with the liquidation of the GEFG portfolio, GEFG
surrendered the banking license of its United Kingdom bank, Greyhound Bank
PLC, and renamed the company Greyhound Guaranty Limited ("GGL"). GGL
operates a finance group that was primarily involved in lending to
individuals in the United Kingdom secured by second mortgages on residential
real estate. The group ceased writing new consumer finance business in the
first quarter of 1991 but continues to administer and collect loans
previously made.
The Company's operations are conducted primarily in the United States
and Europe. For a description of its assets owned, interest earned from
financing transactions, interest margins earned and income before income
taxes for domestic and European operations, see Note L of Notes to
Consolidated Financial Statements included in Annex A.
Investment in Financing Transactions
At December 31, 1993, 1992, 1991, 1990 and 1989, the Company's
investment in financing transactions (before reserve for possible credit
losses) was $2,846,571,000, $2,485,844,000, $2,281,872,000, $2,198,441,000
and $1,950,372,000, respectively, and consisted of the following:
<TABLE>
INVESTMENT IN FINANCING TRANSACTIONS
BY TYPES OF FINANCING
<CAPTION>
December 31,
---------------------------------------------------------------------------------------------
1993 % 1992 % 1991 % 1990 % 1989 %
---------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic:
Loans and
other
financing
contracts:
Commercial $1,332,734 46.8 $1,025,365 41.2 $ 838,822 36.8 $ 906,084 41.2 $ 767,926 39.4
Real estate 900,628 31.6 831,989 33.5 677,979 29.7 499,408 22.7 462,290 23.7
Operating
and
direct
financing
leases 205,168 7.2 176,212 7.1 185,917 8.2 158,641 7.2 191,733 9.8
Leveraged
leases 283,782 10.0 269,370 10.8 265,363 11.6 275,635 12.5 266,569 13.7
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
2,722,312 95.6 2,302,936 92.6 1,968,081 86.3 1,839,768 83.6 1,688,518 86.6
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Foreign:
Loans and
other
financing
contracts 65,129 2.3 61,537 2.5 128,871 5.6 140,249 6.4 73,106 3.8
Consumer
Finance 45,264 1.6 57,801 2.3 94,306 4.1 120,006 5.5 86,611 4.4
Operating and
direct
financing
leases 13,866 0.5 63,570 2.6 90,614 4.0 98,418 4.5 102,137 5.2
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
124,259 4.4 182,908 7.4 313,791 13.7 358,673 16.4 261,854 13.4
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
$2,846,571 100.0 $2,485,844 100.0 $2,281,872 100.0 $2,198,441 100.0 $1,950,372 100.0
========== ===== ========== ===== ========== ===== ========== ===== ========== =====
</TABLE>
<PAGE>
<TABLE>
INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
DECEMBER 31, 1993
(Dollars in Thousands)
<CAPTION>
Revenue Accruing Nonaccruing
------------------------------------------ -----------------------
Repos-
sessed 90 Days Repos- Total
Original Rewritten Operating Assets Delin- sessed Carrying
Rate Contracts Leases (4) quent Assets Other Amount %
------------------------------------------ ----------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic:
Corporate
Finance (1) $ 221,711 $27,921 $ $ $ 2,277 $ 7,428 $386 $ 259,723 9.1
Transportation
Finance (1) (2) 457,741 146,675 841 605,257 21.2
Communications
Finance 487,890 7,989 8,949 8,264 25,030 538,122 18.9
Commercial Real
Estate
Finance (1) 500,598 1,574 27,844 1,055 25,542 556,613 19.6
Resort Finance 530,070 4,869 547 12,163 19,001 440 567,090 19.9
Asset Based
Finance 176,068 176,068 6.2
Consumer
Rediscounting 19,439 19,439 0.7
---------- ------- -------- ------- ------- ------- ---- ---------- -----
2,393,517 42,353 147,222 48,956 12,437 77,001 826 2,722,312 95.6
---------- ------- -------- ------- ------- ------- ---- ---------- -----
Foreign:
Corporate Finance 8,036 324 70 23 8,453 0.3
Transportation
Finance 25,303 1,267 26,570 1.0
Commercial Real
Estate Finance 38,491 2,839 2,642 43,972 1.5
Consumer
Finance (3) 35,656 9,608 45,264 1.6
---------- ------- -------- ------- ------- ------- ---- ---------- -----
107,486 4,430 12,320 23 124,259 4.4
---------- ------- -------- ------- ------- ------- ---- ---------- -----
$2,501,003 $46,783 $147,222 $48,956 $24,757 $77,024 $826 $2,846,571 100.0
========== ======= ======== ======= ======= ======= ==== ========== =====
NOTES:
(1) Reclassifications (effective January 1, 1993): Approximately $169 million of accruing assets were
reclassified from Corporate Finance with $163 million going to Transportation Finance because they
primarily represented aircraft financing and $6 million to Commercial Real Estate Finance. Additionally,
$6.5 million of nonaccruing assets ($5.1 million classified as repossessed assets and $1.4 million
classified as 90 days delinquent) were reclassified from Corporate Finance to Commercial Real Estate
Finance.
(2) Domestic Transportation Finance includes $31.9 million of new aircraft finance business booked through
the London office. In addition, operating leases include certain aircraft and engines having a carrying
amount of $53.0 million that were combined as one transaction pursuant to a participation agreement with
an engine and hushkitting company.
(3) Consumer Finance accounts are considered delinquent after 180 days.
(4) The Company earned income totaling $2.7 million on repossessed accruing assets during 1993, including
$1.5 million in Commercial Real Estate Finance, $0.6 million in Communications Finance and $0.6 million
in Resort Finance.
</TABLE>
<PAGE>
<TABLE>
INVESTMENT IN FINANCING TRANSACTIONS
BY LINES OF BUSINESS
DECEMBER 31, 1992
(Dollars in Thousands)
<CAPTION>
Revenue Accruing Nonaccruing
---------------------------------------- ------------------------
Repos-
sessed 90 Days Repos- Total
Original Rewritten Operating Assets Delin- sessed Carrying
Rate Contracts Leases (4) quent Assets Other Amount %
---------------------------------------- ------------------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic:
Corporate
Finance (1) $ 477,327 $16,081 $ $ $ 7,820 $11,808 $ 530 $ 513,566 20.7
Transportation
Finance (2) 228,626 100,336 328,962 13.2
Communications
Finance 382,914 32,548 8,744 13,182 437,388 17.6
Commercial Real
Estate Finance 463,571 12,482 21,509 6,302 15,052 518,916 20.9
Resort Finance 487,649 1,356 575 13,889 635 504,104 20.2
---------- ------- -------- ------- ------- ------- ------ ---------- -----
2,040,087 62,467 100,911 21,509 22,866 53,931 1,165 2,302,936 92.6
---------- ------- -------- ------- ------- ------- ------ ---------- -----
Foreign:
Corporate Finance 15,375 1,729 1,712 60 18,876 0.8
Transportation
Finance 42,651 2,318 2,225 47,194 1.9
Commercial Real
Estate Finance 55,144 1,792 2,101 59,037 2.4
Consumer
Finance (3) 41,439 16,362 57,801 2.3
---------- ------- -------- ------- ------- ------- ------ ---------- -----
154,609 5,839 22,400 60 182,908 7.4
---------- ------- -------- ------- ------- ------- ------ ---------- -----
$2,194,696 $68,306 $100,911 $21,509 $45,266 $53,991 $1,165 $2,485,844 100.0
========== ======= ======== ======= ======= ======= ====== ========== =====
NOTES:
(1) Includes $5.1 million of public sector Latin American loans that have been written-down to estimated
market value. During 1992, GFC successfully liquidated 72% of the face value of public sector Latin
American loans at favorable market prices, which were approximately $3.1 million in excess of the
carrying amount.
(2) Operating leases include certain aircraft and aircraft engines having a carrying amount of $58.2 million
that were combined as one transaction pursuant to a participation agreement with an engine retrofitting
and hushkitting company.
(3) Consumer Finance accounts are considered delinquent after 180 days.
(4) The Company earned income of $1.9 million on repossessed accruing assets in Commercial Real Estate
Finance during 1992.
</TABLE>
<PAGE>
<TABLE>
INVESTMENT IN FINANCING TRANSACTIONS
BY LINES OF BUSINESS
DECEMBER 31, 1991
(Dollars in Thousands)
<CAPTION>
Revenue Accruing Nonaccruing
-------------------------------- --------------------------
90 Days Repos- Total
Original Rewritten Operating Delin- sessed Carrying
Terms Contracts Leases quent Assets Other Amount %
-------------------------------- -------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic:
Corporate Finance $ 429,053 $14,594 $ $ 7,386 $ $3,694 $ 454,727 19.9
Transportation
Finance (1) 149,207 74,596 223,803 9.8
Communications
Finance 321,918 12,340 16,636 350,894 15.4
Commercial Real
Estate Finance 431,097 15,734 10,504 20,002 477,337 20.9
Resort Finance 429,505 1,511 608 7,317 1,056 439,997 19.3
---------- ------- ------- ------- ------- ------ ---------- -----
1,760,780 44,179 75,204 34,526 27,319 4,750 1,946,758 85.3
---------- ------- ------- ------- ------- ------ ---------- -----
Foreign:
Corporate Finance 51,461 1,955 5,064 221 58,701 2.6
Transportation
Finance 64,158 3,140 605 67,903 3.0
Commercial Real
Estate Finance 85,924 6,957 92,881 4.1
Consumer
Finance (2) 62,452 31,854 94,306 4.1
---------- ------- ------- ------- ------- ------ ---------- -----
263,995 5,095 43,875 826 313,791 13.8
---------- ------- ------- ------- ------- ------ ---------- -----
Latin America:
Corporate
Finance (3) 21,323 21,323 0.9
---------- ------- ------- ------- ------- ------ ---------- -----
$2,046,098 $49,274 $75,204 $78,401 $28,145 $4,750 $2,281,872 100.0
========== ======= ======= ======= ======= ====== ========== =====
NOTES:
(1) Operating leases included certain aircraft and aircraft engines having a carrying amount of $51.3
million, that were combined as one transaction pursuant to a participation agreement with an engine
retrofitting and hushkitting company.
(2) Consumer Finance accounts are considered delinquent after 180 days.
(3) Included $15.5 million of Latin American loans written-down to market value.
</TABLE>
<PAGE>
<TABLE>
INVESTMENT IN FINANCING TRANSACTIONS
BY LINES OF BUSINESS
DECEMBER 31, 1990
(Dollars in Thousands)
<CAPTION>
Revenue Accruing Nonaccruing
------------------------------- ---------------------------
Operat- 90 Days Repos- Total
Original Rewritten ing Delin- sessed Carrying
Terms Contracts Leases quent Assets Other Amount %
------------------------------- --------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic:
Corporate Finance $ 478,343 $ 2,833 $ 113 $ 4,345 $ 968 $ 4,511 $ 491,113 22.4
Transportation
Finance 158,438 9,550 167,988 7.6
Communications
Finance 253,519 11,464 6,222 3,866 275,071 12.5
Commercial Real
Estate Finance 408,201 13,713 14,312 11,942 6,605 454,773 20.7
Resort Finance 374,058 215 640 94 378 1,247 376,632 17.2
---------- ------- ------- ------- ------- ------- ---------- -----
1,672,559 28,225 10,303 24,973 13,288 16,229 1,765,577 80.4
---------- ------- ------- ------- ------- ------- ---------- -----
Foreign:
Corporate Finance 79,895 3,192 1,233 462 84,782 3.8
Transportation
Finance 59,159 4,190 2,149 65,498 3.0
Commercial Real
Estate Finance 81,478 338 6,571 88,387 4.0
Consumer
Finance (1) 88,034 31,972 120,006 5.4
---------- ------- ------- ------- ------- ------- ---------- -----
308,566 7,720 39,776 2,611 358,673 16.2
---------- ------- ------- ------- ------- ------- ---------- -----
Latin America:
Corporate Finance 7,549 66,642 74,191 3.4
---------- ------- ------- ------- ------- ------- ---------- -----
$1,988,674 $35,945 $10,303 $64,749 $15,899 $82,871 $2,198,441 100.0
========== ======= ======= ======= ======= ======= ========== =====
NOTE:
(1) Consumer Finance accounts are considered delinquent after 180 days.
</TABLE>
<PAGE>
<TABLE>
INVESTMENT IN FINANCING TRANSACTIONS
BY LINES OF BUSINESS
DECEMBER 31, 1989
(Dollars in Thousands)
<CAPTION>
Revenue Accruing Nonaccruing
------------------------------ --------------------------
Operat- 90 Days Repos- Total
Original Rewritten ing Delin- sessed Carrying
Terms Contracts Leases quent Assets Other Amount %
------------------------------ -------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic:
Corporate Finance $ 495,366 $ 9,014 $ 187 $21,170 $ 1,488 $ 1,623 $ 528,848 27.1
Transportation
Finance 123,080 123,080 6.3
Communications
Finance 164,406 164,406 8.4
Commercial Real
Estate Finance 456,216 1,464 14,857 10,420 482,957 24.8
Resort Finance 308,326 673 94 380 296 309,769 15.9
---------- ------- ------- ------- ------- ------- ---------- -----
1,547,394 9,014 2,324 36,121 12,288 1,919 1,609,060 82.5
---------- ------- ------- ------- ------- ------- ---------- -----
Foreign:
Corporate Finance 65,335 227 104 65,666 3.4
Transportation
Finance 35,150 2,856 38,006 2.0
Commercial Real
Estate Finance 64,423 7,148 71,571 3.6
Consumer
Finance (1) 77,488 9,123 86,611 4.4
---------- ------- ------- ------- ------- ------- ---------- -----
242,396 227 19,231 261,854 13.4
---------- ------- ------- ------- ------- ------- ---------- -----
Latin America:
Corporate Finance 6,979 99 72,380 79,458 4.1
---------- ------- ------- ------- ------- ------- ---------- -----
$1,796,769 $ 9,241 $ 2,324 $55,352 $12,387 $74,299 $1,950,372 100.0
========== ======= ======= ======= ======= ======= ========== =====
NOTE:
(1) Consumer Finance accounts are considered delinquent after 180 days.
</TABLE>
An analysis of nonaccruing contracts and repossessed assets at
December 31 of each year shown is as follows:
1993 1992 1991 1990 1989
------------------------------------------------
(dollars in thousands)
Nonaccruing contracts:
Domestic $ 13,263 $ 24,031 $ 39,276 $ 41,201 $ 38,040
Foreign 12,320 22,400 43,875 39,777 19,231
-------- -------- -------- -------- --------
25,583 46,431 83,151 80,978 57,271
-------- -------- -------- -------- --------
Latin America:
Brazil 22,775 22,998
Ecuador 40,487 42,195
Other 3,380 7,187
-------- -------- -------- -------- --------
66,642 72,380
-------- -------- -------- -------- --------
Total nonaccruing
contracts 25,583 46,431 83,151 147,620 129,651
-------- -------- -------- -------- --------
Repossessed assets:
Domestic 77,001 53,931 27,319 13,288 12,288
Foreign 23 60 826 2,611
Latin America 99
-------- -------- -------- -------- --------
Total repossessed assets 77,024 53,991 28,145 15,899 12,387
-------- -------- -------- -------- --------
Total nonaccruing
contracts
and repossessed assets $102,607 $100,422 $111,296 $163,519 $142,038
======== ======== ======== ======== ========
Nonaccruing contracts and
repossessed assets
as a percentage of
investment in
financing transactions 3.6% 4.0% 4.9% 7.4% 7.3%
======== ======== ======== ======== ========
In addition to the repossessed assets in the above table, GFC had
repossessed assets, with a total carrying amount of $49.0 million and $21.5
million at December 31, 1993 and 1992, respectively, which earned income of
$2.7 million and $1.9 million during 1993 and 1992, respectively.
<PAGE>
The following is an analysis of the reserve for possible credit losses
for the years ended December 31:
1993 1992 1991 1990 1989
-----------------------------------------------
(dollars in thousands)
Balance, beginning of
year:
Domestic $65,100 $72,387 $67,363 $62,158 $44,938
Foreign 4,191 15,213 9,735 10,478 32,668
------- ------- ------- ------- -------
69,291 87,600 77,098 72,636 77,606
------- ------- ------- ------- -------
Provision for possible
credit losses
(Note 1):
Domestic 5,206 144 57,210 10,094 25,252
Foreign 500 6,596 20,477 435 (17,301)
------- ------- ------- ------- -------
5,706 6,740 77,687 10,529 7,951
------- ------- ------- ------- -------
Write-offs (Note 1):
Domestic (7,548) (7,823) (52,753) (6,114) (8,764)
Foreign (5,027) (15,838) (15,593) (1,748) (20,675)
------- ------- ------- ------- -------
(12,575) (23,661) (68,346) (7,862) (29,439)
------- ------- ------- ------- -------
Recoveries:
Domestic 221 392 567 1,225 732
Foreign (Note 2) 496 357 96 22 16,014
------- ------- ------- ------- -------
717 749 663 1,247 16,746
------- ------- ------- ------- -------
Other:
Domestic 1,286
Foreign (145) (2,137) 498 548 (228)
------- ------- ------- ------- -------
1,141 (2,137) 498 548 (228)
------- ------- ------- ------- -------
Balance, end of year:
Domestic 64,265 65,100 72,387 67,363 62,158
Foreign 15 4,191 15,213 9,735 10,478
------- ------- ------- ------- -------
$64,280 $69,291 $87,600 $77,098 $72,636
======= ======= ======= ======= =======
NOTES:
(1) In 1991, the Company recorded a special provision for possible credit
losses of $65 million and recorded a $47.8 million write-down of Latin
American assets (included in the domestic portfolio) and recorded
write-offs of $15 million in the foreign operations (GEFG) portfolio.
(2) In 1989, the foreign operations (GEFG) made recoveries of $16.0 million
related to its shipping (maritime) portfolio.
The Company does not allocate a dollar amount of its reserve for
possible credit losses to specific categories of loans and financing
contracts. It does, however, allocate reserves between domestic and foreign
portfolios.
Write-offs by major loan and collateral types, experienced by
the Company during the years ended December 31, are as follows:
<TABLE>
WRITE-OFFS BY MAJOR LOAN AND COLLATERAL TYPES
(Dollars in Thousands)
<CAPTION>
DOMESTIC FOREIGN (Note 1)
------------------------------------------- -------------------------------------------
1993 1992 1991 1990 1989 1993 1992 1991 1990 1989
------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consumer finance $ $ $ $ $ $4,071 $10,176 $13,687 $1,563 $
Commercial real
estate 2,319 4,417 2,204 1,976 2,027 763 4,487 690 129 1,176
Manufacturing and
processing
equipment 2,162 1,000 1,325 614 80 908 604 10
Commercial
vehicles 1,579 67 318 46
Communications
finance 1,488 1,500 1,200
Maritime 906 18,937
Latin America
(Note 1) 47,759 419 3,310
Other 1,523 2,076 2,813 113 267 612 562
------ ------ ------- ------ ------ ------ ------- ------- ------ -------
$7,548 $7,823 $52,753 $6,114 $8,764 $5,027 $15,838 $15,593 $1,748 $20,675
====== ====== ======= ====== ====== ====== ======= ======= ====== =======
Write-offs as a
percentage of
ending
investments in
financing
transactions 0.28% 0.34% 2.68% 0.33% 0.52% 4.05% 8.66% 4.97% 0.49% 7.90%
====== ====== ======= ====== ====== ====== ======= ======= ====== =======
<CAPTION>
TOTAL
-------------------------------------------
1993 1992 1991 1990 1989
-------------------------------------------
Consumer finance $ 4,071 $10,176 $13,687 $1,563 $
Commercial real
estate 3,082 8,904 2,894 2,105 3,203
Manufacturing and
processing
equipment 2,242 1,908 604 1,335 614
Commercial
vehicles 1,579 67 364
Communications
finance 1,488 1,500 1,200
Maritime 906 18,937
Latin America
(Note 1) 47,759 419 3,310
Other 113 267 2,135 2,076 3,375
------- ------- ------- ------ -------
$12,575 $23,661 $68,346 $7,862 $29,439
======= ======= ======= ====== =======
Write-offs as a
percentage of
ending
investments in
financing
transactions 0.44% 0.95% 3.00% 0.36% 1.51%
======= ======= ======= ====== =======
NOTE:
(1) In the fourth quarter of 1991, the Company recorded a special provision for possible credit
losses of $65.0 million and recorded write-offs of $15.0 million related to nonearning assets
in the GEFG (foreign) portfolio and a $47.8 million write-down to reduce Latin American assets
to current market value.
</TABLE>
A further breakdown of the portfolio by collateral type can be found in
Note C of Notes to Consolidated Financial Statements in Annex A.
Cost and Utilization of Borrowed Funds
The Company relies on borrowed funds as well as internal cash flow to
finance its operations. The Company follows a policy of relating provisions
under its loans and leases to the terms on which it obtains funds so that,
to the extent feasible, floating-rate assets are funded with floating-rate
borrowings and fixed-rate assets are funded with fixed-rate borrowings.
The following table reflects the approximate average pre-tax effective
cost of borrowed funds and pre-tax equivalent rate earned on accruing assets
for the Company for each of the periods listed:
Year Ended December 31,
---------------------------------
1993 1992 1991 1990 1989
---------------------------------
Domestic:
Short-term debt and variable
rate long-term debt (1) 4.6% 5.0% 6.9% 8.8% 9.9%
Fixed-rate long-term debt (1) 11.4% 10.6% 10.9% 11.4% 12.3%
Aggregate borrowed funds (1) 6.4% 7.2% 8.8% 10.1% 11.2%
Rate earned on accruing
assets (2) (3) 10.1% 10.7% 12.2% 12.7% 13.6%
Spread percentage (4) 4.8% 4.4% 4.6% 4.2% 3.9%
Foreign:
Short-term debt and variable
rate long-term debt 5.6% 9.3% 12.3% 15.5% 13.0%
Customer deposits 6.2% 10.2% 14.2% 15.4% 14.4%
Rate earned on accruing assets (3) 15.1% 17.6% 16.7% 20.1% 16.0%
Spread percentage (4) 10.4% 9.8% 6.2% 8.2% 6.6%
_____________________
NOTES:
(1) Includes the effect of interest rate conversion agreements.
(2) Accruing assets are net of deferred taxes applicable to leveraged
leases.
(3) Earnings include gains on sale of assets.
(4) Spread percentages represent interest margins earned as a percentage of
earning assets, net of deferred taxes applicable to leveraged leases.
_____________________________________
The effective costs presented above include costs of commitment fees
and related borrowing costs and do not purport to predict the costs of funds
in the future.
For further information on the Company's cost of funds, refer to Note D
of the Notes to Consolidated Financial Statements included in Annex A.
Following are the ratios of income to combined fixed charges and
preferred stock dividends ("ratio") for each of the past five years:
Year Ended December 31,
---------------------------------
1993 1992 1991 1990 1989
---------------------------------
1.47 1.35 ---- 1.24 1.23
===== ===== ===== ===== =====
Variations in interest rates generally do not have a substantial impact
on the ratio because fixed-rate and floating-rate assets are generally
matched with liabilities of similar rate and term.
Income available for fixed charges, for purposes of the computation of
the ratio of income to combined fixed charges and preferred stock dividends,
consists of the sum of income before income taxes (adjusted for the effect
of reduced tax rates on income from leveraged leases) and fixed charges.
Combined fixed charges include interest and related debt expense and a
portion of rental expense determined to be representative of interest and
preferred stock dividends grossed up to a pre-tax basis.
For the year ended December 31, 1991, earnings were inadequate to cover
combined fixed charges by $35.3 million. The decline in the ratio in 1991
was due to restructuring and other charges and transaction costs recorded in
the fourth quarter of 1991. Those charges and costs were recorded in
connection with the spin-off of the Company from Dial.
Credit Ratings
GFC currently has investment-grade credit ratings from the following
rating agencies.
Commercial Senior Subordinated
Paper Debt Debt
-------------------------------------
Duff & Phelps D1- A- BBB+
Fitch Investors Services, Inc. F1 A A-
Moody's Investors Service P2 Baa2 Ba1
Standard & Poor's Corp. A2 BBB BBB-
There can be no assurance that GFC's ratings will be maintained. None
of the Company's other subsidiaries have received credit ratings.
Duff & Phelps Credit Rating Company ("Duff & Phelps") has placed GFC's
senior and senior subordinated debt ratings on Rating Watch with negative
implications. Duff & Phelps indicated that its action follows GFC
Financial's announcement on March 4, 1994 indicating that it has signed a
definitive purchase agreement to acquire TriCon from Bell Atlantic
Corporation.
Fitch Investors Services, Inc. ("Fitch") announced that it has placed
GFC's senior debt, subordinated debt and commercial paper ratings on Fitch
Alert with negative implications. This action also follows GFC Financial's
announcement of the proposed acquisition of TriCon.
Both Duff & Phelps and Fitch indicated that their actions resulted from
their need to observe GFC management's ability to successfully integrate the
new businesses and maintain appropriate controls in light of the significant
increase in the size of GFC.
Moody's Investors Services and Standard & Poor's Corp. affirmed GFC's
current ratings.
Interest and Other Core Income
The Company has pursued a strategy of focusing on lending activities
producing a predictable stream of revenues, as opposed to the less
predictable gains on asset sales associated with leasing activities. For
the year ended December 31, 1993, core income (i.e., net income before a
$4.9 million adjustment to deferred income taxes made in 1993, restructuring
and other charges recorded in 1991 and gains on sale of assets (after-tax)
realized in each of the years) was $38.0 million, $34.6 million and $24.8
million for the years 1993, 1992 and 1991, respectively. Core income
represented 92% of net income (before the adjustment to deferred income
taxes) in 1993, up from 50% in 1987.
Residual Realization Experience
In each of the last 38 years, the Company has realized, in the
aggregate, proceeds from the sale of assets upon lease terminations (other
than foreclosures) in excess of carrying amounts; however, there can be no
assurance that such results will be realized in future years. Sales
proceeds upon lease terminations in excess of carrying amounts are reported
as income when the assets are sold.
Income from leasing activities is significantly affected by gains from
asset sales upon lease termination and, hence, can be less predictable than
income from non-leasing activities. During the five years ended December
31, 1993, the proceeds to the Company from sales of assets upon early
termination of leases and at the expiration of leases have exceeded the
respective carrying amounts and estimated residual values as follows:
Terminations at End of Lease
Early Terminations Term (Note 3)
(Notes 1, 2 and 4) ------------------------------
------------------------------------
Proceeds Proceeds
Carrying as a % Estimated as a % of
Amount of Residual Estimated
Sales of Carrying Sales Value of Residual
Year Proceeds Assets Amount Proceeds Assets Value
------------------------------------ ------------------------------
(dollars in thousands) (dollars in thousands)
1993 $ --- $ --- --- $ 486 $ 248 196%
1992 20,493 17,527 117% 2,164 1,768 122%
1991 25,027 21,904 114% 10,114 6,553 154%
1990 10,854 7,127 152% 20,210 11,719 172%
1989 30,894 16,616 186% 14,559 11,305 129%
NOTES:
(1) Excludes foreclosures for credit reasons which are immaterial to the
above amounts.
(2) Excludes proceeds of $3,201,000 in 1993 on assets held for sale.
(3) Excludes proceeds of $2,000,000 in 1993 received on guarantees.
(4) Excludes proceeds of $460,000 in 1990 from the disposal of warrants.
__________________________________
The estimated residual value of leased assets in the accounts of the
Company at December 31, 1993 aggregated 39.0% of the original cost of such
assets (21.9% excluding the original costs of the assets and residuals
applicable to real estate leveraged leases, which typically have higher
residuals than other leases). The financing contracts and leases
outstanding at that date had initial terms ranging generally from one to 25
years. The average initial term weighted by carrying amount at inception
and the weighted average remaining term of financing contracts at December
31, 1993 for financing contracts excluding leveraged leases were 7.3 and 3.7
years, respectively, and for leveraged leases were approximately 20 and 12
years, respectively. The comparable average initial term and remaining term
at December 31, 1992 for financing contracts excluding leveraged leases were
7.7 and 3.7 years, respectively, and for leveraged leases were approximately
20 and 13 years, respectively. The Company utilizes either employed or
outside appraisers to determine the collateral value of assets to be leased
or financed and the estimated residual or collateral value thereof at the
expiration of each lease.
For a discussion of accounting for lease transactions, refer to Notes A
and B of Notes to Consolidated Financial Statements included in Annex A.
Business Development and Competition
The Company develops business primarily through direct solicitation by
its own sales force. Customers are also introduced by independent brokers
and referred by other financial institutions.
At December 31, 1993, the Company had 912 financing contracts with 604
customers (excluding 2,886 contracts with consumer finance customers),
compared to 874 financing contracts with 570 customers (excluding 3,481
contracts with consumer finance customers) at December 31, 1992.
The Company is engaged in an extremely competitive activity. It
competes with banks, insurance companies, leasing companies, the credit
units of equipment manufacturers and other finance companies. Some of these
competitors have substantially greater financial resources and are able to
borrow at costs below those of the Company. The Company's principal means
of competition is through a combination of service and the interest rate
charged for money. The interest rate is a function of borrowing costs,
operating costs and other factors. While many of the Company's larger
competitors are able to offer lower interest rates based upon their lower
borrowing costs, the Company seeks to maintain the competitiveness of the
interest rates it offers by emphasizing strict control of its operating
costs.
Credit Quality
As a result of the use of clearly defined underwriting standards,
portfolio management techniques, monitoring of covenant breaches and active
collections and workout departments, the Company believes it maintains a
high-quality customer base.
Risk Management
The Company generally conducts investigations of its prospective
customers through a review of historical financial statements, published
credit reports, credit references, discussions with management, analysis of
location feasibility, personal visits and property inspections. In many
cases, depending upon the results of its credit investigations and the
nature and type of property involved, the Company obtains additional
collateral or guarantees from others.
As part of its underwriting process, the Company gives close attention
to the management, industry, financial position and level of collateral of
any proposed borrower. The purpose, term, amortization and amount of any
proposed transaction must be clearly defined and within established
corporate policy. In addition, underwriters attempt to avoid undue
concentrations in any one credit, industry or regional location.
- Management. The Company considers the reputation, experience
and depth of management; quality of product or service;
adaptability to changing markets and demand; and prior
banking, finance and trade relationships.
- Industry. The Company evaluates critical aspects of each
industry to which it lends, including the seasonality and
cyclicality of the industry; governmental regulation; the
effects of taxes; the economic value of goods or services
provided; and potential environmental liability.
- Financial. The Company's review of a prospective borrower
includes a comparison of certain financial ratios among
periods and among other industry participants. Items
considered include net worth; composition of assets and
liabilities; debt coverage and servicing requirements;
liquidity; sales growth and earning power; and cash flow
needs and generation.
- Collateral. The Company regards collateral as an important
factor in a credit evaluation and has established maximum
loan to value ratios, normally ranging from 60% - 95%, for
each of its lines of business. However, collateral is only
one of the many factors considered.
The underwriting process includes, in addition to the analysis of the
factors set forth above, the design and implementation of transaction
structures and strategies to mitigate identified risks; a review of
transaction pricing relative to product-specific return requirements and
acknowledged risk elements; a multi-step, interdepartmental review and
approval process, with varying levels of authority based on the size of the
transaction; and periodic, interdepartmental reviews and revision of
underwriting guidelines.
The Company also monitors loan portfolio concentrations in the areas of
aggregate exposure to a single borrower and related entities, within a given
geographical area and with respect to an industry and/or product type within
an industry. The Company has established concentration guidelines for each
line of business it conducts for the various product types it may entertain
within that line of business. Geographical concentrations are reviewed
periodically and evaluated based on historical loan experience and
prevailing market and economic conditions.
The Company's financing contracts and leases generally require the
customer to pay taxes, license fees and insurance premiums and to perform
maintenance and repairs at the customer's expense. Contract payment rates
are based on several factors, including the cost of borrowed funds, term of
contract, creditworthiness of the prospective customer, type and nature of
collateral and other security and, in leasing transactions, the timing of
tax effects and estimated residual values. In leasing transactions, lessees
generally are granted an option to purchase the equipment at the end of the
lease term at its then fair market value or, in some cases, are granted an
option to renew the lease at its then fair rental value. The extent to
which lessees exercise their options to purchase leased equipment varies
from year to year, depending on, among other factors, the status of the
economy, the financial condition of the lessee, interest rates and
technological developments.
Portfolio Management
In addition to the review at the time of original underwriting, the
Company attempts to preserve and enhance the earnings quality of its
portfolio through proactive management of its financing relationships with
its clients and its underlying collateral. This process includes the
periodic appraisal or verification of the collateral to determine loan
exposure and residual values; sales of residual and warrant positions to
generate supplemental income; and review and management of covenant
compliance. The Portfolio Management department regularly reviews financial
statements to assess customer cash flow performance and trends; periodically
confirms operations of the customer; conducts periodic reappraisals of the
underlying collateral; seeks to identify issues concerning the vulnerability
of debt service capabilities of the customer; disseminates such information
to relevant members of the Company's staff; resolves outstanding issues with
the borrower; and prepares quarterly summaries of the aggregate portfolio
quality for management review. To facilitate the monitoring of a client's
account, each client is assigned to a customer service representative who is
responsible for all follow-up with that client.
Delinquencies and Workouts
The Company monitors timely payment of all accounts. Generally, when
an invoice is 10 days past due, the customer is contacted, and a
determination is made as to the extent of the problem, if any. A commitment
for immediate payment is pursued and the account is observed closely. If
payment is not received after this contact, all guarantors of the account
are contacted within the next 20 days. If an invoice becomes 31 days past
due, it is reported as delinquent. A notice of default is sent prior to an
invoice becoming 45 days past due and, between 60 and 90 days past the due
date, if satisfactory negotiations are not underway, outside counsel is
generally retained to help protect the Company's rights and to pursue its
remedies.
When accounts become more than 90 days past due (or in the case of
consumer finance accounts, 180 days past due), income recognition is
suspended, and the Company vigorously pursues its legal remedies.
Foreclosed or repossessed assets are considered to be nonperforming, and are
reported as such unless such assets generate sufficient cash to result in a
reasonable rate of return. Such accounts are continually reviewed, and
write-downs are taken as deemed necessary. While pursuing collateral and
obligors, the Company generally continues to negotiate the restructuring or
other settlement of the debt, as appropriate.
Management believes that collateral values significantly reduce loss
exposure and that the reserve for possible credit losses is adequate. For
additional information regarding the reserve for possible credit losses, see
Note C of Notes to Consolidated Financial Statements included in Annex A.
Governmental Regulation
The Company's domestic activities, including the financing of its
operations, are subject to a variety of federal and state regulations such
as those imposed by the Federal Trade Commission, the Securities and
Exchange Commission, the Consumer Credit Protection Act, the Equal Credit
Opportunity Act and the Interstate Land Sales Full Disclosure Act.
Additionally, a majority of states have ceilings on interest rates
chargeable to customers in financing transactions. The Company's
international activities are also subject to a variety of laws and
regulations promulgated by the governments and various agencies of the
countries in which the business is conducted.
EMPLOYEES
At December 31, 1993, the Company and its subsidiaries had 261
employees, consisting of 230 and 31 employees in GFC and GEFG, respectively.
None of such employees were covered by collective bargaining agreements.
The Company believes its employee relations are satisfactory.
ITEM 2. PROPERTIES
The principal executive offices of the Company are located in premises
leased from Dial in Phoenix, Arizona.
The Company operates five additional offices in the United States and
one office in Europe. All such properties are leased.
Alternative office space could be obtained without difficulty in the
event leases are not renewed.
ITEM 3. LEGAL PROCEEDINGS.
The Company and certain of its subsidiaries are parties either as
plaintiffs or defendants to various actions, proceedings and pending claims,
including legal actions, which involve claims for compensatory, punitive or
other damages in material amounts. Litigation is subject to many
uncertainties and it is possible that some of the legal actions, proceedings
or claims referred to above could be decided against the Company. Although
the ultimate amount for which the Company or its subsidiaries may be held
liable with respect to matters where the Company is defendant is not
ascertainable, the Company believes that any resulting liability should not
materially affect the Company's financial position or results of operations.
Through a Report on Form 8-K, dated January 5, 1993, the Company
reported litigation titled Cabana Limited Partnership, a South Carolina
Partnership v. Greyhound Real Estate Finance Company, et al., and related
litigation (collectively, the "Litigation"). On January 31, 1994, the court
in the above-named case granted summary judgment in favor of the Company and
the other defendants on all counts. On motion of defendants, the court
dismissed the plaintiffs' claims without prejudice. The parties
subsequently entered into a global settlement agreement whereby all rights
to appeal and to pursue the related litigation have been waived by
Plaintiffs. The terms of the settlement agreement are confidential but
involve the payment by the defendants to plaintiffs' counsel of a relatively
nominal amount, to secure finality, which the Company believes will cover a
portion of plaintiffs' counsels' litigation costs and expenses. The summary
judgment in the Company's and related defendants' favor remains unchanged.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Omitted.
OPTIONAL ITEMS.
1. PENDING ACQUISITION OF TRICON CAPITAL CORPORATION.
The acquisition of TriCon, combined with the acquisition of Ambassador,
would increase GFC's total assets on a pro forma basis to $5 billion with
pro forma 1993 income from continuing operations on a combined basis of
approximately $72 million before the $4.9 million adjustment to deferred
taxes applicable to leveraged leases.
This acquisition of TriCon is expected to give the Company significant
critical mass and important economies of scale. Management believes it puts
the Company among the largest independent commercial finance companies in
the United States and allows it to compete over a greater range of services.
TriCon's marketing orientation fits well with GFC's emphasis on value-added
products and services in focused niches of the commercial finance business
and further diversifies GFC's asset base. Following is a brief description
of TriCon and the various business activities in which it engages.
GENERAL
TriCon is a niche oriented provider of commercial finance and equipment
leasing services to a highly segmented group of borrowers and lessees
throughout the United States. TriCon conducts its operations through seven
specialized business groups which provide financial products and services to
three specific market sectors of the finance and leasing industry.
End-User Sector
The customers in the end-user sector use the assets which
TriCon finances or leases for the ongoing operation of their
businesses. The equipment which TriCon leases to its customers is
typically purchased from an equipment manufacturer, vendor or dealer
selected by the customer. The three specialized business groups
associated with this market sector and the services provided by TriCon
to customers of each business group include:
- Medical Finance Group. Equipment and real estate financing
and asset management services targeting the top 2,400 health
care providers in the United States.
- Commercial Equipment Finance Group. Direct finance leasing
of, and lending for, general business equipment to quality
commercial business enterprises which lack ready access to
public finance markets.
- Government Finance Group. Primarily tax-exempt financing to
state and local governments.
Program Finance Sector
TriCon's business groups in the Program Finance Sector
provide financing programs to help manufacturers, distributors, vendors
and franchisors facilitate the sale of their products or services. The
three specialized business groups associated with this market sector
and the services provided by TriCon to customers of each business group
include:
- Vendor Service Group. Point-of-sale financing programs and
support services for regional and national manufacturers,
distributors and vendors of equipment classified as "small
ticket" in transaction size (generally transactions with an
equipment cost of less than $250,000). The equipment which
TriCon leases to the ultimate end-user is typically sold to
TriCon by the vendor participating in the financing program.
- Franchise Finance Group. Equipment and total facility
financing programs for the franchise-based food service
industry. The equipment which TriCon leases to the ultimate
end-user is typically purchased by TriCon from the equipment
manufacturer, vendor or dealer selected by the end-user.
- Commercial Credit Services Group. Accounts receivable and
inventory lending for manufacturers and major distributors,
manufacturer-sponsored inventory financing for office
equipment dealers, and telecommunications receivables
financing for the regional providers of long distance
operator services.
Capital Services Sector
The Capital Services Sector has one business group which
focuses on the management and origination of highly structured
financing of "large ticket" commercial equipment (generally
transactions involving the sale or lease of equipment with a cost in
excess of $15 million) primarily leveraged leases for major
corporations. The equipment which TriCon leases to its customers is
typically purchased from an equipment manufacturer, vendor or dealer
selected by the customer.
The commercial finance and equipment leasing industry is highly
competitive. While price is an important consideration, many customers
value a high level of service which is the primary basis on which TriCon
competes. Although TriCon has only a small share of the total commercial
leasing market, the "Asset Finance and Leasing Digest" ranked TriCon Leasing
Corporation as one of the top 50 leasing companies in the world for 1992
based on volume and total assets.
Portfolio Composition
The total assets under the management of TriCon consist of the TriCon
portfolio of owned lease and loan assets (the "Portfolio Assets") plus
certain assets that are owned by others but managed by TriCon and are not
reflected on TriCon's balance sheet. At December 31, 1993, the Portfolio
Assets were approximately $1.8 billion. At that date, the assets of others
managed by TriCon were approximately $1.3 billion, consisting of
approximately $344 million of securitized assets (the "Securitizations") and
approximately $976 million of net lease receivables relating to the
leveraged lease and project finance portfolio of Bell Atlantic.
TriCon's primary financing products are finance leases, operating
leases, collateralized loans and inventory and receivable financing. The
Portfolio Assets are diversified across types of financed equipment with the
largest equipment concentrations being data processing equipment, health
care equipment, communications equipment, furniture and fixtures, office
machines and diversified commercial use equipment. The Portfolio Assets
also include real estate-related assets, consisting primarily of real estate
held as collateral in conjunction with its health care and franchise-based
food service equipment financings and, to a lesser extent, a portfolio of
general commercial real estate mortgages currently being managed for
liquidation. TriCon's investment exposure to both the aircraft-related and
energy-related sectors is less than 1% of the Portfolio Assets.
TriCon's current customer base includes approximately 70,000 customer
accounts; its largest exposure to any single customer is approximately $33
million or approximately 2% of the Portfolio Assets and Securitizations.
Approximately 80% of the Portfolio Assets and Securitizations are located in
20 states with the five largest concentrations being California (15.8%),
Texas (10.5%), New Jersey (5.7%), Florida (5.5%) and Pennsylvania (5.3%).
2. TRICON CAPITAL CORPORATION AUDITED FINANCIAL STATEMENTS.
The following financial statements contain references to a proposed
public offering of stock of TriCon and certain restructuring of the
business. The acquisition by GFC supersedes that public offering and the
purchase agreement makes certain changes to the proposed restructuring.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
TRICON CAPITAL CORPORATION - PREDECESSOR BUSINESS
Report of Independent Accountants 22
Consolidated Balance Sheets as of December 31, 1993 and 1992 23
Consolidated Statements of Income for the Years Ended
December 31, 1993, 1992 and 1991 24
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1992 and 1991 25
Notes to Consolidated Financial Statements 26
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges 39
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder and Board of Directors of
Bell Atlantic TriCon Leasing Corporation:
We have audited the consolidated balance sheets of TriCon Capital
Corporation--Predecessor Business (see Note 1 to the Consolidated Financial
Statements) at December 31, 1993 and 1992, and the related consolidated
statements of income and cash flows for each of the three years in the
period ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
TriCon Capital Corporation--Predecessor Business at December 31, 1993 and
1992, and the consolidated results of their operations and cash flows for
each of the three years in the period ended December 31, 1993, in conformity
with generally accepted accounting principles.
As discussed in Notes 2 and 9 to the Consolidated Financial Statements,
in 1993 the Company adopted the method of accounting for income taxes
prescribed by Statement of Financial Accounting Standards No. 109 and the
method of accounting for postemployment benefits prescribed by Statement of
Financial Accounting Standards No. 112, and in 1991 adopted the method of
accounting for postretirement benefits other than pensions prescribed by
Statement of Financial Accounting Standards No. 106.
COOPERS & LYBRAND
New York, New York
February 7, 1994
<PAGE>
TRICON CAPITAL CORPORATION--PREDECESSOR BUSINESS
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31,
-------------------------
1993 1992
----------- ----------
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . $ 4,483 $ 4,503
Notes receivable and finance leases:
Investment in notes receivable . . . . . . . . 912,964 833,487
Investment in finance leases . . . . . . . . . 647,055 639,592
----------- ----------
Total notes receivable and finance leases 1,560,019 1,473,079
Less:
Allowance for credit losses . . . . . . . . . . 43,191 48,279
----------- ----------
Net investment in notes receivable
and finance leases . . . . . . . . . . . . . . 1,516,828 1,424,800
Investment in operating leases,
net of accumulated depreciation . . . . . . . 240,057 230,721
Other assets . . . . . . . . . . . . . . . . . 27,091 32,222
----------- ----------
Total Assets . . . . . . . . . . . . . . . $ 1,788,459 $1,692,246
=========== ==========
LIABILITIES AND EQUITY
Liabilities:
Notes payable . . . . . . . . . . . . . . . . . $ 709,508 $ 919,642
Accounts payable and accrued expenses . . . . . 75,302 71,951
Due to affiliates . . . . . . . . . . . . . . . 611,194 349,842
Deferred income taxes . . . . . . . . . . . . . 81,100 93,908
----------- ----------
Total Liabilities . . . . . . . . . . . . . . . 1,477,104 1,435,343
----------- ----------
Total Equity . . . . . . . . . . . . . . . . . 311,355 256,903
----------- ----------
Total Liabilities and Equity . . . . . . . $ 1,788,459 $1,692,246
=========== ==========
The accompanying notes are an integral part of these Consolidated
Financial Statements.
<PAGE>
TRICON CAPITAL CORPORATION--PREDECESSOR BUSINESS
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
REVENUE
Interest income . . . . . . . . . . . . $ 80,477 $ 77,170 $ 90,788
Finance lease revenue . . . . . . . . . 65,835 77,009 94,503
Operating lease revenue . . . . . . . . 63,806 46,337 34,679
Other . . . . . . . . . . . . . . . . . 35,182 41,751 33,879
-------- -------- --------
Total Revenue . . . . . . . . . . 245,300 242,267 253,849
-------- -------- --------
EXPENSES
Interest . . . . . . . . . . . . . . . 80,211 90,298 115,190
Selling, general and administrative . . 48,128 49,638 46,533
Provision for credit losses . . . . . . 21,634 28,057 29,876
Depreciation . . . . . . . . . . . . . 41,582 31,496 23,881
-------- -------- --------
Total Expenses . . . . . . . . . . 191,555 199,489 215,480
-------- -------- --------
Income before provision for income
taxes and cumulative effect of
changes in accounting principles . . . 53,745 42,778 38,369
Provision for income taxes . . . . . . 22,164 15,414 15,014
-------- -------- --------
Income before cumulative effect of
changes in accounting principles . . 31,581 27,364 23,355
Cumulative effect of changes in
accounting principles . . . . . . . . 5,530 -- (1,471)
-------- -------- --------
NET INCOME . . . . . . . . . . . . $ 37,111 $ 27,364 $ 21,884
======== ======== ========
Pro forma earnings per share before
cumulative effect of changes
in accounting principles
(unaudited). . . . . . . . . . . . . . $ 2.20
The accompanying notes are an integral part of these Consolidated
Financial Statements.
<PAGE>
TRICON CAPITAL CORPORATION--PREDECESSOR BUSINESS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1993 1992 1991
----------- ----------- -----------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income . . . . . . . . . $ 37,111 $ 27,364 $ 21,884
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amortization 43,538 33,436 25,329
Provision for credit losses 21,634 28,057 29,876
Amortization of initial
direct costs . . . . . . . 8,946 10,417 12,081
Foreign currency
transaction gain . . . . -- -- (2,857)
Valuation adjustment . . . -- (6,000) --
Cumulative effect of changes
in accounting principles . (5,530) -- 1,471
Gain on sale of equipment
and real estate held
under operating leases . . (2,548) (72) (29)
Gain on transfer of
receivables . . . . . . . . (11,290) (13,065) (11,745)
Deferred income taxes . . . (6,893) 593 (41)
Changes in certain assets
and liabilities:
(Increase) decrease in
other assets . . . . . . . (628) 2,491 28,404
Increase (decrease) in
accounts payable and
accrued expenses . . . . . 7,461 (8,320) (4,171)
----------- ----------- -----------
Net cash provided by
operating activities . . . . . 91,801 74,901 100,202
----------- ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Additions to notes
receivable and
finance leases . . . . . . (1,844,466) (1,355,261) (1,198,591)
Principal payments
received on notes
receivable and
finance leases . . . . . . 1,553,092 1,053,913 969,786
Additions to equipment
and real estate held
under operating leases . . (60,270) (57,686) (63,420)
Proceeds from sale of
equipment and real estate
under operating leases . . 8,236 4,166 461
Proceeds from transfer
of receivables . . . . . . 183,242 275,049 291,053
----------- ----------- -----------
Net cash used in investing
activities . . . . . . . . . . (160,166) (79,819) (711)
----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from borrowings . . 128,529 204,223 283,067
Principal repayments
of borrowings . . . . . . . (338,663) (254,155) (458,595)
Increase in amounts due
to affiliates . . . . . . . 261,352 32,703 73,579
Capital contributions . . . 21,438 40,416 6,073
Capital distributions . . . (3,932) (17,932) (3,677)
Other . . . . . . . . . . . (395) -- (42)
----------- ----------- -----------
Net cash provided by (used in)
financing activities . . . . . 68,329 5,255 (99,595)
----------- ----------- -----------
EFFECTS OF EXCHANGE RATE
CHANGES ON CASH . . . . . . . 16 (31) (164)
----------- ----------- -----------
(DECREASE) INCREASE IN CASH . . (20) 306 (268)
CASH, BEGINNING OF YEAR . . . . 4,503 4,197 4,465
----------- ----------- -----------
CASH, END OF YEAR . . . . . . . $ 4,483 $ 4,503 $ 4,197
=========== =========== ===========
The accompanying notes are an integral part of these Consolidated
Financial Statements.
<PAGE>
TRICON CAPITAL CORPORATION--PREDECESSOR BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BACKGROUND AND BASIS OF PRESENTATION
BACKGROUND:
TriCon Capital Corporation, a wholly-owned subsidiary of Bell Atlantic
Investments, Inc. and, ultimately, Bell Atlantic Corporation ("Bell
Atlantic"), was incorporated on December 3, 1993 and will be the successor
entity to certain businesses of Bell Atlantic TriCon Leasing Corporation
("Old TriCon") which is wholly owned by Bell Atlantic Capital Corporation.
Prior to a planned restructuring (the "Restructuring") in contemplation
of a public offering of the Company's common stock, the Company will be
capitalized with amounts sufficient to acquire from Old TriCon certain
assets which comprise the Predecessor Business (described below).
Pursuant to the Restructuring, the Company will acquire substantially
all of the assets and assume certain liabilities of Old TriCon, other than
its leveraged lease portfolio, project finance portfolio and certain other
assets to be retained by Old TriCon (the "Transferred Assets" and "Excluded
Assets," respectively). The purchase price will be equivalent to the net
book value of the Transferred Assets, subject to certain adjustments, and
will be paid in part by the issuance of notes payable to Old TriCon.
Pursuant to the Restructuring, the Company will also, among other
things, assume the rights and obligations of Old TriCon under its
securitization agreements and enter into a five-year agreement to manage,
for a fee, the leveraged lease and project finance portfolios retained by
Old TriCon.
BASIS OF PRESENTATION:
The consolidated financial statements reflect the financial position,
results of operations and cash flows of TriCon Capital
Corporation--Predecessor Business, which consists of the assets and
liabilities to be acquired or assumed by the Company in the contemplated
Restructuring described above. Use of "the Company" in these financial
statements refers to the Predecessor Business, unless the context indicates
reference to TriCon Capital Corporation. The consolidated financial
statements include the accounts of a Canadian division and all wholly owned
subsidiaries which are included in the Predecessor Business. All significant
intercompany balances are eliminated.
The consolidated financial statements include allocations of certain
liabilities and expenses relating to the Predecessor Business to be
transferred to the Company in the Restructuring. Debt and related interest
expense were allocated between the Transferred Assets and the Excluded
Assets based upon the internal "match funding" and debt-to-equity ratio
policies of Old TriCon in place during such periods. Common expenses were
allocated on a proportional basis between the Transferred Assets and the
Excluded Assets. Management believes that these allocation methods are
reasonable.
Pro Forma Earnings Per Share (unaudited)
Pro forma earnings per share is calculated based on pro forma net
income divided by the number of shares of common stock of TriCon Capital
Corporation to be outstanding after the proposed offering of approximately
13,500,000 shares of common stock and grants of 11,972 shares to
non-management employees in connection therewith.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment in Finance Leases
Investment in finance leases consists of the minimum lease payments
receivable, estimated residual value of the equipment and initial direct
costs less unearned income and security deposits. The unearned income
represents the excess of the gross lease payments receivable plus the
estimated residual value over the cost of the equipment leased. Unearned
income is amortized to income so as to provide an approximate level rate of
return on the net outstanding investment. The original lease terms of the
direct finance leases are generally from 36 to 84 months.
Investment in Operating Leases
Investment in operating leases consist predominantly of medical
equipment and health care facilities. The Company recognizes operating lease
revenue on a straight-line basis over the term of the lease. The cost of
equipment and facilities held under operating leases is depreciated to the
estimated residual value, on a straight-line basis, over the shorter of the
estimated economic life or the period specified under the lease term.
Initial direct costs are deferred and amortized over the lease term on a
straight-line basis.
Residual Values
Residual values are reviewed by the Company at least annually. Declines
in residual values for finance leases are recognized as charges to income.
Declines in residual values for operating leases are recognized as
adjustments to depreciation on operating leases over the shorter of the
useful life of the asset or the remaining term of the lease.
Allowance for Credit Losses
In connection with the financing of leases and other receivables, the
Company records an allowance for credit losses to provide for estimated
losses in the portfolio. The allowance for credit losses is based on a
detailed analysis of delinquencies, an assessment of overall risks,
management's review of historical loss experience and evaluation of probable
losses in the portfolio as a whole given its diversification. An account is
fully reserved for or written off when analysis indicates that the
probability of collection of the account is remote.
Income Taxes
For federal income tax purposes, the results of the Company's
operations are included in Bell Atlantic's consolidated tax return. In
accordance with the Bell Atlantic Consolidated Federal Income Tax Allocation
Policy, the Company is allocated federal income tax, or benefit, to the
extent it contributes taxable income or loss, and credits, which are
utilized in consolidation. The Company and each of its subsidiaries file
separate state tax returns in the jurisdictions in which they conduct
business.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109),
which the Company adopted effective January 1, 1993. SFAS 109 requires the
determination of deferred taxes using the liability method. Under the
liability method, deferred taxes must be provided on all book and tax basis
differences and deferred tax balances must be adjusted to reflect enacted
changes in income tax rates. The cumulative impact of adopting SFAS 109 on
the earnings of the Company is a tax benefit of $5,763.
Prior to January 1, 1993, deferred taxes were provided for differences
in the measurement of revenue and expenses for financial accounting and
income tax purposes using the deferral method under Accounting Principles
Board Opinion No. 11 (APB 11), "Accounting for Income Taxes."
Interest Rate Swaps
Interest rate swaps are contracts between two parties to exchange
interest payments without the exchange of the underlying notional principal
amounts. The Company enters into interest rate swap agreements primarily to
hedge interest rate risks. The Company records a net receivable or payable
related to the interest to be paid or received as an adjustment to interest
expense. In the event of an early termination of an interest rate swap
contract, the gain or loss would be amortized over the remaining life of the
swap.
Foreign Currency Translation Adjustments
The financial statements of foreign operations are translated in
accordance with the provisions of Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation." Under the provisions of
the statement, assets and liabilities are translated at year-end exchange
rates, and revenues and expenses are translated at average exchange rates
prevailing during the year. The related translation adjustments are
recorded as a separate component of Total Equity. Transactions denominated
in foreign currencies are translated at rates in effect at the time of the
transaction. Gains or losses resulting from foreign currency transactions
are included in results of operations.
3. INVESTMENT IN NOTES RECEIVABLE AND FINANCE LEASES
Investment in notes receivable consists primarily of amounts due the
Company relating to commercial inventory and accounts receivable financing
and first mortgage notes which are collateralized by the underlying
commercial real estate. The notes bear interest at rates ranging from 5.1%
to 15.4% and mature between the years 1994 and 2015. The components of
investment in notes receivable as of December 31 are as follows:
1993 1992
-------- --------
Notes receivable . . . . . . . . . . . . . . .. $883,122 $803,009
Initial direct costs . . . . . . . . . . . . . 5,002 4,272
Non-accrual accounts . . . . . . . . . . . . . 24,840 26,206
-------- --------
Investment in notes receivable . . . . . . . . $912,964 $833,487
======== ========
Investment in finance leases consists of various types of equipment
including diversified commercial use equipment, health care equipment and
data processing equipment. The original lease terms are generally from 36 to
84 months. The components of investment in finance leases as of December 31
are as follows:
1993 1992
-------- --------
Minimum lease payments . . . . . . . . . . . . $685,578 $659,097
Estimated residual value . . . . . . . . . . . 64,004 75,834
Less:
Unearned income . . . . . . . . . . . . . . . . 133,991 134,364
Security deposits . . . . . . . . . . . . . . . 20,737 20,171
Plus:
Initial direct costs . . . . . . . . . . . . . 15,259 13,426
Net investment in non-accrual accounts . . . . 36,942 45,770
-------- --------
Investment in finance leases . . . . . . . . . . $647,055 $639,592
======== ========
<PAGE>
TRICON CAPITAL CORPORATION--PREDECESSOR BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENT IN NOTES RECEIVABLE AND FINANCE LEASES(Continued)
At December 31, 1993, estimated minimum annual receipts from notes
receivable and finance leases based upon contractual terms are as follows:
NOTES FINANCE
YEAR ENDING DECEMBER 31 RECEIVABLE LEASES
----------------------- ---------- ---------
1994 . . . . . . . . . . . . . . . . . . . . $338,390 $ 223,413
1995 . . . . . . . . . . . . . . . . . . . . 113,977 177,670
1996 . . . . . . . . . . . . . . . . . . . . . 95,010 130,487
1997 . . . . . . . . . . . . . . . . . . . . 81,733 82,128
1998 . . . . . . . . . . . . . . . . . . . . . 51,897 38,629
Thereafter . . . . . . . . . . . . . . . . . . 202,115 33,251
-------- ---------
$883,122 $ 685,578
======== =========
4. INVESTMENT IN OPERATING LEASES
Operating leases have original terms from 12 to 120 months. Investment
in operating leases consists of the following at December 31:
1993 1992
-------- --------
Medical equipment, at cost . . . . . . . . . . $215,951 $193,828
Commercial real estate, at cost . . . . . . . . 99,943 95,926
Other, at cost . . . . . . . . . . . . . . . . 6,466 6,466
-------- --------
Total cost . . . . . . . . . . . . . . . . . . 322,360 296,220
Less accumulated depreciation . . . . . . . . . (82,303) (65,499)
-------- --------
Net investment in operating leases . . . . . . $240,057 $230,721
======== ========
Depreciation expense relating to equipment and real estate held under
operating leases was $39,012, $28,645 and $21,191 in 1993, 1992 and 1991,
respectively.
Estimated minimum annual lease receipts from noncancelable operating
leases as of December 31, 1993 are as follows:
YEAR ENDING DECEMBER 31,
- ----------------------------------------------------------------------------
1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 58,934
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,454
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,273
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,989
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . 61,893
--------
$250,543
========
<PAGE>
TRICON CAPITAL CORPORATION--PREDECESSOR BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. NOTES PAYABLE
Notes payable at December 31 consist of the following:
1993 1992
-------- --------
Recourse notes payable with interest rates
from 3.31% to 11.0% and maturity dates
through 2005 . . . . . . . . . . . . . . . . . $709,508 $918,617
Nonrecourse notes payable with fixed interest
rates from 8.5% to 9.3% and retired in 1993 . -- 1,025
-------- --------
Total notes payable . . . . . . . . . . . . $709,508 $919,642
======== ========
At December 31, 1992, all nonrecourse notes were collateralized by
specific lease receivables and the underlying equipment. During 1993, 1992
and 1991, the Company paid $82,656, $91,434 and $113,925, respectively, in
interest.
The above recourse note amounts are allocated from aggregate recourse
notes of Old TriCon of $847,917 and $1,066,193 at December 31, 1993 and
1992, respectively (see Note 1).
Under the terms of various recourse notes and receivable transfer
agreements, Old TriCon was subject to certain restrictive covenants. The
most restrictive of these covenants require Old TriCon to maintain a minimum
net worth of $150,000; an interest coverage ratio of at least 1.2:1; and a
ratio of indebtedness (as defined in the various agreements) to net worth
not to exceed 8:1. Old TriCon was in compliance with all covenants as of the
balance sheet dates. In addition, certain affiliates have agreed to maintain
Old TriCon's compliance with certain financial covenants pursuant to
agreements covering the majority of recourse borrowings at December 31,
1993. During 1993 and 1992, Old TriCon participated with an affiliate in the
issuance of medium-term notes. Old TriCon's share of the issuance was
$184,567 and $60,750 in 1993 and 1992, respectively, which is included in
recourse notes payable above. The notes bear interest at varying rates from
4.33% to 6.625% and have maturity dates through December 1999. The Company
recognized interest expense on these medium-term notes of $8,054 and $217 in
1993 and 1992, respectively.
Maturities of notes payable are as follows:
YEAR ENDING DECEMBER 31,
- ----------------------------------------------------------------------------
1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $218,627
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220,072
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,824
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,011
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,045
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . 56,929
--------
$709,508
========
<PAGE>
TRICON CAPITAL CORPORATION--PREDECESSOR BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. TOTAL EQUITY
The following are transactions affecting total equity:
1993 1992 1991
-------- -------- --------
Balance at beginning of year . . . . $256,903 $206,674 $185,069
Capital contributions . . . . . . . . 21,438 40,416 6,073
Net income . . . . . . . . . . . . . 37,111 27,364 21,884
Capital distributions . . . . . . . . (3,932) (17,932) (3,677)
Foreign currency translation
adjustments . . . . . . . . . . . . . 230 381 (2,633)
Other . . . . . . . . . . . . . . . . (395) -- (42)
-------- -------- --------
Total Equity at end of year . . . $311,355 $256,903 $206,674
======== ======== ========
7. INCOME TAXES
In 1990, Bell Atlantic was subject to the alternative minimum tax (AMT)
provisions of the 1986 Tax Reform Act on a tax return basis. The Company
has provided for its share of Bell Atlantic's consolidated current AMT
liability and for the deferred benefit relating to the corresponding AMT
credit carryforward.Bell Atlantic was able to utilize all AMT carryforwards
in 1991 and 1992. The Company's income tax expense for the years 1993, 1992
and 1991 would not have differed materially from that reported had the
Company filed tax returns on a stand alone basis.
The provision for income taxes (exclusive of the tax effect of the
cumulative effect of changes in accounting principles in 1993 and 1991) for
the years ended December 31 consists of the following:
1993 1992 1991
-------- ------- -------
Current:
Federal . . . . . . . . . . . . . . . $ 28,912 $14,065 $15,045
State and local . . . . . . . . . . . 145 756 10
-------- ------- -------
29,057 14,821 15,055
-------- ------- -------
Deferred:
Federal . . . . . . . . . . . . . . . (11,365) (3,071) (4,012)
State and local . . . . . . . . . . . 4,472 3,664 3,971
-------- ------- -------
(6,893) 593 (41)
-------- ------- -------
Provision for income taxes . . . $ 22,164 $15,414 $15,014
======== ======= =======
<PAGE>
TRICON CAPITAL CORPORATION--PREDECESSOR BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
7. INCOME TAXES (Continued)
Deferred tax liabilities (assets) are comprised of the following:
1993
--------
Gross deferred tax liabilities:
Lease related differences . . . . . . . . . . . . . . . . $ 75,263
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 57,704
--------
Gross deferred tax liabilities . . . . . . . . . . . . . . 132,967
--------
Gross deferred tax assets:
Allowance for credit losses and accrued liabilities for
securitizations . . . . . . . . . . . . . . . . . . . (23,031)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (28,836)
--------
Gross deferred tax assets . . . . . . . . . . . . . . . . . (51,867)
--------
Net deferred taxes . . . . . . . . . . . . . . . $ 81,100
========
Under APB 11, deferred taxes resulted from timing differences in the
recognition of revenue and expenses for federal and state tax and for
financial statement purposes. The tax effects of the timing differences that
resulted in the provision for deferred income taxes are summarized as
follows:
1992 1991
-------- --------
Accelerated depreciation . . . . . . . . . . . $ (407) $ 3,151
Direct finance and operating leases . . . . . . (23,681) (10,653)
State taxes . . . . . . . . . . . . . . . . . 2,418 2,621
Deferred AMT credits . . . . . . . . . . . . . 7,937 6,597
Asset backed securitizations . . . . . . . . 7,834 103
Provision for credit losses . . . . . . . . . . 3,227 (9,195)
Other, net . . . . . . . . . . . . . . . . . . 3,265 7,335
-------- --------
Total . . . . . . . . . . . . . . . . $ 593 $ (41)
======== ========
During 1993, 1992 and 1991 the Company paid $24,989, $23,415 and
$8,322, respectively, in income taxes.
The provision for income taxes recorded for financial reporting
purposes differs from the expense computed at the statutory federal income
tax rate as follows:
1993 1992 1991
---- ---- ----
Federal income tax provision at the
statutory rate . . . . . . . . . . . . . . 35.0% 34.0% 34.0%
State income tax provision, net of
federal tax benefit . . . . . . . . . . . 5.6 6.8 6.8
Adjust prior years' tax provision . . . . . (.1) (1.1) --
Income tax expense related to
acquisition of business . . . . . . . . . .5 1.4 2.1
Income tax benefit related to
tax exempt income . . . . . . . . . . . . (4.3) (3.8) (3.9)
Impact of 1% rate change . . . . . . . . . 4.4 -- --
Other . . . . . . . . . . . . . . . . . . . .1 (1.3) .1
---- ---- ----
Provision for income taxes . . . . . . . 41.2% 36.0% 39.1%
==== ==== ====
<PAGE>
TRICON CAPITAL CORPORATION--PREDECESSOR BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. TRANSACTIONS WITH AFFILIATES
The Company purchased equipment from affiliates of Bell Atlantic
totaling $4,574, $7,793 and $10,923 in 1993, 1992 and 1991, respectively,
which is being leased to third parties under financing lease arrangements.
In 1990, the Company purchased $11,800 of equipment from an affiliate in
return for a non-interest bearing note payable due in 1991. During 1991, the
Company returned such equipment to the affiliate in full payment of the
note. During 1993, 1992 and 1991, the Company leased various equipment to
affiliates under direct finance and operating leases and recognized earned
income of $1,540, $1,143 and $1,481, respectively.
During 1993, 1992 and 1991, the Company earned $100, $1,174 and $234,
respectively, of management fees from an affiliate. The Company has entered
into a short-term borrowing arrangement with an affiliate that bears
interest at a rate which approximates the affiliate's average daily cost of
funds (weighted average effective rates of 3.28%, 3.83% and 6.04% for the
years ended December 31, 1993, 1992 and 1991, respectively). The Company
recognized interest expense of $13,844, $13,910 and $19,727 in 1993, 1992
and 1991, respectively, under these arrangements.
Due to Affiliates consists of the following at December 31:
1993 1992 1991
-------- -------- --------
Advances under short-term
borrowing arrangements . . . . . $603,501 $347,260 $311,029
Payables to affiliates . . . . . 4,437 3,855 4,723
Receivables from affiliates . . . (2,148) (2,825) (2,846)
Income tax payable. . . . . . . . 5,404 1,552 4,235
-------- -------- --------
$611,194 $349,842 $317,141
======== ======== ========
9. EMPLOYEE BENEFITS
Pension Plans
Substantially all of the Company's employees are covered under a
noncontributory defined benefit pension plan sponsored by Bell Atlantic
Capital Corporation and its subsidiaries. The pension benefit formula used
is based on a stated percentage of adjusted career average income. The
funding objective of the plan is to accumulate funds at a relatively stable
rate over participants' working lives so that benefits are fully funded at
retirement. Amounts contributed to the plan are determined actuarially,
principally under the aggregate cost method, and are subject to applicable
federal income tax regulations. Plan assets consist principally of
investments in domestic and foreign corporate equity securities, U.S.
Government and corporate debt securities, and real estate. In addition, the
Company participates in the Executive Management Retirement Plan, a
non-qualified pension plan, sponsored by Bell Atlantic and its subsidiaries.
Aggregate pension costs are as follows:
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
------- ------- -------
Current year cost . . . . . . . . . $1,306 $1,417 $1,464
Percentage of salaries and wages . 3.7% 4.0% 4.6%
The decrease in pension cost from 1991 to 1993 is the net result of
changes in plan provisions and other actuarial assumptions, and amortization
of actuarial gains and losses relating to demographic and investment
experience.
Statement of Financial Accounting Standards No. 87, "Employers
Accounting for Pensions" requires a comparison of the actuarial present
value of projected benefit obligations with the fair value of plan assets,
the disclosure of the components of net periodic pension costs, and a
reconciliation of the funded status of the plan with amounts recorded on the
balance sheets. Such disclosures are not presented for the Company because
the structure of the plan does not allow for the determination of this
information on an individual company basis.
The assumed discount rate used to measure the projected benefit
obligation was 7.25% at December 31, 1993 and 7.75% at December 31, 1992 and
1991. The assumed rate of future increases in compensation levels was 5.25%
at December 31, 1993, 1992 and 1991. The expected long-term rate of return
on plan assets was 8.25% for December 31, 1993 and 1992 and, 7.5% for
December 31, 1991.
Postretirement Benefits Other than Pensions
Effective January 1, 1991, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (SFAS 106) which requires accrual accounting
for all postretirement benefits other than pensions. Under the prescribed
accrual method, the Company's obligation for these postretirement benefits
is to be fully accrued by the date employees attain full eligibility for
such benefits. Prior to this adoption, the Company charged costs relating
to such benefits to expense as paid.
In conjunction with the 1991 adoption of SFAS 106, the Company elected
to immediately recognize the accumulated postretirement benefit obligation
for current and future retirees, net of the fair value of any plan assets,
and recognized accrued postretirement benefit cost (transition obligation)
in the amount of $1,471, net of a deferred income tax benefit of $758.
Substantially all of the Company's employees are covered under
postretirement health benefit plans sponsored by Bell Atlantic Capital
Corporation and its subsidiaries. The determination of benefit cost for the
postretirement health benefit plan is based on comprehensive hospital,
medical and surgical benefit provisions.
Aggregate postretirement benefit cost for the year ended December 31,
1993, 1992 and 1991 was $571, $394 and $332, respectfully. There were no
amounts paid for postretirement health benefits in 1990.
SFAS 106 requires a comparison of the actuarial present value of the
accumulated postretirement benefit obligation with the fair value of the
plan assets, the disclosure of the components of net periodic postretirement
benefit cost, and a reconciliation of the funded status of the plan with the
amount recorded on the balance sheet. Such disclosures are not presented for
the Company because the structure of the Bell Atlantic plan does not allow
for the determination of this information on an individual company basis.
The assumed discount rate used to measure the accumulated
postretirement benefit obligation was 7.25% at December 31, 1993 and 7.75%
at December 31, 1992 and 1991. The assumed rate of future increases in
compensation levels was 5.25% at December 31, 1993 and 1992. The expected
long-term rate of return on plan assets was 8.25% for 1993 and 1992 and
7.50% for 1991. The medical cost trend rate in 1993 was approximately 13.0%,
grading down to an ultimate rate in year 2003 of approximately 5.0%.
Employee Stock Ownership Plans
The Company maintains savings plans which cover substantially all of
its employees. Under these plans, the Company matches a certain percentage
of eligible contributions made by the employees. In 1989, Bell Atlantic
established two leveraged employee stock ownership plans (ESOPs) within two
existing employee savings plans. Under the ESOP provisions, which began
January 1, 1990, a substantial portion of Company matching contributions are
allocated to the employees in the form of Bell Atlantic stock from the ESOP
trusts. Bell Atlantic stock allocated by the ESOP trusts to the
participating employees is based on the proportion that principal and
interest paid in a year bears to remaining principal and interest due over
the life of the notes.
Leveraged ESOP expense for the years ended December 31, 1993, 1992 and
1991 is $786, $912 and $803, respectively.
Employers' Accounting for Postemployment Benefits
Effective January 1, 1993 the Company adopted Statement of Financial
Accounting Standard No. 112 "Employers' Accounting for Postemployment
Benefits" (SFAS 112) which requires employers who provide benefits to former
or inactive employees to recognize the obligation relative to such future
benefits on an accrual basis. This change principally affects the Company's
accounting for long-term disability benefits which were previously charged
to expenses as benefits were paid. The cumulative impact at January 1, 1993
of adopting SFAS 112 was a reduction of net income of $232, net of a
deferred income tax benefit of $151.
10. COMMITMENTS
At December 31, 1993, the Company's commitments under noncancelable
operating leases having remaining terms in excess of one year, primarily for
office space are as follows:
YEAR ENDING DECEMBER 31,
- -------------------------
1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,803
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,543
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,488
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,251
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,741
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . 3,739
-------
$15,565
=======
Such leases generally include escalation and renewal clauses and
require that the Company pay for utilities, taxes, insurance and
maintenance. Rent expense under operating lease agreements was $2,972,
$2,985 and $2,952 in 1993, 1992 and 1991, respectively.
At December 31, 1993, the Company has outstanding commitments to
finance notes receivable of $171,985. The anticipated expirations of such
commitments are $167,487 in 1994, $0 in 1995, $0 in 1996, and $4,498 in
1997.
11. FINANCIAL INSTRUMENTS
Concentrations of Credit Risk
Concentrations of credit risk exist when changes in economic, industry
or geographic factors similarly affect groups of customers whose aggregate
credit exposure is material in relation to the Company's total credit
exposure. Although the Company's portfolio is broadly diversified along
industry, customer, equipment and geographic lines, there does exist a
concentration of transactions within the health care industry (approximately
22% of total assets plus transferred receivables at December 31, 1993 and
1992). The Company's exposure to credit risk in these and other industries
is mitigated by the diversity of customers in the customer base and in many
cases by the quality of the underlying collateral.
Receivable Transfer Agreements (Securitizations)
During 1993, 1992 and 1991, the Company transferred its interests in
approximately $179,206, $248,048 and $246,721, respectively, of its direct
finance lease portfolio for $200,447, $275,049 and $270,621, respectively.
These transfers provide limited recourse for credit losses to the Company
and certain of its assets. As of December 31, 1993, $60,153 of finance lease
receivables are the sole collateral for certain limited recourse provisions.
In addition to such finance lease receivables, the Company has recourse
exposure at December 31, 1993 limited to $106,429. At December 31, 1993 and
1992, an outstanding allowance for estimated losses under these recourse
provisions of $14,146 and $17,360, respectively, is included in Accounts
Payable and Accrued Expenses. The outstanding gross receivable balance of
transferred receivables was $495,906 and $541,834 at December 31, 1993 and
1992, respectively. The Company will service these lease contracts for the
transferee, and a portion of the proceeds on the transfer has been deferred
representing service fees to be earned over the term of the agreements.
Interest Rate Swaps
The Company has entered into a number of interest rate swap agreements
which have effectively fixed interest rates on $424,432 of floating rate
instruments including debt and receivable transfer agreements. Under these
interest rate swap agreements, the Company will pay the counterparties
interest at a fixed rate and the counterparties will pay the Company
interest at a variable rate based on the London Interbank Offered Rate
(LIBOR), the A1/P1 commercial paper rate or a money market yield. The fixed
rates payable under these agreements range from 4.08% to 7.96% with terms
expiring at various dates from February 1994 to August 1996. Cash flows
resulting from the above are classified with the transactions being hedged.
The Company would be exposed to increased interest costs in the event of
non-performance by the counterparties for the fixed to floating interest
rate swap agreements. However, because of the stature of the counterparties,
the Company does not anticipate non-performance.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (SFAS 107), requires the disclosure of
the fair value of financial instruments, both recognized and unrecognized on
the consolidated balance sheet, for which it is practicable to estimate fair
value. Leases are not considered financial instruments under SFAS 107 and
are accordingly excluded from the fair value disclosures. The estimated fair
value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current
market exchange nor can they be substantiated by comparison to independent
markets.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash, Accounts Payable, Accrued Expenses, Other Amounts Due to
Affiliates and Recourse Provisions under Receivable Transfer Agreements
The carrying amount approximates fair value.
Notes Receivable
Fair values of notes receivable are based principally on the net
present value of the future expected cash flows using current interest
rates.
Notes Payable and Advances under Short-term Borrowing Arrangements with
Affiliates
The fair values of notes payable and advances under short-term
borrowing arrangements with affiliates is estimated based on the quoted
market prices for the same or similar issues, where available or is based on
the net present value of the future expected cash flows using current
interest rates.
Interest Rate Swap Agreements
The fair value of interest rate swap agreements is the estimated
amount that the Company would have to pay to terminate the swap agreements
at December 31, 1993, taking into account current interest rates and the
creditworthiness of the swap counterparties.
Loan Commitments
The fair value of loan commitments is estimated using the fees
currently charged to enter into similar commitments.
The carrying amounts and estimated fair values of the Company's
financial instruments are as follows:
DECEMBER 31, 1993 DECEMBER 31, 1992
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
FINANCIAL INSTRUMENTS
ON THE BALANCE SHEETS
Notes Receivable net
of Allowance for
Credit Losses . . . . $ 894,486 $ 896,051 $ 818,216 $ 827,264
Notes Payable . . . . . (709,508) (740,970) (919,642) (973,021)
Advances under
Short-term Borrowing
Arrangements with
Affiliates . . . . . (603,501) (603,793) (347,260) (348,897)
FINANCIAL INSTRUMENTS
WITH OFF-BALANCE
SHEET RISK
Interest Rate Swap
Agreements . . . . . -- $ (1,160) -- $ 1,321
Loan Commitments . . . -- 6,516 -- 4,383
12. SUPPLEMENTAL CASH FLOW ACTIVITIES
During 1992 and 1991 the Company transferred $5,859 and $57,050,
respectively, of investment in notes receivable to other assets. In
addition, during 1992 the Company transferred $41,585 of property foreclosed
in 1991 and included in other assets to investment in operating leases,
following the determination to hold such property for operating purposes.
The resultant valuation adjustment of $6,000 is reflected in other revenues
in 1992.
<PAGE>
TRICON CAPITAL CORPORATION--PREDECESSOR BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
13. QUARTERLY INFORMATION (Unaudited)
FIRST SECOND THIRD FOURTH TOTAL
------- ------- ------- ------- --------
1993
Total revenue . . . . $57,258 $58,629 $62,253 $67,160 $245,300
Interest expense . . 20,795 20,956 19,564 18,896 80,211
Provision for
credit losses . . . 7,384 7,606 2,966 3,678 21,634
Depreciation . . . . 10,416 9,902 10,138 11,126 41,582
Cumulative effect
of changes in
accounting
principles . . . . . 5,763 -- -- (233) 5,530
Net income . . . . . 9,815 5,368 8,111 13,817 37,111
1992
Total revenue . . . . $53,980 $54,217 $59,137 $74,933 $242,267
Interest expense . . 23,736 22,804 22,012 21,746 90,298
Provision for
credit losses . . . 5,606 6,671 9,355 6,425 28,057
Depreciation . . . . 6,960 7,193 8,049 9,294 31,496
Net income . . . . . 2,706 4,892 4,859 14,907 7,364
Net income in the fourth quarter of 1993 and 1992 was increased by
certain securitization transactions (see Note 11).
<PAGE>
EXHIBIT 12
TRICON CAPITAL CORPORATION - PREDECESSOR BUSINESS
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
At or for the Year Ended December 31,
------------------------------------------------
1993 1992 1991 1990 1989
------------------------------------------------
(Dollars in Thousands)
Income before income
taxes and
cumulative effect of
changes in accounting
principles $ 53,745 $ 42,778 $ 38,369 $ 39,380 $ 30,391
Add:
Fixed charges 81,201 91,293 116,174 121,039 97,424
-------- -------- -------- -------- --------
Income as adjusted $134,946 $134,071 $154,543 $160,419 $127,815
Fixed Charges:
Interest or
indebtedness $ 80,211 $ 90,298 $115,190 $119,965 $ 96,347
Interest factor of
annual rentals (1) 990 995 984 1,074 1,077
-------- -------- -------- -------- --------
Fixed Charges $ 81,201 $ 91,293 $116,174 $121,039 $ 97,424
-------- -------- -------- -------- --------
Ratio of earnings to
fixed charges 1.66x 1.47x 1.33x 1.33x 1.31x
======== ======== ======== ======== ========
____________
(1) The interest portion of annual rentals is estimated to be one-
third of such rentals.
<PAGE>
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY &
RELATED STOCKHOLDER MATTERS.
There is no market for the Company's common stock or redeemable
preferred stock as the Company is wholly owned by GFC Financial. The
preferred stock is subject to mandatory redemption on July 1, 1997.
Dividends paid on the common stock for the first through fourth quarters of
1993 were $3,200,000, $3,200,000, $3,600,000 and $3,600,000, respectively.
Dividends paid on the common stock for the first through fourth quarters of
1992 were $3,000,000, $3,000,000, $2,900,000 and $2,900,000, respectively.
See Note D of Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in Annex A for a discussion of restrictions on the
ability of GFC to pay dividends and Note E thereof for a discussion on
dividends relating to the preferred stock.
ITEM 6. SELECTED FINANCIAL DATA.
Omitted.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
See pages 1 - 7 of Annex A.
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA.
1. Financial Statements - See Item 14 hereof.
2. Supplementary Data - See Condensed Quarterly Results included
in Note M of Notes to Consolidated Financial Statements
included in Annex A.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING &
FINANCIAL DISCLOSURE.
NONE.
PART III
ITEM 10. DIRECTORS & EXECUTIVE OFFICERS OF THE REGISTRANT.
Omitted.
ITEM 11. EXECUTIVE COMPENSATION.
Omitted.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT.
Omitted.
ITEM 13. CERTAIN RELATIONSHIPS & RELATED TRANSACTIONS.
Omitted.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed.
1. Financial Statements.
(i) The following financial statements of Greyhound Financial
Corporation are included in Annex A:
Annex
Page
-------
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 1 - 7
Report of Management and Independent
Auditors' Report 8
Consolidated Balance Sheet 9 - 10
Statement of Consolidated Operations 11
Statement of Consolidated Stockholder's
Equity 12
Statement of Consolidated Cash Flows 13
Notes to Consolidated Financial
Statements 14 - 45
(ii) The Financial Statements of TriCon Capital Corporation are
included in Part I, Optional Item 2.
2. All Schedules have been omitted because they are not applicable or
the required information is shown in the financial statements or
notes thereto.
3. Exhibits.
Exhibit No.
-----------
(3-A) The Company's Certificate of Incorporation, as amended
through the date of this filing (incorporated by reference
from the Company's Annual Report on Form 10-K for the year
ended December 31, 1991 (the "1991 10-K"), Exhibit 3-A).
(3-B) The Company's By-Laws, as amended through the date of this
filing (incorporated by reference from the Company's 1991 10-
K, Exhibit 3-B).
(4.A) Instruments with respect to issues of long-term debt have not
been filed as exhibits to this Annual Report on Form 10-K if
the authorized principal amount of any one of such issues
does not exceed 10% of total assets of the Company and its
subsidiaries on a consolidated basis. The Company agrees to
furnish a copy of each such instrument to the Securities and
Exchange Commission upon request.
(4-B-1) Form of Common Stock Certificate of the Company from the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992 (the "1992 10-K"), Exhibit 4-B-1.
(4-B-2) Form of the Company's Series A Redeemable Preferred Stock
Certificate from the 1992 10-K, Exhibit 4-B-2.
(4-C) Certificate of Designations of Series A Redeemable Preferred
Stock of the Company (incorporated by reference from the 1992
GFC Financial Annual Report on Form 10-K for the year ended
December 31, 1992 (the "GFC Financial 1992 10-K", Exhibit 10-
MM)).
(4-D) Relevant portions of the Company's Certificate of
Incorporation and Bylaws are included in Exhibits 3-A and 3-B
above, respectively.
(4-E) Indenture dated as of November 1, 1990 between the Company
and the Trustee named therein (incorporated by reference from
the Company's Registration Statement on Form S-3,
Registration No. 33-37743, Exhibit 4).
(4-F) Fourth Supplemental Indenture dated as of April 17, 1992
between the Company and the Trustee named therein,
supplementing the Indenture referenced in Exhibit 4-E above,
is hereby incorporated by reference from the GFC Financial
1992 10-K, Exhibit 4-F.
(4-G) Prospectus and Prospectus Supplement dated April 17, 1992,
relating to $350,000,000 principal amount of the Company's
Medium-Term Notes, Series A, is hereby incorporated by
reference from the GFC Financial 1992 10-K, Exhibit 4-G.
(4-H) Form of Floating-rate, Medium-Term Notes, Series A, is hereby
incorporated by reference from the 1992 GFC Financial 10-K,
Exhibit 4-H.
(4-I) Form of Fixed-rate, Medium-Term Notes, Series A, is hereby
incorporated by reference from the GFC Financial 1992 10-K,
Exhibit 4-I.
(4-J) Form of Indenture dated as of September 1, 1992 between the
Company and the Trustee named therein (incorporated by
reference from the Company's Registration Statement on Form
S-3, Registration No. 33-51216, Exhibit 4).
(4-K) Prospectus and Prospectus Supplement dated September 25, 1992
regarding $250,000,000 principal amount of the Company's
Medium-Term Notes, Series B, is hereby incorporated by
reference from the GFC Financial 1992 10-K, Exhibit 4-K.
(4-L) Form of Floating-rate Medium-Term Notes, Series B, is hereby
incorporated by reference from the GFC Financial 1992 10-K,
Exhibit 4-L.
(4-M) Form of Fixed-rate Medium-term Notes, Series B, is hereby
incorporated by reference from the GFC Financial 1992 10-K,
Exhibit 4-M.
(4-N) Indenture dated as of June 1, 1985 between the Company and
the trustee named therein is hereby incorporated by reference
from the 1992 10-K, Exhibit 4-N.
(4-O) Prospectus and Prospectus Supplement dated February 16, 1994
regarding $250,000,000 principal amount of the Company's
Medium-Term Notes, Series B is hereby incorporated by
reference from the Company's Registration Statement on Form
S-3, Registration No. 33-51216, as amended on that date.
(4-P) Prospectus, dated February 16, 1994, and Prospectus
Supplement dated February 17, 1994 regarding $100,000,000
principal amount of the Company's Floating-Rate Notes, is
hereby incorporated by reference from the Company's
Registration Statement on Form S-3, Registration No. 33-
51216, as amended on that date.
(9) Form of Distribution Agreement among the Company, GFC
Financial Corporation, The Dial Corp and certain other
parties named therein, dated as of January 28, 1992
(incorporated by reference from GFC Financial's Registration
Statement on Form S-1, Registration No. 33-45452, Annex II to
the Prospectus and Exhibit 2.1) (containing section 2.08(b),
regarding the voting of the Greyhound Financial Corporation
preferred stock).
(10-A) Fifth Amendment and Restatement dated as of May 18, 1993 of
the Credit Agreement dated as of May 31, 1976 among the
Company and the banking institutions listed on the signature
pages thereto, and Bank of America National Trust and Savings
Association, Chemical Bank and Citibank, N.A., as agents
(incorporated by reference from the Corporation's Current
Report on Form 8-K dated February 14, 1994, Exhibit 7(c)).
(10.A1) Amendment dated as of January 31, 1994, to the Fifth
Amendment and Restatement, noted in 10-A above incorporated
by reference from the GFC Financial 1992 10-K, Exhibit 10.
A1.*
(10-C) Sublease dated as of April 1, 1991 among the Company, GFC
Financial, Dial and others, relating to the Company principal
office space is hereby incorporated by reference from the GFC
Financial 1992 Form 10-K, Exhibit 10-NN.
(10-D) Interim Service Agreement dated January 28, 1992 among the
Company, GFC Financial, Dial and others is hereby
incorporated by reference from the GFC Financial 1992 Form
10-K, Exhibit 10-JJ.
(10-E) Tax Sharing Agreement dated February 19, 1992 among the
Company, GFC Financial, Dial and others is hereby
incorporated by reference from the GFC Financial 1992 Form
10-K, Exhibit 10-KK.
(10.F) Stock Purchase Agreement between the Company and Bell
Atlantic TriCon Leasing Corporation dated as of March 4,
1994.*
(10.G) Form of Assets Purchase Agreement between Bell Atlantic
TriCon Leasing Corporation and TriCon Capital Corporation.*
(12) Computation of Ratio of Income to Combined Fixed Charges and
Preferred Stock Dividends.*
(23) Consent of Independent Accountants - Deloitte & Touche.*
(23.A) Consent of Independent Accountants - Coopers & Lybrand.*
(23.B) Consent of Independent Accountants - Coopers & Lybrand.*
(23.C) Consent of Independent Accountants - KPMG Peat Marwick.*
* Filed herewith.
(b) Reports on Form 8-K:
A Report on Form 8-K dated January 18, 1994 was filed by
Registrant, which reported under Item 5 the revenues, net
income and selected financial data and ratios for the fourth
quarter and twelve months ended 1993 (unaudited).
Reports on Form 8-K dated January 21, 1994 were filed by
Registrant, which reported under Item 5 the settlement of the
litigation between Cabana Limited Partnership, a South
Carolina Limited Partnership v. Greyhound Real Estate Finance
Company, et al, a subsidiary of Greyhound Financial
Corporation, the principal operating subsidiary of the
Registrant.
Reports on Form 8-K, 8-K/A and 8-K-A-1, dated February 14,
1994 were filed by Registrant, which reported under Items 2
and 7 the signing of an agreement by the registrant to
purchase Ambassador Factors from Fleet Financial Group,
Inc. and the Fifth Amendment and Restatement, dated
as of May 18, 1993, of Credit Agreement dated as of May 31,
1976 among Greyhound Financial Corporation, Bank of
America National Trust and Savings Association, Chemical
Bank and Citibank, N.A., as agents, and the financial
institutions listed.
SIGNATURES
Pursuant to the requirements of Section 13 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 in the
capacities indicated, in Phoenix, Arizona on the 10th day of March, 1994.
Greyhound Financial Corporation
By: /s/ Samuel L. Eichenfield
_________________________________________
Samuel L. Eichenfield
President and Chief Executive Officer
(Chief Executive Officer)
By: /s/ Robert J. Fitzsimmons
_________________________________________
Robert J. Fitzsimmons
Vice President - Treasurer
(Chief Financial Officer)
By: /s/ Bruno A. Marszowski
_________________________________________
Bruno A. Marszowski
Vice President - Controller
(Chief Accounting Officer)
Pursuant to the requirements of the Securities Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
_________________________________ ________________________________
W. Carroll Bumpers (Director) Samuel L. Eichenfield (Chairman)
March 10, 1994 March 10, 1994
_________________________________ ________________________________
Robert J. Fitzsimmons (Director) Bruno A. Marszowski (Director)
March 10, 1994 March 10, 1994
<PAGE>
ANNEX A
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Management's Discussion and Analysis of Financial Condition and
Results of Operations 1 - 6
Report of Management and Independent Auditors' Report 7
Consolidated Balance Sheet at December 31, 1993 and 1992 8 - 9
Statement of Consolidated Operations for the Years Ended
December 31, 1993, 1992 and 1991 10
Statement of Consolidated Stockholder's Equity for the Years
Ended December 31, 1993, 1992 and 1991 11
Statement of Consolidated Cash Flows for the Years Ended
December 31, 1993, 1992 and 1991 12
Notes to Consolidated Financial Statements for the Years
Ended December 31, 1993, 1992 and 1991 13 - 37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion relates to Greyhound Financial Corporation
("GFC" or the "Company"), including the European Financial Group ("GEFG")
and Greyhound BID Holding Corporation ("BID"), the subsidiaries contributed
to GFC prior to the Distribution as discussed in Note A of Notes to the
Consolidated Financial Statements. The following comments and information
should be read in conjunction with the Annual Report as a whole. GFC is a
wholly owned subsidiary of GFC Financial Corporation ("GFC Financial"). GFC
Financial is a holding company, the principal subsidiaries of which are GFC
and Verex Corporation ("Verex"), a mortgage insurance company that was sold
on July 16, 1993.
Results of Operations
1993 Compared to 1992
Net income for 1993 was $36.4 million compared to $36.8 million in
1992. The 1993 results included a $4.9 million adjustment in the third
quarter for deferred taxes applicable to leveraged leases and $1.6 million
(pre-tax) of expenses that can no longer be allocated to Verex. Excluding
these amounts, net income for 1993 was $42.3 million, an increase of 15%
over 1992. The $4.9 million adjustment in 1993 represented the effects of
the recent increases in federal and state income tax rates as they applied
to deferred income taxes generated by the Company's leveraged lease
portfolio.
Financial Services.
Interest Margins Earned. Interest margins earned, which represent the
difference between interest earned from financing transactions and interest
expense, increased by 17% in 1993 compared to 1992. These margins were
improved significantly by more favorable debt costs in 1993 when compared to
1992 (approximately a 1% reduction in the aggregate cost of debt). Also
contributing to the improved margins was the growth of the domestic
portfolio and higher prepayment fees, partially offset by the effects of
larger foreign exchange gains reported by GEFG in 1992 and the continued
winding down of the GEFG portfolio.
The $10.0 million reduction in interest expense primarily is
attributable to more favorable debt costs in 1993. The more favorable debt
costs, in comparison to 1992, primarily relate to the Company's ability to
consistently maintain a matched position throughout 1993 relative to
financing its floating-rate assets with floating-rate debt. During the
second and third quarters of 1992, GFC, because of the significant
refinancing done in connection with the spin-off, had to finance a major
portion of its floating-rate assets with fixed-rate debt. That fixed-rate
debt was subsequently converted to floating-rate debt through interest rate
conversion agreements. However, the timing between the issuance of fixed-
rate debt and the execution of the interest rate conversion agreements
caused interest margins to shrink by approximately $2.8 million in 1992.
Non-Interest Expense. Although the provision for possible credit
losses was lower in 1993, in the opinion of management, such provision was
adequate to cover the growth and risk in the portfolio. The reserve for
possible credit losses, which is increased by the loss provisions and
reduced by write-offs, was 2.3% of funds employed at December 31, 1993.
Details of the write-offs by collateral type can be found in Note C of Notes
to Consolidated Financial Statements.
Selling, administrative and other operating expenses increased during
1993 due to the addition of the Asset Based Finance ("ABF") operations
acquired from U.S. Bancorp Financial, Inc. (see "Recent Developments and
Business Outlook"), expenses that are no longer allocated to discontinued
operations and legal expenses incurred in connection with certain problem
accounts. See Note K of Notes to Consolidated Financial Statements.
Gains on Sale of Assets. Gains on sale of assets were higher in 1993
than in 1992 due to the amount and type of assets sold.
Income Taxes. Income taxes, excluding the $4.9 million adjustment
applicable to deferred taxes, were higher in 1993 and more in the range of
an ongoing effective tax rate (approximately 36% of income before income
taxes) for the Company. The higher income taxes were attributable to the
effects of a 1% increase in both federal and state income tax rates, which
increased the provision for taxes by approximately $1 million, and to higher
income before income taxes. Additionally, in 1992, income taxes were
reduced by $3.1 million representing tax adjustments related to the
refinancing of the Company's debt. See Note F of Notes to Consolidated
Financial Statements.
Cash Flow. Net cash provided by operating activities in 1993 was $42.7
million, an increase of $10.0 million when compared to 1992. This increase
was principally due to the increase in deferred income taxes, partially
offset by a decline in customer deposits in GEFG's subsidiary bank,
Greyhound Bank, PLC ("GBL") and a decrease in interest payable.
Net cash used by investing activities was $369.4 million in 1993, up by
$107.2 million from 1992. The major reasons for the increase in 1993 were
the record amount of expenditures for new business and the purchase of ABF,
partially offset by the collection of advances made to Verex. Also
offsetting the increase was higher principal collections on financing
transactions (which included a significant amount of prepayments in 1993).
Net cash provided by financing activities was $310.5 million, an
increase of $99.7 million from 1992. The increase primarily consisted of
higher advances from GFC Financial representing the proceeds received on the
sale of its discontinued mortgage insurance operations (Verex) and higher
net borrowings primarily used to finance new business.
1992 Compared to 1991
Net income for 1992 was $36.8 million compared to a loss of $38.7
million in 1991. The 1991 results include $69 million (after-tax) of
restructuring and other charges as part of the spin-off from The Dial Corp
("Dial"). Excluding the effects of the restructuring and other charges made
in 1991, net income in 1992 increased by 21% over 1991 ($36.8 million
compared to $30.3 million).
The following discussion of results of operations excludes the $69
million (after-tax) of restructuring and other charges recorded in 1991.
Interest Margins Earned. Interest margins earned increased by 11% in
1992 compared to 1991. This increase is attributable primarily to higher
margins in the domestic portfolio ($83.4 million in 1992 compared to $73.6
million in 1991) due to the growth of $334.9 million in the domestic
portfolio in 1992. GEFG's interest margins earned increased by $1.0 million
in 1992 as a result of the $47.2 million of additional capital infused by
Dial in December 1991 as part of the spin-off. The effect of this capital
infusion helped to offset the reduction in margins caused by the continued
liquidation of the GEFG portfolio.
During the second and third quarters of 1992, GFC, because of the
significant refinancing done in connection with the spin-off, had to finance
a major portion of its floating-rate assets with fixed-rate funds. Those
fixed-rate funds were subsequently converted to floating-rate funds through
interest rate conversion agreements. The timing between the issuance of
fixed-rate funds and the execution of interest rate conversion agreements
resulted in a decrease in margins of approximately $2.8 million. GFC was
able to liquidate a substantial portion of its Latin American assets for
gains of $3.1 million, which offset the adverse effect of the temporary
imbalance of rate-sensitive assets and liabilities.
Also contributing to the improved interest margins were the effects of
lower nonaccruals, which averaged $114 million in 1992 compared to $185
million in 1991, higher prepayment fees and interest expense reductions
related to the refinancing of high cost fixed-rate debt during 1991 and
1992. These increases were partially offset by the effect of recognizing
$6.3 million of additional income in 1991, related to the leveraged lease
portfolio, with no comparable amount being recognized in 1992.
Non-Interest Expense. Provisions for possible credit losses were lower
in 1992 but, nevertheless, were adequate to cover the growth and risk in the
portfolio. A breakdown of the write-offs by collateral type can be found in
Note C of Notes to Consolidated Financial Statements.
Selling, administrative and other operating expenses increased during
1992 due to additional costs associated with being a subsidiary of a public
company, the liquidation of GEFG (which included $1.3 million of after-tax
employee termination costs) and normal cost increases. See Note K of Notes
to Consolidated Financial Statements.
Gains on Sale of Assets. Gains on sale of assets were lower in 1992
than in 1991 due to reduced quantities and values of assets coming off
lease. This reduction was the result of the gradual liquidation of the
Company's lease portfolio and is in line with the Company's strategy of
improving core income (i.e., net income excluding after-tax gains on sale of
assets).
Income Taxes. The effective income tax rate for 1992 is lower than the
statutory rate primarily because of a $3.1 million reduction in taxes for
tax benefits related to the expenses of refinancing the Company's debt. See
Note F of Notes to Consolidated Financial Statements.
Cash Flow. Cash provided by operating activities was $32.7 million in
1992, an improvement of $101.8 million over 1991. The improvement was due
to higher earnings and reduced uses of cash in 1992. The lower uses of
cash, when compared to 1991, primarily related to withdrawals of customer
deposits in GBL, reductions in deferred income taxes and lower interest paid
resulting from lower effective interest rates in 1992. Partially offsetting
these increases in cash was the payment in 1992 of restructuring and other
charges and transaction costs related to the spin-off.
Net cash used by investing activities was $262.3 million in 1992, up
$105.0 million from 1991. The major reasons for the higher use of cash were
the increases in expenditures for financing transactions, net advances of
$57.3 million made to Verex in 1992 to refinance its debt obligations and
lower proceeds from the sale of assets, partially offsetting these items was
an increase in principal collections from financing transactions in the
domestic portfolio, increased prepayments and the principal and interest
recovered from the sale of certain Latin American assets.
Net cash provided by financing activities was $210.8 million during
1992, a decline of $28.1 million from 1991. The decline was due primarily
to lower net borrowings, partially reduced by amounts received from a
subsidiary of Dial in connection with the spin-off to purchase GFC preferred
stock and settle intercompany balances.
Liquidity and Capital Resources
Funds employed (i.e., investment in financing transactions before the
reserve for possible credit losses) increased by $361 million, or
approximately 15%, to $2,847 million at December 31, 1993 from $2,486
million at December 31, 1992. This increase was due to approximately $1
billion of new business being added during 1993 and the acquisition of $63
million of ABF assets, partially offset by $702 million of portfolio runoff,
early terminations, translation adjustments, write-offs and collections on
net advances made to Verex ($57 million). The primary focus of ABF, which
was acquired on February 1, 1993, is financing through revolving lines of
credit secured by accounts receivable and inventories. This acquisition
extends the financial services the Company can provide.
The GEFG portfolio continued to wind down in 1993 reflecting a
reduction of $58.6 million to $124.3 million at December 31, 1993 from
$182.9 million at December 31, 1992. In conjunction with the winding down
of the GEFG portfolio, GEFG, in December 1993, surrendered the banking
license of the United Kingdom bank and, therefore, will not be taking in any
more customer deposits. Additional geographic information can be found in
Note L of Notes to Consolidated Financial Statements.
The reserve for possible credit losses ("reserve") declined in 1993 by
$5.0 million to $64.3 million at December 31, 1993 from $69.3 million at
December 31, 1992. The decline was principally attributable to write-offs
of $12.6 million ($5.0 million of which were in GEFG), partially offset by
provisions for possible credit losses made in connection with the growth in
funds employed. The reserve is believed to be adequate at December 31, 1993
at 2.3% of funds employed and 62.6% of nonaccruing assets.
Nonaccruing contracts and repossessed assets were $102.6 million at
December 31, 1993 compared to $100.4 million at December 31, 1992. This
increase is comprised of a $12.3 million increase in the domestic portfolio
(to $90.3 million at December 31, 1993) partially offset by a decrease of
$10.1 million in GEFG's portfolio (to $12.3 million at December 31, 1993).
Nonaccruing contracts and repossessed assets as a percent of funds employed
declined to 3.6% at December 31, 1993 from 4.0% at December 31, 1992. For
more information on write-offs and nonaccruing assets see Note C of Notes to
Consolidated Financial Statements.
The Company's outstanding debt of approximately $2,107 million
(including $25 million of redeemable preferred stock) was 6.1 times its
equity base of $345 million at December 31, 1993. The Company also had
deferred taxes of $198 million at that date to help finance its lending
activities.
Growth in funds employed is typically financed by internally generated
cash flow and additional borrowings. During 1993, GFC issued $200 million
of new senior debt, which, together with general corporate funds and net
borrowings through the issuance of commercial paper, was used to finance new
business and redeem or retire $200 million of maturing debt.
GFC satisfies a significant portion of its cash requirements from a
diversified group of worldwide funding sources and is not dependent upon any
one lender. Additionally, GFC relies on the issuance of commercial paper as
a major funding source. During 1993, GFC issued $3.3 billion of commercial
paper (with an average of $294 million outstanding during the year) and
raised $200 million through new long-term senior notes of two to ten year
durations. Commercial paper and short-term borrowings are supported by a
$700 million unused long-term revolving bank credit agreement. Debt
repayments in 1993 included the prepayment ($145 million) of six term loans
due February 1994 to August 1996.
GFC generally mitigates the volatility of interest rate changes by
matching the terms of its investments in new and existing transactions with
approximate similar terms and duration applicable to its funding sources.
Generally, fixed-rate assets are financed with fixed-rate debt and floating-
rate assets are financed with floating-rate debt. GFC also balances the
maturities of its investments so that sufficient cash flow is available to
service anticipated debt requirements. In the third quarter of 1993, GFC
entered into four three-year interest rate hedge agreements on $750 million
of floating-rate borrowings to effectively guarantee a spread of
approximately 2.3% between its borrowing rate (LIBOR) and the Prime interest
rate.
GFC had outstanding 31 interest rate conversion agreements with
notional principal amounts totaling $1.3 billion. Six agreements with
notional principal amounts of $180 million were arranged to effectively
convert certain floating interest rate obligations into fixed interest rate
obligations and require interest payments on the stated principal amount at
rates ranging from 8.3% to 9.8% (remaining terms of three months to five
years) in return for receipts calculated on the same notional amounts at
floating interest rates. In addition, 25 agreements with notional principal
amounts of $1.1 billion were arranged to effectively convert certain fixed
interest rate obligations into floating interest rate obligations and
require interest payments on the stated principal amount at the three month
or six month LIBOR (remaining terms of five months to nine years) in return
for receipts calculated on the same notional amounts at fixed interest rates
of 4.9% to 7.6%. The agreements have been entered into with major financial
institutions which are expected to fully perform under the terms of the
agreements, thereby mitigating the credit risk from the transactions.
GFC's aggregate cost of funds has declined to 6.3% for 1993 from 7.2%
in 1992. GFC's cost of and access to capital resources is significantly
influenced by its debt ratings.
Recent Developments and Business Outlook
On February 1, 1993, GFC purchased the Asset Based Lending Division of
U.S. Bancorp Financial, Inc., a wholly owned subsidiary of U.S. Bancorp, for
approximately $70 million in cash. The primary focus of the Asset Based
Finance group, which is based in Los Angeles and recently opened an office
in Chicago, is to offer revolving lines of credit and term loans secured by
accounts receivable and inventories on a national basis.
GFC established a new line of business (in August 1993), the Consumer
Rediscount Group, which provides senior financing to independent consumer
finance companies. Based in Dallas, Texas, this type of secured lending,
known as rediscounting, represents another niche-business for GFC.
On February 14, 1994, GFC acquired Fleet Financial Group, Inc.'s
factoring and asset-based lending subsidiary, Fleet Factors Corp, operating
under the trade name Ambassador Factors ("Ambassador"). As of November 30,
1993, Ambassador had a $336 million loan portfolio and generated $810
million of factoring volume in 1993. Its customer base primarily consists
of small to medium-sized textile and apparel manufacturers in the factoring
operation and similar sized manufacturers, distributors and wholesalers in
the asset-based lending business. See Note N of Notes to Consolidated
Financial Statements.
On March 4, 1994, GFC Financial announced the signing of a definitive
purchase agreement under which it will acquire all of the stock of TriCon
Capital Corporation ("TriCon"), an indirect wholly-owned subsidiary of Bell
Atlantic Corporation, in an all cash transaction. The transaction is
subject to regulatory approvals and certain other conditions. TriCon is a
$1.8 billion niche-oriented provider of commercial and equipment leasing
services. TriCon's marketing orientation fits well with GFC's focus on
value-added products and services in focused niches of the commercial
finance business and further diversifies GFC's asset base. See Note N to
Notes to Consolidated Financial Statements.
The expanding and improving U.S. and United Kingdom economies, are
predicted to stimulate business investment and pave the way for stronger
growth. Signs of these changes are becoming evident to the Company by the
improved liquidity in its domestic Commercial Real Estate and Communication
Finance businesses, as well as reduced nonaccruals in the European Consumer
Finance portfolio. Strategies implemented during 1993 position the Company
to take advantage of the improving domestic economy and to expand its
financial services operations into three new niche businesses.
New Accounting Standards
In November 1992, the Financial Accounting Standards Board ("FASB")
issued Statement of Accounting Standards ("SFAS") No. 112, "Employers'
Accounting for Postemployment Benefits". Analogous to SFAS No. 106 for
postretirement benefits, this standard requires companies to accrue for
estimated future postemployement benefit expenses during the periods when
employees are working. Postemployment benefits are any benefits other than
retirement benefits that are provided after employment is discontinued.
This standard must be adopted for fiscal years beginning after December 15,
1993, which for the Company would be 1994. Based on management's review,
the adoption of the new standard will not have a material impact on the
Company's financial position or results of operations.
The FASB has issued a new accounting standard, SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS 114"). This
standard requires that impaired loans that are within the scope of this
statement generally be measured based on the present value of expected cash
flows discounted at the loan's effective interest rate or the fair value of
the collateral, if the loan is collateral dependent. Under SFAS 114, a loan
is considered impaired when, based on current information and events, it is
probable that a creditor will be unable to collect all amounts due.
Presently, the reserve for possible credit losses represents management's
estimate of the amount necessary to cover potential losses in the portfolio
considering delinquencies, loss experience and collateral. The impact of
the new standard, which is effective for fiscal years beginning after
December 15, 1994, has not yet been determined.
New accounting standards adopted by GFC in 1993 included SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
("OPEB"). The disclosure required by this statement is included in Note G
of Notes to Consolidated Financial Statements.
<PAGE>
MANAGEMENT'S REPORT ON
RESPONSIBILITY FOR FINANCIAL REPORTING
The management of Greyhound Financial Corporation is responsible for
the preparation, integrity and objectivity of the financial statements and
other financial information included in this Annual Report. The financial
statements are presented in accordance with generally accepted accounting
principles reflecting, where applicable, management's best estimates and
judgments.
Management of the Company has established and maintains a system of
internal controls to reasonably assure the fair presentation of the
financial statements, the safeguarding of the Company's assets and the
prevention or detection of fraudulent financial reporting. The internal
control structure is supported by careful selection and training of
personnel, documented policies and procedures and regular review by both
internal auditors and the independent auditors.
The Board of Directors, through its Audit Committee, also oversees the
financial reporting of the Company and its adherence to established
procedures and controls. Periodically, the Audit Committee meets, jointly
and separately, with management, the internal auditors and the independent
auditors to review auditing, accounting and financial reporting matters.
The Company's financial statements have been audited by Deloitte &
Touche, independent auditors. Management has made available to Deloitte &
Touche all of the Company's financial records and related data, and has made
valid and complete written and oral representations and disclosures in
connection with the audit.
Management believes it is essential to conduct its business in
accordance with the highest ethical standards, which are characterized and
set forth in the Company's written Code of Conduct. These standards are
communicated to all of the Company's employees.
Samuel L. Eichenfield
Chairman, President & Chief Executive Officer
Bruno A. Marszowski
Vice President - Controller
Derek C. Bruns
Director - Internal Audit
GFC Financial Corporation
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Greyhound Financial Corporation
We have audited the accompanying consolidated balance sheet of
Greyhound Financial Corporation and subsidiaries as of December 31, 1993 and
1992, and the related consolidated statements of operations, stockholder's
equity and cash flows for each of the three years in the period ended
December 31, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Greyhound Financial
Corporation and subsidiaries at December 31, 1993 and 1992, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally accepted
accounting principles.
Deloitte & Touche
Phoenix, Arizona
March 4, 1994
</AUDIT-REPORT>
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
ASSETS
- ----------------------------------------------------------------------------
December 31, 1993 1992
- ----------------------------------------------------------------------------
Cash and cash equivalents $ 2,859 $ 19,120
Investment in financing transactions:
Loans and other financing contracts, less
unearned income of $72,747 and $122,381,
respectively 2,343,755 1,919,371
Leveraged leases 283,782 269,370
Operating and direct financing leases 219,034 239,782
Related party advances 57,321
- ----------------------------------------------------------------------------
2,846,571 2,485,844
Less reserve for possible credit losses (64,280) (69,291)
- ----------------------------------------------------------------------------
Investment in financing transactions -
net 2,782,291 2,416,553
Other assets and deferred charges 49,747 44,653
- ----------------------------------------------------------------------------
$ 2,834,897 $ 2,480,326
============================================================================
See notes to consolidated financial statements.
<PAGE>
LIABILITIES AND STOCKHOLDER'S EQUITY
- ----------------------------------------------------------------------------
December 31, 1993 1992
- ----------------------------------------------------------------------------
Liabilities:
Accounts payable and accrued expenses $ 30,158 $ 27,613
Due to Parent 130,760
Customer deposits 3,064 15,064
Interest payable 23,633 29,062
Short-term debt 510 1,360
Senior debt 1,991,986 1,806,433
Subordinated debt 86,790 75,916
Deferred income taxes 197,705 174,090
- ----------------------------------------------------------------------------
2,464,606 2,129,538
- ----------------------------------------------------------------------------
Redeemable preferred stock 25,000 25,000
- ----------------------------------------------------------------------------
Stockholder's equity:
Common stock, $1 par value, 100,000 shares
authorized, 25,000 shares outstanding 25 25
Additional capital 298,665 298,665
Retained income 54,374 33,783
Cumulative translation adjustments (7,773) (6,685)
- ----------------------------------------------------------------------------
345,291 325,788
- ----------------------------------------------------------------------------
$ 2,834,897 $ 2,480,326
============================================================================
See notes to consolidated financial statements.
<PAGE>
STATEMENT OF CONSOLIDATED OPERATIONS
(Dollars in Thousands)
- ----------------------------------------------------------------------------
Years Ended December 31, 1993 1992 1991
- ----------------------------------------------------------------------------
Interest and other income $218,171 $210,873 $212,706
Lease income 30,529 29,933 38,766
- ----------------------------------------------------------------------------
Interest earned from financing 248,700 240,806 251,472
transactions
Interest expense 126,152 136,107 157,560
- ----------------------------------------------------------------------------
Interest margins earned 122,548 104,699 93,912
- ----------------------------------------------------------------------------
Provision for possible credit losses 5,706 6,740 12,687
Restructuring and other charges 65,000
- ----------------------------------------------------------------------------
5,706 6,740 77,687
- ----------------------------------------------------------------------------
Net interest margins earned 116,842 97,959 16,225
Gains on sale of assets 5,439 3,362 6,684
- ----------------------------------------------------------------------------
122,281 101,321 22,909
- ----------------------------------------------------------------------------
Selling, administrative and other 58,158 50,728 46,923
operating expenses
Transaction costs of the Distribution 13,000
- ----------------------------------------------------------------------------
58,158 50,728 59,923
- ----------------------------------------------------------------------------
Income (loss) before income taxes 64,123 50,593 (37,014)
Income taxes:
Current and deferred 22,825 13,843 1,728
Adjustment to deferred taxes 4,857
- ----------------------------------------------------------------------------
27,682 13,843 1,728
- ----------------------------------------------------------------------------
NET INCOME (LOSS) $36,441 $36,750 $(38,742)
============================================================================
See notes to consolidated financial statements.
<PAGE>
STATEMENT OF CONSOLIDATED STOCKHOLDER'S EQUITY
(Dollars in Thousands)
- ----------------------------------------------------------------------------
Years Ended December 31, 1993 1992 1991
- ----------------------------------------------------------------------------
COMMON STOCK:
Balance, beginning and end of year $25 $25 $25
- ----------------------------------------------------------------------------
ADDITIONAL CAPITAL:
Balance, beginning of year 298,665 270,680 272,355
Contributions from (distribution to)
The Dial Corp 27,985 (1,675)
- ----------------------------------------------------------------------------
Balance, end of year 298,665 298,665 270,680
- ----------------------------------------------------------------------------
RETAINED INCOME:
Balance, beginning of year 33,783 10,605 64,382
Net income (loss) 36,441 36,750 (38,742)
Dividends (15,850) (13,572) (15,035)
- ----------------------------------------------------------------------------
Balance, end of year 54,374 33,783 10,605
- ----------------------------------------------------------------------------
CUMULATIVE TRANSLATION ADJUSTMENTS:
Balance, beginning of year (6,685) (1,639) 351
Unrealized translation loss (1,088) (5,046) (1,990)
- ----------------------------------------------------------------------------
Balance, end of year (7,773) (6,685) (1,639)
- ----------------------------------------------------------------------------
STOCKHOLDER'S EQUITY $345,291 $325,788 $279,671
============================================================================
See notes to consolidated financial statements.
<PAGE>
STATEMENT OF CONSOLIDATED CASH FLOWS
(Dollars in Thousands)
- ----------------------------------------------------------------------------
Years Ended December 31, 1993 1992 1991
- ----------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income (loss) $36,441 $36,750 $(38,742)
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
Provision for possible credit losses 5,706 6,740 77,687
Gains on sale of assets (5,439) (3,362) (6,684)
Deferred income taxes 21,608 (4,837) (17,760)
Increase in accounts payable and
accrued expenses 2,545 4,418 19,275
Decrease in customer deposits (12,287) (577) (126,979)
(Decrease) increase in interest
payable (5,429) 3,576 (4,906)
Other (475) (10,019) 29,035
- ----------------------------------------------------------------------------
Net cash provided (used) by
operating activities 42,670 32,689 (69,074)
- ----------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from sale of assets 5,681 22,657 35,141
Principal collections on financing
transactions 644,939 454,390 338,451
Expenditures for financing
transactions (1,007,794) (682,369) (525,659)
Purchase of subsidiary (69,808)
Net related party advances 57,321 (57,321)
Other 221 392 (5,213)
- ----------------------------------------------------------------------------
Net cash used by investing
activities (369,440) (262,251) (157,280)
- ----------------------------------------------------------------------------
FINANCING ACTIVITIES:
Borrowings 646,701 974,232 760,947
Repayment of borrowings (451,102) (829,212) (539,609)
Issuance of preferred stock 25,000
Advances and contributions from The
Dial Corp 54,331 32,575
Net advances from Parent 130,760
Dividends (15,850) (13,572) (15,035)
- ----------------------------------------------------------------------------
Net cash provided by financing 310,509 210,779 238,878
activities
- ----------------------------------------------------------------------------
(Decrease) increase in cash and cash
equivalents (16,261) (18,783) 12,524
Cash and cash equivalents, beginning of
year 19,120 37,903 25,379
- ----------------------------------------------------------------------------
Cash and cash equivalents, end of year $2,859 $19,120 $37,903
============================================================================
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in Thousands in Tables)
NOTE A SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation--On March 3,
1992, The Dial Corp's ("Dial") shareholders approved the spin-off to its
shareholders of GFC Financial Corporation ("GFC Financial"), a newly-formed
Delaware corporation, which comprised Dial's former commercial lending and
mortgage insurance subsidiaries. In connection with the spin-off, the
holders of common stock of Dial received a distribution of one share of
common stock of GFC Financial for every two shares of Dial common stock (the
"Distribution").
Prior to the Distribution, Dial contributed its 100% ownership interest
in companies constituting the Greyhound European Financial Group ("GEFG")
and Greyhound BID Holding Corp. ("BID") to Greyhound Financial Corporation
("GFC") and contributed all of the common stock of GFC (collectively the
"Company") to GFC Financial.
The historical consolidated financial statements of GFC and
subsidiaries have been retroactively restated to include the accounts and
results of operations of GFC, GEFG and BID for all periods presented as if a
pooling of interests of companies under common control. All intercompany
accounts and transactions have been eliminated from the consolidated
financial statements.
These consolidated financial statements are prepared in accordance with
generally accepted accounting principles. Described below are those
accounting policies particularly significant to GFC, including those
selected from acceptable alternatives.
Financing Transactions--For loans and other financing contracts earned
income is recognized over the life of the contract, using the interest
method.
Leases that are financed by nonrecourse borrowings and meet certain
other criteria are classified as leveraged leases. For leveraged leases,
aggregate rentals receivable are reduced by the related nonrecourse debt
service obligation including interest ("net rentals receivable"). The
difference between (a) the net rentals receivable and (b) the cost of the
asset less estimated residual value at the end of the lease term is recorded
as unearned income. Earned income is recognized over the life of the lease
at a constant rate of return on the positive net investment, which includes
the effects of deferred income taxes.
For operating leases, earned income is recognized on a straight-line
basis over the lease term and depreciation is taken on a straight-line basis
over the estimated useful life. Operating lease income is net of
depreciation and related expenses.
For leases classified as direct financing leases, the difference
between (a) aggregate lease rentals and (b) the cost of the related assets
less estimated residual value at the end of the lease term is recorded as
unearned income. Earned income is recognized over the life of the contracts
using the interest method.
Income recognition is generally suspended for leases, loans and other
financing contracts at the earlier of the date at which payments become
90 days past due (other than consumer finance accounts of GEFG, which are
considered nonaccruing when 180 days past due) or when, in the opinion of
management, a full recovery of income and principal becomes doubtful.
Income recognition is resumed when the loan becomes contractually current
and performance is demonstrated to be resumed.
The reserve for possible credit losses is available to absorb credit
losses. The provision for possible credit losses is the charge to income to
increase the reserve for possible credit losses to the level that management
estimates to be adequate considering delinquencies, loss experience and
collateral. Other factors include changes in geographic and product
diversification, size of the portfolio and current economic conditions.
Accounts are either written-off or written-down when the probability of loss
has been established in amounts determined to cover such losses after giving
consideration to the customer's financial condition, the value of the
underlying collateral and any guarantees. Any deficiency between the
carrying amount of an asset and the ultimate sales price of repossessed
collateral is charged to the reserve for possible credit losses. Recoveries
of amounts previously written-off as uncollectible are credited to the
reserve for possible credit losses.
Repossessed assets are carried at the lower of cost or fair value.
Loans classified as in-substance foreclosures are included in repossessed
assets. Loans are classified as in-substance foreclosed assets, even though
legal foreclosure has not occurred, when (i) the borrower has little or no
equity in the collateral at its current fair value, (ii) proceeds for
repayment are expected to come only from the operation or sale of the
collateral and (iii) it is doubtful that the borrower will rebuild equity in
the collateral or otherwise repay the loan in the foreseeable future.
The Financial Accounting Standards Board ("FASB") has issued a new
accounting standard, SFAS No. 114, "Accounting by Creditors for Impairment
of a Loan" ("SFAS 114"). This standard requires that impaired loans that
are within the scope of this statement generally be measured based on the
present value of expected cash flows discounted at the loan's effective
interest rate or the fair value of the collateral, if the loan is collateral
dependent. Under SFAS 114, a loan is considered impaired when, based on
current information and events, it is probable that a creditor will be
unable to collect all amounts due. Presently, the reserve for possible
credit losses represents management's estimate of the amount necessary to
cover potential losses in the portfolio considering delinquencies, loss
experience and collateral. The impact of the new standard, which is
effective for fiscal years beginning after December 15, 1994, has not yet
been determined.
Pension and Other Benefits--Trusteed, noncontributory pension plans
cover substantially all employees. Benefits are based primarily on final
average salary and years of service. Net periodic pension cost for GFC is
based on the provisions of SFAS No. 87, "Employers' Accounting for
Pensions". Funding policies provide that payments to pension trusts shall
be at least equal to the minimum funding required by applicable regulations.
Effective January 1, 1993, the Company adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions",
which requires accrual of such benefits during the years the employees
provide services. Prior to 1993, the costs of such benefits were expensed
as incurred. See Note G of Notes to Consolidated Financial Statements for
further information.
In November 1992, the FASB issued SFAS No. 112, "Employers' Accounting
for Postemployment Benefits". Analogous to SFAS No. 106 for postretirement
benefits, this standard requires companies to accrue for estimated future
postemployement benefits during the periods when employees are working.
Postemployment benefits are any benefits other than retirement benefits that
are provided after employment is discontinued. This standard must be
adopted for fiscal years beginning after December 15, 1993, which for the
Company would be 1994. Based on management's review, the adoption of the
new standard will not have a material impact on the Company's financial
position or results of operations.
Income Taxes--Income taxes are provided based upon the provisions of
SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109,
deferred tax assets and liabilities are recognized for the estimated future
tax effects attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
law.
Cash Equivalents--For purposes of the Statement of Consolidated Cash
Flows, the Company has classified highly liquid investments with original
maturities of three months or less from date of purchase as cash
equivalents.
Reclassifications--Certain reclassifications have been made to the 1992
financial statements to conform to the 1993 presentation.
NOTE B INVESTMENT IN FINANCING TRANSACTIONS
The Company provides secured financing to commercial and real estate
enterprises principally under financing contracts (such as loans and other
financing contracts, leveraged leases, operating leases and direct financing
leases). At December 31, 1993 and 1992, the carrying amount of the
investment in financing transactions, including the estimated residual value
of leased assets upon lease termination, was $2,846,571,000 and
$2,485,844,000 (before reserve for possible credit losses), respectively,
and consisted of the following types of loans and collateral:
- ----------------------------------------------------------------------------
Percent of Total
Carrying Amount
- ----------------------------------------------------------------------------
1993 1992
- ----------------------------------------------------------------------------
Resort receivables 19.8% 18.3%
Aircraft and related equipment 19.6 19.1
Communications finance 17.8 16.2
Commercial real estate 12.4 18.1
Real estate leveraged leases 6.9 7.3
Asset based finance 6.2
Production and processing equipment 4.7 5.8
Land receivables 2.6 3.7
Railroad equipment 2.6 2.5
Consumer finance (GEFG) 1.6 2.3
Commercial vehicles 0.4 1.4
Other (1) 5.4 5.3
- ----------------------------------------------------------------------------
100.0% 100.0%
============================================================================
(1) The category "Other" includes different classes of commercial and
industrial contract receivables, none of which accounted for more than
1% of the aggregate carrying amount of the net investment in financing
transactions.
The Company's investment in financing transactions outside of the
United States at December 31 consisted of the following:
- ----------------------------------------------------------------------------
1993 1992
- ----------------------------------------------------------------------------
Europe, primarily United Kingdom $ 196,499 $ 206,893
Mexico 30,952 33,827
Other countries 17,740 38,168
- ----------------------------------------------------------------------------
$ 245,191 $ 278,888
============================================================================
The Company's investment in financing transactions is primarily settled
in U.S. dollars, except for approximately $100,000,000 and $128,000,000 at
December 31, 1993 and 1992, respectively, which is primarily due in British
pounds. The exchange rate of British pounds to dollars at December 31, 1993
and 1992 was 1.48:1 and 1.52:1, respectively.
Aggregate installments on loans and other financing contracts,
leveraged leases, operating leases and direct financing leases at
December 31, 1993 (excluding repossessed assets of $77,024,000 and estimated
residual values) are due during each of the years ending December 31, 1994
to 1998 and thereafter as follows:
- ----------------------------------------------------------------------------
There-
1994 1995 1996 1997 1998 after
- ----------------------------------------------------------------------------
Domestic:
Loans and other
financing
contracts:
Commercial:
Fixed interest
rate $ 80,796 $ 77,294 $ 72,707 $ 45,984 $ 31,600 $ 81,838
Floating
interest rate 179,164 211,921 218,987 141,294 126,221 75,418
Real Estate:
Fixed interest
rate 61,416 43,634 39,777 27,935 18,702 46,941
Floating
interest rate 147,101 167,375 147,507 92,831 53,461 39,204
Leveraged leases 4,834 5,385 7,282 13,862 8,395 171,883
Operating and
direct
financing
leases,
primarily at
fixed
interest rates 21,120 20,389 29,295 17,907 16,873 115,737
- ----------------------------------------------------------------------------
494,431 525,998 515,555 339,813 255,252 531,021
- ----------------------------------------------------------------------------
Foreign, primarily
at floating
interest rates:
Loans and other
financing
contracts 10,078 6,429 8,915 16,007 23,700
Consumer Finance 14,122 7,858 7,212 9,617 5,255 1,200
Operating and
direct
financing
leases 4,284 3,038 4,343 2,496 2,870
- ----------------------------------------------------------------------------
28,484 17,325 20,470 28,120 31,825 1,200
- ----------------------------------------------------------------------------
$522,915 $543,323 $536,025 $367,933 $287,077 $532,221
============================================================================
The net investment in leveraged leases at December 31 consisted of the
following:
- ----------------------------------------------------------------------------
1993 1992
- ----------------------------------------------------------------------------
Rentals receivable $1,377,107 $1,451,925
Less principal and interest payable on
nonrecourse debt (1,165,466) (1,237,776)
- ----------------------------------------------------------------------------
Net rentals receivable 211,641 214,149
Estimated residual values 306,894 306,691
Less unearned income (234,753) (251,470)
- ----------------------------------------------------------------------------
Investment in leveraged leases 283,782 269,370
Less deferred taxes arising from leveraged leases (223,006) (206,342)
- ----------------------------------------------------------------------------
Net investment in leveraged leases $60,776 $63,028
============================================================================
The components of income from leveraged leases, before the effects of
interest on nonrecourse debt and other related expenses, for the years ended
December 31 were as follows:
- ----------------------------------------------------------------------------
1993 1992 1991
- ----------------------------------------------------------------------------
Lease and other income $11,376 $ 9,172 $16,421
Income tax expense 8,363 2,757 4,903
- ----------------------------------------------------------------------------
The investment in operating and direct financing leases at December 31
consisted of the following:
- ----------------------------------------------------------------------------
1993 1992
- ----------------------------------------------------------------------------
Operating leases $147,222 $100,911
Direct financing leases:
Rentals receivable 91,153 154,463
Estimated residual values 23,121 42,158
Unearned income (42,462) (57,750)
- ----------------------------------------------------------------------------
71,812 138,871
- ----------------------------------------------------------------------------
Investment in operating and direct financing
leases $219,034 $239,782
============================================================================
The investment in operating leases is net of accumulated depreciation
of $10,601,000 and $4,110,000 as of December 31, 1993 and 1992,
respectively. Depreciation expense relating to equipment held under
operating leases was $6,491,000, $2,531,000 and $1,685,000 in 1993, 1992 and
1991, respectively.
The Company has a substantial number of loans and leases with payments
that fluctuate with changes in index rates, primarily Prime interest rates
and the London Interbank Offered Rate ("LIBOR"). The investment in loans
and leases with floating interest rates (excluding nonaccruing contracts and
repossessed assets) at December 31 was as follows:
- ----------------------------------------------------------------------------
1993 1992
- ----------------------------------------------------------------------------
Receivables due on financing transactions $1,661,602 $1,368,412
Estimated residual values 8,162
Less unearned income (25,928) (34,899)
- ----------------------------------------------------------------------------
Investment in loans and leases $1,635,674 $1,341,675
============================================================================
Interest earned from financing transactions with floating interest
rates was approximately $154,000,000 in 1993, $127,000,000 in 1992 and
$128,000,000 in 1991. The adjustments, which arise from changes in index
rates, can have a significant effect on interest earned from financing
transactions; however, the effects on interest margins earned and net income
are substantially offset by related interest expense changes on debt
obligations with floating interest rates.
At December 31, 1993, the Company had a committed backlog of new
business of approximately $420,000,000 compared to $317,000,000 at December
31, 1992.
NOTE C RESERVE FOR POSSIBLE CREDIT LOSSES
The following is an analysis of the reserve for possible credit losses
for the years ended December 31:
- ----------------------------------------------------------------------------
1993 1992 1991
- ----------------------------------------------------------------------------
Balance, beginning of year $69,291 $87,600 $77,098
Provision for possible credit losses (1) 5,706 6,740 77,687
Write-offs (1) (12,575) (23,661) (68,346)
Recoveries 717 749 663
Other 1,141 (2,137) 498
- ----------------------------------------------------------------------------
Balance, end of year $64,280 $69,291 $87,600
============================================================================
(1) In the fourth quarter of 1991, the Company recorded a special provision
for possible credit losses of $65,000,000 and recorded write-offs of
$15,000,000 related to nonearning assets in the GEFG portfolio and a
$47,759,000 write-down to reduce Latin American assets to current
market value.
Write-offs by major loan and collateral types experienced by the
Company during the years ended December 31 are as follows:
- ----------------------------------------------------------------------------
1993 1992 1991
- ----------------------------------------------------------------------------
Consumer finance (GEFG) $ 4,071 $ 10,176 $ 13,687
Commercial real estate 3,082 8,904 2,894
Manufacturing and processing equipment 2,242 1,908 604
Commercial vehicles 1,579 67
Communications finance 1,488 1,500 1,200
Maritime 906
Latin America 47,759
Other 113 267 2,135
- ----------------------------------------------------------------------------
$ 12,575 $ 23,661 $ 68,346
============================================================================
Write-offs as a percentage of investment
in financing transactions 0.44% 0.95% 3.00%
============================================================================
An analysis of nonaccruing contracts and repossessed assets at
December 31 is as follows:
- ----------------------------------------------------------------------------
1993 1992
- ----------------------------------------------------------------------------
Nonaccruing contracts:
Domestic $ 13,263 $ 24,031
Foreign 12,320 22,400
- ----------------------------------------------------------------------------
Total nonaccruing contracts 25,583 46,431
- ----------------------------------------------------------------------------
Repossessed assets:
Domestic 77,001 53,931
Foreign 23 60
- ----------------------------------------------------------------------------
Total repossessed assets 77,024 53,991
- ----------------------------------------------------------------------------
Total nonaccruing contracts and repossessed assets $ 102,607 $ 100,422
============================================================================
Nonaccruing contracts and repossessed assets as a
percentage of investment in financing transactions 3.6% 4.0%
============================================================================
In addition to the repossessed assets included in the above table, the
Company had repossessed assets, with a total carrying amount of $48,956,000
and $21,509,000 at December 31, 1993 and 1992 which earned income of
$2,700,000 and $1,900,000 during 1993 and 1992, respectively.
In the normal course of business, the Company has renegotiated and
modified certain contracts with respect to rates and other terms. At
December 31, 1993 and 1992, the Company had approximately $47,000,000 and
$68,000,000, respectively, of these rewritten contracts requiring disclosure
under the provisions of SFAS No. 15, "Accounting by Debtors and Creditors
for Troubled Debt Restructurings". These contracts are yielding, on a
weighted average basis, a return of approximately 9.3%.
Had all contracts placed in a nonaccrual status outstanding at
December 31, 1993, 1992 and 1991, respectively, remained accruing, interest
earned would have been increased by approximately $6,000,000, $7,500,000 and
$11,300,000, respectively, for domestic contracts and $5,000,000, $5,100,000
and $9,100,000, respectively, for foreign contracts. Income recognized on
these accounts was approximately $1,732,000, $589,000 and $1,100,000 for
domestic contracts during the years 1993, 1992 and 1991, respectively.
NOTE D DEBT
The Company satisfies its short-term financing requirements from bank
lines of credit, other bank loans, public medium-term notes and the issuance
of commercial paper. In conjunction with the winding down of the GEFG
portfolio, GEFG, in December 1993, surrendered the banking license of the
United Kingdom bank and, therefore, will not be taking in any more customer
deposits. At December 31, 1993, short-term bank loans and commercial paper
of $515,876,000 (net of unamortized discount) are considered to be long-term
debt because they are supported by an unused long-term revolving bank credit
agreement of $700,000,000.
The following information pertains to all short-term financing,
including bank loans and commercial paper (considered to be long-term debt),
for the years ended December 31:
- ---------------------------------------------------------------------------
1993 1992 1991
- ---------------------------------------------------------------------------
Maximum amount of short-term debt
outstanding during year $ 516,386 $ 504,829 $ 533,446
Average short-term debt outstanding
during year 336,672 322,176 448,174
Weighted average short-term interest
rates at end of year:
Short-term borrowings 3.5% 4.1% 8.1%
Commercial paper* 3.6% 4.2% 5.6%
Weighted average interest rate on short-
term debt outstanding during year* 3.5% 4.3% 6.9%
- ----------------------------------------------------------------------------
* Exclusive of the cost of maintaining bank lines in support of
outstanding commercial paper and the effects of interest rate
conversion agreements.
Senior and subordinated debt at December 31 was as follows:
- ----------------------------------------------------------------------------
1993 1992
- ----------------------------------------------------------------------------
Senior debt:
Commercial paper and short-term bank loans
supported by unused long-term bank revolving
credit agreements, less unamortized discount $515,876 $330,141
Medium-term notes due to 2003, 4.6% to 12.5% 751,500 591,433
Term loans payable to banks due to 1996, 4.2% 150,000 310,000
Senior notes due to 2002, 8.3% to 16.0%, less
unamortized discount 555,666 555,147
Nonrecourse installment notes due to 2002,
10.6% (assets of $25,613 and $25,579,
respectively, pledged as collateral) 18,944 19,712
- ----------------------------------------------------------------------------
Total senior debt 1,991,986 1,806,433
- ----------------------------------------------------------------------------
Subordinated debt:
Senior subordinated loans, due 1994, 14.1% 92,270 92,270
Less unamortized discount (5,480) (16,354)
- ----------------------------------------------------------------------------
Total subordinated debt 86,790 75,916
- ----------------------------------------------------------------------------
TOTAL $2,078,776 $1,882,349
============================================================================
Aggregate commitments under the Company's domestic revolving credit
agreement availability was $700,000,000 at December 31, 1993. Under the
terms of this agreement, the Company has the option to periodically select
either domestic dollars or Eurodollars as the basis of borrowings. Interest
is based on the banks' Prime rate for domestic dollar advances or LIBOR for
Eurodollar advances. The agreements also provide for a commitment fee on
the unused credit. The Company, in the event it becomes advisable, intends
to exercise its right under this agreement to borrow for the purpose of
refinancing commercial paper and short-term bank loans.
The credit agreement for $700,000,000, described in the preceding
paragraph, will be subject to renewal in May 1996. If the credit facility
with any or all of the participating banks is not renewed, the Company may,
at its option, repay the non-renewing banks' outstanding participation, if
any, immediately or in equal quarterly installments over a four year period.
As of December 31, 1993, the Company had outstanding 31 interest rate
conversion agreements with notional principal amounts totaling
$1,320,000,000. Six agreements with notional principal amounts of
$180,000,000 were arranged to effectively convert certain floating interest
rate obligations into fixed interest rate obligations and require interest
payments on the stated principal amount at rates ranging from 8.3% to 9.8%
(remaining terms of three months to five years) in return for receipts
calculated on the same notional amounts at floating interest rates. In
addition, 25 agreements with notional principal amounts of $1,140,000,000
were arranged to effectively convert certain fixed interest rate obligations
into floating interest rate obligations and require interest payments on the
stated principal amount at the three month or six month LIBOR (remaining
terms of five months to nine years) in return for receipts calculated on the
same notional amounts at fixed interest rates of 4.9% to 7.6%. In the third
quarter of 1993, GFC entered into four three-year interest rate hedge
agreements on $750 million of floating-rate borrowings to effectively
guarantee a spread of approximately 2.3% between its borrowing rate (LIBOR)
and the Prime interest rate. The agreements have been entered into with
major financial institutions, which are expected to fully perform under the
terms of the agreements, thereby mitigating the credit risk from the
transactions.
Annual maturities of long-term debt outstanding at December 31, 1993
due through June 2003 (excluding the amount supported by the revolving
credit agreements expected to be renewed) will approximate $179,392,000
(1994), $192,135,000 (1995), $163,030,000 (1996), $198,747,000 (1997),
$204,072,000 (1998) and $625,524,000 (thereafter).
The agreements pertaining to long-term debt of GFC include various
restrictive covenants and require the maintenance of certain defined
financial ratios with which GFC has complied. Under one of these covenants,
dividend payments are limited to 50 percent of accumulated earnings after
December 31, 1991. As of December 31, 1993, GFC had $7,174,000 of excess
accumulated earnings available for distribution.
Total interest paid is not significantly different from interest
expense.
NOTE E REDEEMABLE PREFERRED STOCK
On July 30, 1993, GFC Financial acquired 2,500 shares of GFC's Series A
Redeemable Preferred Stock ("GFC Preferred Stock") from a subsidiary of
Dial. The GFC Preferred Stock was issued in connection with the
Distribution for a purchase price of $25 million in cash. The GFC
Preferred Stock, par value of $10,000 per share, entitles the holder
thereof to receive cash dividends at the annual rate of 9%, payable
quarterly, but only, when, as and if declared by the Board of Directors of
GFC, and such dividends shall be cumulative (provided that such rate shall
increase to 15% per annum in the event that GFC fails to redeem such shares
on July 1, 1997). The GFC Preferred Stock has a liquidation preference of
$10,000 per share, and ranks prior to the common stock, par value $1 per
share, of GFC (the "GFC Common Stock"), both as to payment of dividends and
as to distribution of assets upon liquidation, dissolution or winding up of
GFC.
The GFC Preferred Stock is redeemable, in whole or in part, at the
option of GFC, at $10,000 in cash per share plus accrued and unpaid
dividends, and must be redeemed, on July 1, 1997, for $10,000 per share. In
addition, the GFC Preferred Stock must be redeemed if, prior to July 1,
1997, GFC receives at least $25 million of proceeds from the issuance of
additional preferred or common stock or other contributions to its capital.
With the consent of the holders of at least two thirds of the GFC Preferred
Stock, GFC may defer the mandatory redemption beyond July 1, 1997, for a
specified period of time.
Each share of GFC Preferred Stock has one vote and votes together with
the GFC Common Stock on all matters submitted to a vote of the shareholders
of GFC. There are 25,000 shares of GFC Common Stock issued and outstanding,
all of which are owned by GFC Financial. Thus, the GFC Preferred Stock
represents approximately 9% of the voting securities of GFC.
NOTE F INCOME TAXES
Prior to the Distribution, Dial credited or charged the Company an
amount equal to the tax reductions realized or tax payments made by Dial as
a result of including the Company's tax results and credits in Dial's
consolidated federal and other applicable income tax returns. In all other
respects, the Company's tax provisions have been computed on a separate
return basis.
The consolidated provision (benefit) for income taxes consist of the
following for the years ended December 31:
- ----------------------------------------------------------------------------
1993 1992 1991
- ----------------------------------------------------------------------------
Current:
United States:
Federal $4,976 $16,265 $20,087
State 1,254 2,069 1,364
Foreign (156) 346 (1,963)
- ----------------------------------------------------------------------------
6,074 18,680 19,488
- ----------------------------------------------------------------------------
Deferred:
United States 21,608 (2,377) (17,760)
Foreign (2,460)
- ----------------------------------------------------------------------------
21,608 (4,837) (17,760)
- ----------------------------------------------------------------------------
Provision for income taxes $27,682 $13,843 $1,728
============================================================================
Deferred income taxes relate to the following principal temporary
differences:
- ----------------------------------------------------------------------------
1993 1992 1991
- ----------------------------------------------------------------------------
Lease and other contract income and
related depreciation $13,791 $3,882 $6,244
Gains on sale of assets (1,377) 1,726 (16,732)
Provision for possible credit losses (277) 1,551 (8,175)
Recognition of deferred intercompany gain (7,531)
Adjustment to deferred taxes related to
the increase in the U.S. federal
statutory income tax rate 4,857
Operating expense deferrals 2,365
Recognition of tax benefit on refinancing
charges accrued in 1991 (3,153)
Minimum tax credit carryforward 1,456
Other 793 1,148 903
- ----------------------------------------------------------------------------
Provision (benefit) for deferred income
taxes $21,608 $(2,377) $(17,760)
============================================================================
The benefit for foreign deferred income taxes for the year ended
December 31, 1992 relates to operating losses of GEFG. Income taxes paid in
1993, 1992 and 1991 amounted to $10,511,000, $19,096,000 and $16,769,000,
respectively.
The federal statutory income tax rate is reconciled to the effective
income tax rate as follows:
- ----------------------------------------------------------------------------
1993 1992 1991
- ----------------------------------------------------------------------------
Federal statutory income tax rate 35.0% 34.0% (34.0%)
State income tax 3.4% 2.7% 2.3%
Foreign tax effects (2.1%) (2.4%) 11.7%
Tax provision on intercompany gains resulting
from the Distribution 21.6%
Recognition of tax benefits on refinancing
charges accrued in 1991 (6.2%)
Permanent differences on transaction costs 12.0%
Other (0.7%) (0.7%) (8.9%)
- ----------------------------------------------------------------------------
Current provision for income tax 35.6% 27.4% 4.7%
Adjustment to deferred taxes 7.6%
- ----------------------------------------------------------------------------
Provision for income taxes 43.2% 27.4% 4.7%
============================================================================
NOTE G PENSION AND OTHER BENEFITS
Pension Benefits
Net periodic pension (income) cost for the years ended December 31,
included the following components:
- ----------------------------------------------------------------------------
United States Foreign
- ----------------------------------------------------------------------------
1993 1992 1993 1992
- ----------------------------------------------------------------------------
Service cost benefits earned during
period $603 $493 $215 $341
Interest cost on projected benefit
obligation 638 499 293 345
Actual return on plan assets (1,504) (1,071) (736) (382)
Net amortization and deferral 625 303 459 79
- ----------------------------------------------------------------------------
Periodic pension cost 362 224 231 383
Curtailment gain (777)
- ----------------------------------------------------------------------------
Net periodic pension (income) cost $(415) $224 $231 $383
============================================================================
Assumptions regarding the determination of net periodic pension
(income) costs were:
- ----------------------------------------------------------------------------
United States Foreign
- ----------------------------------------------------------------------------
1993 1992 1993 1992
- ----------------------------------------------------------------------------
Discount rate for obligation 8.5% 9.0% 9.0% 9.0%
Rate of increase in compensation levels 5.5% 6.0% 8.0% 8.0%
Long-term rate of return on assets 9.5% 9.5% 9.0% 9.0%
- ----------------------------------------------------------------------------
GFC participated in a Dial pension plan and was allocated pension
credits of $21,000 for 1991.
The following table indicates the plans' funded status and amounts
recognized in the Company's consolidated balance sheet at December 31, 1993
and 1992:
- ----------------------------------------------------------------------------
United States Foreign
- ----------------------------------------------------------------------------
1993 1992 1993 1992
- ----------------------------------------------------------------------------
Actuarial present value of benefit
obligations:
Vested benefit obligations $12,000 $3,195 $3,440 $3,088
============================================================================
Accumulated benefit obligations $12,600 $3,835 $3,440 $3,088
============================================================================
Projected benefit obligation $14,400 $6,724 $3,755 $3,548
Market value of plan assets,
primarily equity and fixed income
securities 17,606 9,625 3,781 3,319
- ----------------------------------------------------------------------------
Plan asset over (under) projected
benefit obligation 3,206 2,901 26 (229)
Unrecognized transition asset (451) (285) (109) (123)
Unrecognized prior service cost
reduction 404 450 72 96
Unrecognized net loss 1,804 539 101 254
- ----------------------------------------------------------------------------
Prepaid (accrued) pension costs $4,963 $3,605 $90 $(2)
============================================================================
Assumptions regarding the funded status of pension plans are:
- ----------------------------------------------------------------------------
United States Foreign
- ----------------------------------------------------------------------------
1993 1992 1993 1992
- ----------------------------------------------------------------------------
Discount rate for obligation 7.75% 8.50% 8.00% 9.00%
Rate of increase in compensation levels 4.25% 5.50% 6.00% 8.00%
Long-term rate of return on assets 9.50% 9.50% 9.00% 9.00%
- ----------------------------------------------------------------------------
There are restrictions on the use of excess pension plan assets in the
event of a defined change in control of the Company.
Postretirement Benefits Other Than Pensions
Effective January 1, 1993, the Company adopted the provisions of SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("OPEB"), which requires the accrual of retiree benefits during
the years the employees provide services. OPEB requires the recognition of
a transition obligation that represents the aggregate amount that would have
accrued in the years prior to adoption of OPEB had the standard been in
effect for those years. The Company elected to accrue the transition
obligation over 20 years. The adoption of SFAS No. 106 has no cash impact
because the plans are not funded and the pattern of benefit payments did not
change.
Net periodic postretirement benefit cost for the year ended December
31, 1993 included the following components:
- ----------------------------------------------------------------------------
Service cost benefits earned during period $ 55
Interest cost on accumulated postretirement benefit obligation 143
Net amortization and deferral 85
- ----------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 283
============================================================================
Assumptions regarding the determination of net periodic postretirement
benefit costs were:
- ----------------------------------------------------------------------------
Discount rate for obligation 8.5%
Rate of increase in compensation levels 5.5%
Rate of increase in health care costs (1) 14.0%
============================================================================
(1) Rate of increase in health care costs was 14.0% in 1993, graded to 7.0%
in 2000 and thereafter.
OPEB benefit costs for 1993 are $223,000 higher than postretirement
benefits paid and expensed in 1992 due to the adoption of SFAS No. 106.
Amounts paid for postretirement benefits in 1992 and 1991 were approximately
$60,000 and $38,000, respectively.
The following table indicates the amounts recognized in the Company's
consolidated balance sheet at December 31, 1993:
- ---------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $ 1,680
Actives eligible for full benefits 230
Other actives 370
- ---------------------------------------------------------------------------
Total accumulated postretirement benefit obligation 2,280
Unrecognized transition obligation 1,607
Unrecognized net loss 437
- ---------------------------------------------------------------------------
Accrued postretirement benefit cost $ 236
===========================================================================
Assumptions regrading the accrued postretirement benefit at December
31, 1993 were:
- ----------------------------------------------------------------------------
Discount rate for obligation 7.75%
Rate of increase in compensation levels 4.25%
Rate of increase in health care costs (1) 13.25%
- ----------------------------------------------------------------------------
(1) Rate of increase in health care costs was 13.25% in 1993, graded to
6.25% in 2000 and thereafter.
A one percentage point increase in the assumed health care cost trend
rate for each year would increase the accumulated postretirement benefit
obligation as of December 31, 1993 by approximately 7% and the ongoing
annual expense by approximately 5%.
NOTE H TRANSACTIONS WITH DIAL
Pursuant to the Distribution, the Company and Dial entered into several
agreements, including the Distribution Agreement, Tax Sharing Agreement,
Sublease Agreement, Interim Services Agreement and Trademark Assignment and
Agreement. These agreements do not result in significant additional
expenses.
The Company leases its corporate office facilities from Dial under an
agreement which expires March 31, 2001. Annual rentals under the lease are
approximately $1,616,000 to 1996 and $1,806,000 thereafter.
NOTE I LITIGATION AND CLAIMS
The Company and certain of its subsidiaries are parties either as
plaintiffs or defendants to various actions, proceedings and pending claims,
including legal actions, certain of which involve claims for compensatory,
punitive or other damages in material amounts. Litigation is subject to
many uncertainties and it is possible that some of the legal actions,
proceedings or claims referred to above could be decided against the
Company. Although the ultimate amount for which the Company or its
subsidiaries may be held liable is not ascertainable, the Company believes
that any resulting liability should not materially affect the Company's
financial position or results of operations.
NOTE J SFAS NO. 107 - "DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS"
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments". The estimated fair
value amounts have been determined by the Company using available market
information and valuation methodologies described below. However,
considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein may
not be indicative of the amounts that the Company could realize in a current
market exchange. The use of different market assumptions or valuation
methodologies may have a material effect on the estimated fair value
amounts.
The carrying amounts and estimated fair values of the Company's
financial instruments are as follows for the years ended December 31:
- ---------------------------------------------------------------------------
1993 1992
- ---------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- ---------------------------------------------------------------------------
Balance Sheet - Financial
Instruments:
Assets:
Loans and other
financing contracts $ 2,192,192 $ 2,172,154 $ 1,854,761 $ 1,812,864
Liabilities:
Senior debt 1,991,986 2,149,387 1,806,433 1,847,875
Subordinated debt 86,790 88,390 75,916 83,915
Off-Balance Sheet -
Financial Instruments:
Interest rate
conversion agreements --- 36,361 ---- 4,536
- ----------------------------------------------------------------------------
The carrying values of cash and cash equivalents, accounts payable and
accrued expenses, customer deposits, interest payable and short-term debt
approximate fair values due to the short-term maturities of these
instruments.
The methods and assumptions used to estimate the fair values of other
financial instruments are summarized as follows:
Loans and other financing contracts:
The fair value of loans and other financing contracts was
estimated by discounting expected cash flows using the current rates at
which loans of similar credit quality, size and remaining maturity
would be made as of December 31, 1993 and 1992. Management believes
that the risk factor embedded in the entry-value interest rates
applicable to performing loans for which there are no known credit
concerns results in a fair valuation of such loans on an entry value
basis. As of December 31, 1993 and 1992, the fair value of nonaccruing
contracts with a carrying amount of $25,583,000 and $46,431,000,
respectively, was not estimated because it is not practicable to
reasonably assess the credit adjustment that would be applied in the
market place for such loans. As of December 31, 1993 and 1992, the
carrying amount of loans and other financing contracts excludes
repossessed assets with a total carrying amount of $125,980,000 and
$75,500,000, respectively.
Senior and subordinated debt:
The fair value of senior and subordinated debt was estimated
by discounting future cash flows using rates currently available for
debt of similar terms and remaining maturities. The carrying values of
commercial paper and borrowings under revolving credit facilities were
assumed to approximate fair values due to their short maturities.
Interest rate conversion agreements:
The fair values of interest conversion agreements is based on
quoted market prices obtained from participating banks and dealers.
The fair value estimates presented herein were based on
information available as of December 31, 1993 and 1992. Although
management is not aware of any factors that would significantly affect
the estimated fair values, such values have not been updated since
December 31, 1993 and 1992; therefore, current estimates of fair value
may differ significantly from the amounts presented herein.
NOTE K SELLING, ADMINISTRATIVE AND OTHER OPERATING EXPENSES:
The following represents a summary of the major components of selling,
administrative and other operating expenses for the three years ended
December 31:
- --------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------
Salaries and employee benefits $ 29,502 $ 27,247 $ 24,362
Problem account costs 11,822 7,642 5,790
Occupancy expense 4,160 4,494 3,444
Depreciation and amortization 2,803 1,970 1,502
Other 9,871 9,375 11,825
- --------------------------------------------------------------------------
$ 58,158 $ 50,728 $ 46,923
==========================================================================
NOTE L GEOGRAPHIC INFORMATION
The Company operates primarily in the United States and Europe.
Geographic information for the three years ended December 31, 1993 is shown
below:
- ----------------------------------------------------------------------------
Domestic Europe Consolidated
- ----------------------------------------------------------------------------
Assets at year end:
1993 $ 2,699,030 $ 135,867 $ 2,834,897
1992 2,272,036 208,290 2,480,326
1991 1,960,520 351,332 2,311,852
- ----------------------------------------------------------------------------
Interest earned from financing
transactions:
1993 225,688 23,012 248,700
1992 202,472 38,334 240,806
1991 197,080 54,392 251,472
- ----------------------------------------------------------------------------
Interest margins earned:
1993 106,651 15,897 122,548
1992 83,390 21,309 104,699
1991 73,647 20,265 93,912
- ----------------------------------------------------------------------------
Income (loss) before income taxes:
1993 62,822 1,301 64,123
1992 54,937 (4,344) 50,593
1991 (19,076) (17,938) (37,014)
- ----------------------------------------------------------------------------
NOTE M CONDENSED QUARTERLY RESULTS (UNAUDITED)
- ----------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------
Interest earned from
financing
transactions:
1993 $ 58,262 $ 62,356 $ 63,450 $ 64,632
1992 57,842 60,219 63,100 59,645
- ----------------------------------------------------------------------------
Interest expense:
1993 30,568 31,423 30,788 33,373
1992 35,263 33,896 34,580 32,368
- ----------------------------------------------------------------------------
Gains on sale of
assets:
1993 2,061 179 --- 3,199
1992 --- 1,617 196 1,549
- ----------------------------------------------------------------------------
Non-interest expenses
(includes provision
for possible credit
losses):
1993 16,339 15,022 14,389 18,114
1992 11,860 14,934 12,760 17,914
- ----------------------------------------------------------------------------
Net income:
1993 8,545 10,323 6,750 (1) 10,823
1992 7,185 8,969 10,087 10,509
- ----------------------------------------------------------------------------
(1) Income from continuing operations and net income for the third quarter
of 1993 include an adjustment of $4,857,000 representing the effect of
recent federal and state income tax increases applicable to deferred
income taxes generated by the Company's leveraged lease portfolio.
NOTE N SUBSEQUENT EVENT (Unaudited) - PURCHASE OF AMBASSADOR FACTORS
AND TRICON CAPITAL CORPORATION
On February 14, 1994, GFC acquired Fleet Financial Group, Inc.'s
("Fleet") factoring and asset based lending subsidiary, Fleet Factors
Corporation, which operates under the trade name Ambassador Factors
("Ambassador"). The cash purchase price of the acquisition was $248,285,000
and represented Ambassador's stockholder's equity, including a premium
($76,285,000), and repayment of the intercompany balance due from Ambassador
to Fleet ($172,000,000). In addition, GFC assumed $111,526,000 due to
to factored clients, $4,843,000 of accrued liabilities and $8,800,000 of
additional liabilities and transaction costs. The acquisition will be
accounted for as a purchase and will create approximately $30,400,000
of goodwill, which will be amortized on a straight line basis over 20 years.
The acquisition was financed with proceeds received from the sale of
GFC Financial's discontinued mortgage insurance subsidiary and cash
generated from operations. GFC Financial, simultaneously with the
acquisition, increased its investment in GFC by contributing $40,000,000 of
intercompany loans as additional paid in capital of GFC.
On March 4, 1994, GFC signed a definitive purchase agreement under
which it will acquire all of the stock of TriCon Capital Corporation
("TriCon") from Bell Atlantic Corporation ("Bell Atlantic"), in an all-cash
transaction. This transaction is subject to regulatory approvals and
certain other conditions. Accordingly, there can be no assurance that the
acquisition will be consummated. The cash purchase price of the acquisition
is $344,250,000. In addition, GFC will assume outstanding indebtedness and
liabilities of TriCon totaling $1,453,201,000 and additional accrued
liabilities and acquisition costs of $7,500,000. The acquisition is
expected to be accounted for as a purchase and will create approximately
$69,817,000 of goodwill, which will be amortized on a straight line basis
over 20 years.
The cash purchase price is expected to be financed initially with the
proceeds of interim debt and internally generated funds. A portion of the
interim debt is expected to be replaced with additional equity to be raised
in the near future by GFC Financial in public or private offerings which,
together with the remaining intercompany loans from GFC Financial to GFC and
other assets, will be contributed as additional paid in capital of GFC. It
is not expected that such equity securities of GFC Financial will be
issued prior to the consummation of the acquisition of TriCon by GFC.
There can be no assurance that such an offering or the raising of the
interim debt will occur.
The Company's obligation to consummate the acquisition of TriCon is
conditioned upon the receipt of waivers or consents from lenders under
certain of the Company's credit and loan agreements with respect to certain
financial covenants contained therein. The Company is in the process of
obtaining such consents and waivers, believes they will be obtained and will
not complete the acquisition until they are obtained. Upon receipt, such
waivers and consents will be conditioned upon the receipt by the Company,
not later than 120 days following the consummation of the acquisition of
TriCon, of the equity investment from GFC Financial referred to above.
The failure of GFC Financial to complete the equity offering or
offerings and invest the required proceeds in the Company by such date would
constitute a default under such credit and loan agreements, unless the
Company could obtain additional waivers, consents or amendments to such
credit and loan agreements. The Company's inability to obtain additional
waivers, consents or amendments to such credit and loan agreements would
allow GFC's lenders to declare an event of default and could result in
the acceleration of the indebtedness due thereunder. Such default and/or
acceleration would constitute a default under other borrowing arrangements
and could result in the acceleration of substantially all of the Company's
outstanding indebtedness, which would have a material adverse effect on the
Company's business, financial condition and results of operations. There
can be no assurance that GFC Financial will complete such equity offering or
offerings and make the required investment in the Company by the required
date or at any other date.
The following Pro Forma Consolidated Balance Sheet (unaudited) of GFC
as of December 31, 1993 and Pro Forma Statement of Consolidated Income From
Continuing Operations (unaudited) for the year ended December 31, 1993 have
been prepared to reflect the historical financial position and income from
continuing operations as adjusted to reflect the acquisition of Ambassador
and the pending acquisition of TriCon by GFC. The Pro Forma Consolidated
Balance Sheet has been prepared as if such acquisitions occurred on December
31, 1993 and the Pro Forma Statement of Consolidated Income From Continuing
Operations has been prepared as if such acquisitions occurred on January 1,
1993. The pro forma consolidated financial information is unaudited and is
not necessarily indicative of the results that would have occurred if the
acquisitions had been consummated as of December 31, 1993 or January 1,
1993.
Total assets on a pro forma basis increased to $5,010,959,000 at
December 31, 1993. Pro forma income from continuing operations would
have been $66,693,000 after a $4,857,000 adjustment for deferred taxes
applicable to leveraged leases. Excluding the $4,857,000 charge, pro forma
income from continuing operations would be approximately $72 million.
<TABLE>
GREYHOUND FINANCIAL CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
(Dollars in Thousands)
ASSETS
<CAPTION>
-------------------------------------------------------------------------------------------------------
Historical Pro Forma Adjustments
-------------------------------- ---------------------
Ambas- Ambas-
GFC sador(1) TriCon sador TriCon Pro Forma
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 2,859 $ 7,072 $ 4,483 $ $ 135 (10) $ 14,549
Investment in financing
transactions:
Loans and other
financing contracts 2,343,755 334,656 912,964 3,591,375
Direct finance leases 71,812 647,055 718,867
Operating leases 147,222 240,057 (53,460) (11) 333,819
Leveraged lease 283,782 283,782
-------------------------------------------------------------------------------------------------------
2,846,571 334,656 1,800,076 (53,460) 4,927,843
Less reserve for possible
credit losses (64,280) (9,207) (43,191) (116,678)
-------------------------------------------------------------------------------------------------------
2,782,291 325,449 1,756,885 (53,460) 4,811,165
Other assets and deferred
charges 49,747 5,941 27,091 30,400 (2) 69,817 (14) 185,245
2,249 (14)
-------------------------------------------------------------------------------------------------------
$2,834,897 $338,462 $1,788,459 $30,400 $18,741 $5,010,959
=========================================================================================================
(continued)
</TABLE>
<PAGE>
<TABLE>
GREYHOUND FINANCIAL CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
(Dollars in Thousands)
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
-------------------------------------------------------------------------------------------------------------
Historical Pro Forma Adjustments
------------------------------- ------------------------
Ambas- Ambas-
GFC sador(1) TriCon sador TriCon Pro Forma
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accounts payable and
accruals $ 56,855 $ 4,843 $ 75,302 $ 8,800 (2) $ 5,000 (14) $ 150,800
Due to factored clients 111,526 111,526
Due to GFC Financial 130,760 (40,000) (4) (90,760) (14)
Due to Fleet 172,000 (172,000) (3)
Due to Bell Atlantic 611,194 83,900 (12)
(695,094) (13)
Debt 2,079,286 709,508 76,285 (2) (53,460) (11) 3,858,970
172,000 (3) 721,851 (13)
153,500 (14)
Deferred income taxes 197,705 (4,592) 81,100 (83,900) (12) 193,113
2,800 (14)
-------------------------------------------------------------------------------------------------------------
2,464,606 283,777 1,477,104 45,085 43,837 4,314,409
Redeemable preferred
stock 25,000 (25,000) (14)
Stockholder's equity 345,291 54,685 311,355 (54,685) (2) 135 (10) 696,550
40,000 (4) (26,757) (13)
193,250 (14)
(284,733) (14)
93,009 (14)
25,000 (14)
-------------------------------------------------------------------------------------------------------------
$2,834,897 $338,462 $1,788,459 $30,400 $18,741 $5,010,959
==============================================================================================================
(concluded)
</TABLE>
<PAGE>
<TABLE> GREYHOUND FINANCIAL CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF INCOME FROM CONTINUING OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(Dollars in Thousands)
-----------------------------------------------------------------------------------------------------
Historical Pro Forma Adjustments
---------------------------- -----------------------
Ambas- Ambas-
GFC sador(1) TriCon sador TriCon Pro Forma
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earned from
financing transactions $248,700 $35,235 $245,300 $ $(7,667) (11) $523,068
1,500 (15)
Interest expense 126,152 5,780 80,211 3,026 (5) 4,905 (16) 220,074
-----------------------------------------------------------------------------------------------------
Interest margins earned 122,548 29,455 165,089 (3,026) (11,072) 302,994
Provision for possible
credit losses 5,706 7,177 21,634 34,517
-----------------------------------------------------------------------------------------------------
Net interest margins
earned 116,842 22,278 143,455 (3,026) (11,072) 268,477
Gains on sale of assets 5,439 5,439
-----------------------------------------------------------------------------------------------------
122,281 22,278 143,455 (3,026) (11,072) 273,916
Selling and
administrative expenses 58,158 8,125 48,128 2,470 (6) 3,491 (17) 122,131
1,000 (7) 759 (15)
Depreciation 41,582 41,582
-----------------------------------------------------------------------------------------------------
64,123 14,153 53,745 (6,496) (15,322) 110,203
Income taxes:
Current and deferred 22,825 6,481 22,164 (2,598) (8) (6,155) (19) 38,653
(820) (9) (3,244) (18)
Adjustment to deferred
taxes 4,857 4,857
- ------------------------------------------------------------------------------------------------------
Income from continuing
operations $36,441 $7,672 $31,581 $(3,078) $(5,923) $66,693
======================================================================================================
</TABLE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(1) The Pro Forma Consolidated Balance Sheet, as of December 31, 1993 and
the Pro Forma Statement of Consolidated Income From Continuing
Operations for the year ended December 31, 1993 include the historical
balance sheet of Ambassador, incorporated herein by reference from the
Company's Current Report on Form 8-K, dated February 14, 1994, as
amended, as of November 30, 1993 and the historical statement of income
of Ambassador for the eleven months ended November 30, 1993.
ACQUISITION OF AMBASSADOR
(2) To record the purchase of Ambassador, including the accrual of various
liabilities and the resulting goodwill, using the proceeds advanced to
GFC upon the sale of GFCFC's discontinued mortgage insurance subsidiary
and cash generated from operations.
(3) To record repayment of Ambassador's intercompany payable to Fleet using
the proceeds advanced to GFC upon the sale of GFCFC's discontinued
mortgage insurance subsidiary and cash generated from operations.
(4) To record the contribution by GFCFC of $40,000,000 of intercompany
loans from GFCFC to GFC as additional paid in capital of GFC.
(5) Adjustments to reflect interest expense of debt repaid in 1993 with
proceeds received from the sale of GFCFC's discontinued mortgage
insurance operation and cash generated from operations. Such debt is
assumed to be outstanding for the entire pro forma period. The
adjustment is partially offset by interest saved as a result of the
$40,000,000 equity contribution in item (4).
(6) To record amortization of goodwill based on an amortization period of
twenty years and amortization of the covenant not to compete over one
year (see item (20)).
(7) To record additional administrative expenses for additional employees
and general overhead.
(8) To record the income tax effect of items (5), (6) and (7) at GFC's
effective incremental income tax rate of 40%.
(9) To adjust income taxes for the lower state income tax rate
applicable to GFC.
ACQUISITION OF TRICON
(10) To record the original capital contribution by Bell Atlantic as part of
the incorporation of TriCon.
(11) To transfer assets and the related debt of TriCon, not purchased by
GFC, to Bell Atlantic and reduce interest earned from financing
transactions for the income recorded on such assets in 1993.
(12) To record issuance of notes payable to fund the deferred tax payment to
Bell Atlantic for an amount equal to the deferred taxes of TriCon,
exclusive of deferred tax assets.
(13) To record a dividend from TriCon to Bell Atlantic and the issuance of a
note payable to Bell Atlantic for the remaining principal amount of the
short-term borrowings from affiliates of TriCon.
(14) To record the purchase of TriCon. The acquisition of TriCon is
expected to be financed initially with interim debt, the
assumption of outstanding indebtedness of TriCon to Bell Atlantic, the
assumption of TriCon's third party debt and liabilities and internally
generated funds. A portion of the interim debt is assumed to be
replaced with equity raised by GFCFC and, such equity, together with
the outstanding preferred stock of GFC held by GFCFC, the remaining
intercompany loans due to GFCFC from GFC and other assets will be
contributed to GFC as additional paid in capital of GFC. The pro
forma adjustment assumes the equity contributions were made at the
beginning of the pro forma period. The interest expense related to the
debt that is being replaced with equity and, therefore, nonrecurring
and excluded from the pro forma consolidated statement of income from
continuing operations is approximately $2,000,000.
Including new debt, the debt assumed, the accrual of various additional
liabilities and acquisition costs, the total purchase price of the
acquisition is estimated to be $1,804,951,000 resulting in $69,817,000
of goodwill. The purchase will result in a new tax basis for TriCon's
assets, eliminating the remaining deferred tax asset.
(15) To reflect base fees and incremental costs related to an agreement to
manage leveraged leases for Bell Atlantic.
(16) To record additional interest expense resulting from additional debt to
Bell Atlantic and interim debt not replaced with the proceeds from the
GFCFC equity issuance in item (14). The adjustment is partially offset
by the interest saved on the debt transferred to Bell Atlantic and
interest saved as a result of equity contribution of the intercompany
loans in item (14).
(17) To record amortization of goodwill based on an amortization period of
twenty years (see item (20)).
(18) To reduce TriCon's income taxes for the effect of increases in income
tax rates for 1993 (principally the increase in the federal tax rate)
due to the deferred tax payment and new tax basis in assets at the
beginning of the pro forma period.
(19) To record the income tax effect of adjustments (11) and (15) through
(17) at GFC's effective incremental income tax rate of 40%.
(20) Goodwill may be adjusted as the final allocation of the values of the
purchased assets and liabilities is established.
GREYHOUND FINANCIAL CORPORATION
COMMISSION FILE NUMBER 1-7543
EXHIBIT INDEX
DECEMBER 31, 1993 FORM 10-K
Page No. in
Sequentially
Numbered
Form 10-K
No. Title Report
- --------- ------------------------------------------------------ ----------
(3-A) The Company's Certificate of Incorporation, as
amended through the date of this filing
(incorporated by reference from the Company's Annual
Report on Form 10-K for the year ended December 31,
1991 (the "1991 10-K"), Exhibit 3-A.
(3-B) The Company's By-Laws, as amended through the date
of this filing, (incorporated by reference from the
Company's 1991 10-K, Exhibit 3-B.
(4-A) Instruments with respect to issues of long-term debt
have not been filed as exhibits to this Annual
Report on Form 10-K if the authorized principal
amount of any one of such issues does not exceed 10%
of total assets of the Company and its subsidiaries
on a consolidated basis. The Company agrees to
furnish a copy of each such instrument to the
Securities and Exchange Commission upon request.
(4-B-1) Form of Common Stock Certificate of the Company from
the Company's Annual Report on Form 10-K for the
year ended December 31, 1992 (the "1992 10-K",
Exhibit 4-B-1.
(4-B-2) Form of the Company's Series A Redeemable Preferred
Stock Certificate from the 1993 10-K, Exhibit 4-B-2.
(4-C) Certificate of Designations of Series A Redeemable
Preferred Stock of the Company (incorporated by
reference from the 1992 GFC Financial Annual Report
on Form 10-K for the year ended December 31, 1992
(the "GFC Financial 1992 10-K", Exhibit 10-MM).
(4-D) Relevant portions of the Company's Certificate of
Incorporation and Bylaws are included in Exhibits 3-
A and 3-B above, respectively.
(4-E) Indenture dated as of November 1, 1990 between the
ompany and the Trustee named therein (incorporated
by reference from the Company's Registration
Statement on Form S-3, Registration No. 33-37743,
Exhibit 4).
(4-F) Fourth Supplemental Indenture dated as of April 17,
1992 between the Company and the Trustee named
therein, supplementing the Indenture referenced in
Exhibit 4-E above, is hereby incorporated by
reference from the GFC Financial 1992 10-K, Exhibit
4-F.
(4-G) Prospectus and Prospectus Supplement dated April 17,
1992, relating to $350,000,000 principal amount of
the Company's Medium-Term Notes, Series A, is hereby
incorporated by reference from the GFC Financial
1992 10-K, Exhibit 4-G.
(4-H) Form of Floating-rate, Medium-Term Notes, Series A,
is hereby incorporated by reference from the 1992
GFC Financial 10-K, Exhibit 4-H.
(4-I) Form of Fixed-rate, Medium-Term Notes, Series A, is
hereby incorporated by reference from the GFC
Financial 1992 10-K, Exhibit 4-I.
(4-J) Form of Indenture dated as of September 1, 1992
between the Company and the Trustee named therein
(incorporated by reference from the Company's
Registration Statement on Form S-3, Registration No.
33-51216, Exhibit 4).
(4-K) Prospectus and Prospectus Supplement dated September
25, 1992 regarding $250,000,000 principal amount of
the Company's Medium-Term Notes, Series B, is hereby
incorporated by reference from the GFC Financial
1992 10-K, Exhibit 4-K.
(4-L) Form of Floating-rate Medium-Term Notes, Series B,
is hereby incorporated by reference from the GFC
Financial 1992 10-K, Exhibit 4-L.
(4-M) Form of Fixed-rate Medium-term Notes, Series B, is
hereby incorporated by reference from the GFC
Financial 1992 10-K, Exhibit 4-M.
(4-N) Indenture dated as of June 1, 1985 between the
Company and the trustee named therein is hereby
incorporated by reference from the 1992 10-K,
Exhibit 4-N.
(4-O) Prospectus and Prospectus Supplement dated February
16, 1994 regarding $250,000,000 principal amount of
the Company's Medium-Term Notes, Series B is hereby
incorporated by reference from the Company's
Registration Statement on Form S-3, Registration No.
33-51216, as amended on that date.
(4-P) Prospectus, dated February 16, 1994, and Prospectus
Supplement dated February 17, 1994 regarding
$100,000,000 principal amount of the Company's
Floating-Rate Notes, is hereby incorporated by
reference from the Company's Registration Statement
on Form S-3, Registration No. 33-51216, as amended
on that date.
(9) Form of Distribution Agreement among the Company,
GFC Financial Corporation, The Dial Corp and certain
other parties named therein, dated as of January 28,
1992 (incorporated by reference from GFC Financial's
Registration Statement on Form S-1, Registration No.
33-45452, Annex II to the Prospectus and Exhibit
2.1) (containing section 2.08(b), regarding the
voting of the Greyhound Financial Corporation
preferred stock).
(10-A) Fifth Amendment and Restatement dated as of May 18,
1993 of the Credit Agreement dated as of May 31,
1976 among the Company and the banking institutions
listed on the signature pages thereto, and Bank of
America National Trust and Savings Association,
Chemical Bank and Citibank, N.A., as agents
(incorporated by reference from the Corporation's
Current Report on Form 8-K dated February 14, 1994,
Exhibit 7(c)).
(10.A1) Amendment dated as of January 31, 1994, to the Fifth
Amendment and Restatement, noted in 10-A above
incorporated by reference from the GFC Financial
1992 10-K, Exhibit 10-A1.*
(10-C) Sublease dated as of April 1, 1991 among the
Company, GFC Financial, Dial and others, relating to
the Company's principal office space is hereby
incorporated by reference from the GFC Financial
1992 Form 10-K, Exhibit 10-NN.
(10-D) Interim Service Agreement dated January 28, 1992
among the Company, GFC Financial, Dial and others is
hereby incorporated by reference from the GFC
Financial 1992 Form 10-K, Exhibit 10-JJ.
(10-E) Tax Sharing Agreement dated February 19, 1992 among
the Company, GFC Financial, Dial and others is
hereby incorporated by reference from the GFC
Financial 1992 Form 10-K, Exhibit 10-KK.
(10.F) Stock Purchase Agreement between the Company and
Bell Atlantic TriCon Leasing Corporation dated as of
March 4, 1994.*
(10.G) Form of Assets Purchase Agreement between Bell
Atlantic TriCon Leasing Corporation and TriCon
Capital Corporation.*
(12) Computation of Ratio of Income to Combined Fixed
Charges and Preferred Stock Dividends.*
(23) Consent of Independent Accountants - Deloitte & Touche.*
(23.A) Consent of Independent Accountants - Coopers & Lybrand.*
(23.B) Consent of Independent Accountants - Coopers & Lybrand.*
(23.C) Consent of Independent Accountants - KPMG Peat Marwick.*
EXHIBIT 10.A1
GREYHOUND FINANCIAL CORPORATION
FIRST AMENDMENT DATED AS OF JANUARY 31, 1994
TO FIFTH AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT
This FIRST AMENDMENT TO FIFTH AMENDMENT AND RESTATEMENT OF CREDIT
AGREEMENT (this "Amendment") is dated as of January 31, 1994 and entered
into by and among GREYHOUND FINANCIAL CORPORATION, a Delaware corporation
(the "Company"), the undersigned Co-Agents, BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, a national banking association, CHEMICAL BANK, a
New York banking corporation, and CITIBANK, N. A., a national banking
association, individually and as agents (the "Agents") for the Lenders
hereunder, and Citibank, N. A., a national banking association, as
administrative agent (the "Administrative Agent") for the Lenders hereunder,
and is made with reference to that certain Fifth Amendment and Restatement
dated as of May 18, 1993 of Credit Agreement dated as of May 31, 1976, by
and among the Company, the Lenders, the Co-Agents, the Agents and the
Administrative Agent (the "Credit Agreement"). Capitalized terms used
herein without definition shall have the same meanings herein as set forth
in the Credit Agreement.
RECITALS
WHEREAS, the Company has requested that subsection 4.02(a) of the
Credit Agreement be amended in connection with the Company's proposed
acquisition of Fleet Factors Corp. (dba Ambassador Factors);
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, the parties hereto
agree as follows:
Section 1. AMENDMENTS TO THE CREDIT AGREEMENT
A. New Definitions. Section 1.01 of the Credit Agreement is
hereby amended by inserting therein, in appropriate alphabetical order, the
following additionaldefined terms:
"'Ambassador' shall mean Fleet Factors Corp., a Rhode
Island corporation, doing business as Ambassador
Factors."
"'Ambassador Acquisition Date' shall mean the date upon
which the Company consummates its acquisition of all of
the outstanding capital stock Ambassador."
B. Amendment to Subsection 4.02(a). Subsection 4.02(a) of the
Credit Agreement is hereby amended and restated in its entirety as follows:
"(a) Permit the ratio of (1) total assets of the
Company and its consolidated subsidiaries, minus
deferred income taxes, minus minority interests, minus
preferred stock equity, minus Stockholders' Equity,
minus, on and after the Ambassador Acquisition Date, the
lesser of (a) the amount shown as "due to clients" (or
any substantially identical account, however
denominated) on the books of the Company and its
consolidated subsidiaries or (b) the amount shown as
"due from customers" (or any substantially identical
account, however denominated) on the books of the
Company and its consolidated subsidiaries, plus
Guaranties (not reflected on the Company's most recent
consolidated balance sheet) by the Company or any of its
consolidated subsidiaries to (2) Stockholders' Equity
plus preferred stock equity minus intangible assets
shown on the books of the Company and its consolidated
subsidiaries (but only to the extent the amount of such
intangible assets exceed $30,000,000), in each case in
accordance with GAAP, to be greater than 6.50 to 1.00 at
any time on or after the Effective Date through March
31, 1994 or 7.00 to 1.00 at any time after March 31,
1994."
C. Amendment to Exhibit B. Exhibit B to the Credit Agreement is
hereby amended by deleting the first page thereof in its entirety and
substituting therefor page B-1 annexed hereto and Annex I.
Section 2. COMPANY'S REPRESENTATIONS AND WARRANTIES
To induce the Lenders to enter into this Amendment and to amend
the Credit Agreement in the manner provided herein, the Company represents
and warrants to each Lender that the following statements are true, correct
and complete:
A. Corporate Power and Authority. The Company has all requisite
corporate power and authority to enter into this Amendment and to carry out
the transactions contemplated by, and perform its obligations under, the
Credit Agreement, as amended by this Amendment (the "Amended Agreement").
B. Authorization of Agreements. The execution and delivery of
this Amendment and the consummation of the Amended Agreement have been duly
authorized by all necessary corporate action on the part of the Company.
C. No Conflict. The execution and delivery by the Company of
this Amendment and the consummation by the Company of the Amended Agreement
do not and will not (i) violate any provision of any law or any governmental
rule or regulation applicable to the Company or its Subsidiaries, the
certificate of incorporation or bylaws of the Company or any order, judgment
or decree of any court or other agency of government binding on the Company
or its Subsidiaries, (ii) conflict with, result in a breach of or constitute
(with due notice or lapse of time or both) a default under any Contractual
Obligation of the Company or its Subsidiaries, (iii) result in or require
the creation or imposition of any Lien upon any of the properties or assets
of the Company or its Subsidiaries, or (iv) require any approval of
stockholders or any approval or consent of any Person under any contractual
obligation of the Company or its Subsidiaries (other than the parties
hereto).
D. Governmental Consents. The execution and delivery by the
Company of this Amendment and the consummation by the Company of the Amended
Agreement do not and will not require any registration with, consent or
approval of, or notice to, or other action to, with or by, andy federal,
state or other governmental authority or regulatory body.
E. Binding Obligation. This Amendment has been duly executed and
delivered by the Company and this Amendment and the Amended Agreement are
the legally valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, except as may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or limiting creditors' rights generally or by principles of
equity and commercial reasonableness.
F. Incorporation of Representations and Warranties From Credit
Agreement. The representations and warranties contained in Section 3.01 of
the Credit Agreement are true, correct and complete in all material respects
to the same extent as though made on and as of the date hereof, except as
provided above or to the extent such representations and warranties
specifically relate to an earlier date, in which case they were true,
correct and complete in all material respects on and as of such earlier
date.
G. Absence of Default. No event has occurred and is continuing
or will result form the consummation of the transactions contemplated by
this Amendment that would, upon the giving of notice, the passage of time,
or otherwise, constitute an Event of Default.
Section 3. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement and the Other
Loan Documents.
(i) On and after the date this Amendment becomes effective
in accordance with its terms, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import referring to the Credit Agreement, and each
reference in the Notes to the "Credit Agreement", "hereunder",
"thereof" or words of like import referring to the Credit
Agreement shall mean and be a reference to the Amended Agreement.
(ii) Except as specifically amended by this Amendment, the
Credit Agreement and the Notes shall remain in full force and
effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this
Amendment shall not, except as expressly provided herein,
constitute a waiver of any provision of, or operate as a waiver
of, any right, power or remedy of the Agent or any Lender under,
the Credit Agreement of the Notes.
B. Fees and Expenses. The Company acknowledges that all costs,
fees and expenses as described in subsection 8.05 of the Credit Agreement
incurred by the Administrative Agent and its counsel with respect to this
Amendment and the documents and transactions contemplated hereby shall be
for the account of the Company.
C. Headings. Section and subsection headings in this Amendment
are included herein for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose or be given any
substantive effect.
D. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. Counterparts; Effectiveness. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed
an original, but all such counterparts together shall constitute but one and
the same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature
pages are physically attached to the same document. This Amendment shall
become effective as of the date hereof upon the execution and delivery of a
counterpart hereof by the Company and Majority Lenders.
(Remainder of page intentionally left blank)
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered by their respective officers thereunto
duly authorized as of the date first written above.
The Company:
GREYHOUND FINANCIAL
CORPORATION
By_________________________________
Title______________________________
By_________________________________
Title______________________________
The Lenders:
CITIBANK, N. A. (Individually and
as an Agent and Administrative
Agent)
By_______________________________
Title____________________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By_______________________________
Title____________________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION (as an
Agent)
By_______________________________
Title____________________________
CHEMICAL BANK (Individually and
as an Agent)
By_______________________________
Title____________________________
CONTINENTAL BANK N.A.
(Individually and as a Co-Agent)
By_______________________________
Title____________________________
BANK OF MONTREAL
(Individually and as a Co-Agent)
By_______________________________
Title____________________________
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
By_______________________________
Title____________________________
FIRST INTERSTATE BANK
OF ARIZONA
By_______________________________
Title____________________________
NATIONAL WESTMINSTER BANK USA
By_______________________________
Title____________________________
UNION BANK OF SWITZERLAND
LOS ANGELES BRANCH
By_______________________________
Title____________________________
By_______________________________
Title____________________________
WESTDEUTSCHE LANDESBANK
GIROZENTRALE-NEW YORK AND CAYMEN
ISLAND BRANCHES
By_______________________________
Title____________________________
By_______________________________
Title____________________________
CREDIT LYONNAIS
SAN FRANCISCO BRANCH
By_______________________________
Title____________________________
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY
By_______________________________
Title____________________________
BANK ONE, ARIZONA, N. A.
By_______________________________
Title____________________________
DRESDNER BANK AG LOS ANGELES
AGENCY
By_______________________________
Title____________________________
By_______________________________
Title____________________________
THE MITSUBISHI TRUST AND BANKING
CORPORATION, acting through its
LOS ANGELES AGENCY
By_______________________________
Title____________________________
SOCIETE GENERALE
By_______________________________
Title____________________________
CREDIT SUISSE
By_______________________________
Title____________________________
By_______________________________
Title____________________________
THE BANK OF NOVA SCOTIA
By_______________________________
Title____________________________
UNION BANK
By_______________________________
Title____________________________
BANK OF HAWAII
By_______________________________
Title____________________________
BANK OF AMERICA ARIZONA
By_______________________________
Title____________________________
BANK HAPOALIM, B.M.,
LOS ANGELES BRANCH
By_______________________________
Title____________________________
By_______________________________
Title____________________________
BANQUE NATIONALE DE PARIS
By_______________________________
Title____________________________
By_______________________________
Title____________________________
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., LOS ANGELES AGENCY
By_______________________________
Title____________________________
By_______________________________
Title____________________________
INSTITUTO BANCARIO SAN PAOLO DI
TORINO S.P.A.
By_______________________________
Title____________________________
By_______________________________
Title____________________________
CAISSE NATIONALE DE CREDIT
AGRICOLE
By_______________________________
Title____________________________
ANNEX I
EXHIBIT B
SECTION 4.01(a) CERTIFICATE
Schedule of Compliance with the Fifth Amendmentand
Restatement, dated as of May 17, 1993, of the Credit
Agreement, dated May 31, 1976, as theretofore amended
Certificate as of ___________, 19__
The undersigned, _______________________________ of Greyhound Financial
Corporation, pursuant to the provisions of the Fifth Amendment and
Restatement, dated as of May 17, 1993, of the Credit Agreement, dated as of
May 31, 1976, as theretofore amended (the "Credit Agreement"), among the
aforesaid corporation (the "Company"), the Lenders named therein, the Co-
Agents named therein, Bank of America National Trust and Savings
Association, Chemical Bank and Citibank, N.A., as Agents, and Citibank, N.
A., as Administrative Agent, hereby certifies that as of the date first
written above (defined terms in the Credit Agreement being used herein with
the same meanings as in the Credit Agreement), the following computations
were true and correct:
1. Leverage Test, Section 4.02(a)
a.total assets . . . . . . . . . . . . $____________
b.deferred taxes . . . . . . . . . . .$____________
c.minority interests . . . . . . . . .$____________
d.preferred stock equity . . . . . . .$____________
e.Stockholders' Equity:
(i)total assets (Line 1a) . . . $____________
(ii)liabilities . . . . . . . . $____________
(iii)preferred stock (Line 1d). . $____________
(iv)minority interests (Line 1c) $____________
(v)sum of (ii) plus (iii) plus
(iv) . . . . . . . . . . . . $____________
excess, if any, of (i) over (v) . . . . $____________
f.lesser of "due to clients" or
"due from customers" . . . . . . . . . $____________
g.guaranties (to the extent
not reflected on balance sheet or
included above as liabilities) . . . . $____________
h.intangible assets in excess of
$30,000,000 . . . . . . . . . . . . . $____________
i.Line 1a minus Line 1b minus
Line 1c minus Line 1d minus Line 1e
minus Line 1f plus Line 1g . . . . . . . . . . $____________
j.Line 1d plus Line 1e minus Line 1h . . . . . .
$____________
k.leverage ratio: ratio of Line 1i to Line 1j . . ____:1.00
l.maximum leverage ratio permitted for period: . . ____:1.00
(initially 6.50:1.00; after 3-31-94, 7.00:1.00)
EXHIBIT 10.F
STOCK PURCHASE AGREEMENT
BETWEEN
BELL ATLANTIC TRICON LEASING CORPORATION
AND
GREYHOUND FINANCIAL CORPORATION
Dated as of March 4, 1994
CONTENTS
ARTICLE I PURCHASE AND SALE OF STOCK . . . . . . . . . . . . . . . . . . 2
1.1 Transfer of Stock . . . . . . . . . . . . . . . . . 2
1.2 Consideration . . . . . . . . . . . . . . . . . . . 2
ARTICLE II CLOSING2
2.1 The Closing . . . . . . . . . . . . . . . . . . . . 2
2.2 Delivery of and Payment for Company
Common Stock; Guaranty . . . . . . . . . . . . . . 2
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . 3
3.1 Corporate Organization, Etc . . . . . . . . . . . . 3
3.2 Capital Stock . . . . . . . . . . . . . . . . . . . 3
3.3 Ownership of Stock . . . . . . . . . . . . . . . . 3
3.4 Subsidiaries . . . . . . . . . . . . . . . . . . . 4
3.5 Authorization, Etc . . . . . . . . . . . . . . . . 4
3.6 No Conflict . . . . . . . . . . . . . . . . . . . . 5
3.7 SEC Filings . . . . . . . . . . . . . . . . . . . . 5
3.8 Compliance with Law; Governmental
Authorizations . . . . . . . . . . . . . . . . . . 6
3.9 No Violation . . . . . . . . . . . . . . . . . . . 6
3.10 Consents and Approvals . . . . . . . . . . . . . . 6
3.11 Title to Properties . . . . . . . . . . . . . . 6
3.12 No Material Adverse Change . . . . . . . . . . . . 7
3.13 Certain Agreements . . . . . . . . . . . . . . . . 7
3.14 Brokers and Finders . . . . . . . . . . . . . . . . 7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . 8
4.1 Corporate Organization . . . . . . . . . . . . . . 8
4.2 Authorization, Etc . . . . . . . . . . . . . . . . 8
4.3 No Conflict . . . . . . . . . . . . . . . . . . . . 8
4.4 Acquisition for Investment . . . . . . . . . . . . 9
4.5 Brokers and Finders . . . . . . . . . . . . . . . . 9
4.6 Financial Statements and Reports . . . . . . . . . 9
4.7 Absence of Adverse Changes . . . . . . . . . . . . 10
4.8 Availability of Financing . . . . . . . . . . . . . 10
ARTICLE V COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . 10
5.1 Conduct of Business . . . . . . . . . . . . . . . . 10
5.2 Access to Books, Records and
Properties . . . . . . . . . . . . . . . . . . . . 11
5.3 Filings and Consents . . . . . . . . . . . . . . . 12
5.4 Tax Matters . . . . . . . . . . . . . . . . . . . . 13
5.5 Employee Benefits and Employment . . . . . . . . . 15
5.6 Completion of the Restructuring; Asset
Purchase Agreement . . . . . . . . . . . . . . . . 15
5.7 Notification of Certain Events . . . . . . . . . . 16
5.8 Covenant to Satisfy Conditions . . . . . . . . . . 16
5.9 Non-Solicitation of Employees . . . . . . . . . . . 16
5.10 Confidentiality . . . . . . . . . . . . . . . . . . 16
5.11 Certain Key Employees . . . . . . . . . . . . . . . 17
5.12 SEC Filings . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI CONDITIONS TO OBLIGATIONS OF SELLER . . . . . . . . . . . . . 18
6.1 Representations and Warranties . . . . . . . . . . 18
6.2 Performance . . . . . . . . . . . . . . . . . . . . 18
6.3 Officer's Certificate . . . . . . . . . . . . . . . 18
6.4 Injunctions . . . . . . . . . . . . . . . . . . . . 18
6.5 Governmental Filings and Consents . . . . . . . . . 18
6.6 Opinion of Counsel . . . . . . . . . . . . . . . . 19
6.7 Other Documents . . . . . . . . . . . . . . . . . . 19
6.8 Absence of Credit Change . . . . . . . . . . . . . 19
ARTICLE VII CONDITIONS TO OBLIGATIONS OF BUYER . . . . . . . . . . . . . 19
7.1 Representations and Warranties . . . . . . . . . . 19
7.2 Performance . . . . . . . . . . . . . . . . . . . . 19
7.3 Officer's Certificate . . . . . . . . . . . . . . . 19
7.4 Injunctions . . . . . . . . . . . . . . . . . . . . 19
7.5 Governmental Filings and Consents;
Third Party Consents . . . . . . . . . . . . . . . 20
7.6 Opinion of Counsel . . . . . . . . . . . . . . . . 20
7.7 Resignations . . . . . . . . . . . . . . . . . . . 20
7.8 Other Documents . . . . . . . . . . . . . . . . . . 20
ARTICLE VIII TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . 20
8.1 Termination . . . . . . . . . . . . . . . . . . . . 20
8.2 Effect of Termination . . . . . . . . . . . . . . . 21
8.3 Break Fee . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 21
9.1 Survival of Representations and
arranties . . . . . . . . . . . . . . . . . . . . . 21
9.2 Fees and Expenses . . . . . . . . . . . . . . . . . 22
9.3 Governing Law . . . . . . . . . . . . . . . . . . . 22
9.4 Amendment . . . . . . . . . . . . . . . . . . . . . 22
9.5 No Assignment . . . . . . . . . . . . . . . . . . . 23
9.6 Waiver . . . . . . . . . . . . . . . . . . . . . . 23
9.7 Notices . . . . . . . . . . . . . . . . . . . . . . 23
9.8 Complete Agreement . . . . . . . . . . . . . . . . 24
9.9 Publicity . . . . . . . . . . . . . . . . . . . . . 24
9.10 Headings . . . . . . . . . . . . . . . . . . . . . 24
9.11 Severability . . . . . . . . . . . . . . . . . . . 25
9.12 No Third Party Beneficiaries . . . . . . . . . . . 25
9.13 Counterparts; Facsimile Signatures . . . . . . . . 25
SCHEDULES
3.4 Subsidiaries
3.10 Consents and Approvals
4.3 No Conflict Exceptions
ANNEXES
A Form of Assets Purchase Agreement
B Modifications of Certain Restructuring
Documentation
C Opinion of Counsel to Buyer
D Opinion of Counsel to Seller and the
Company
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("Agreement") is made and entered
into as of March 4, 1994, by and between Bell Atlantic TriCon Leasing
Corporation, a Delaware corporation ("Seller"), and Greyhound Financial
Corporation, a Delaware corporation ("Buyer").
WHEREAS, TriCon Capital Corporation, a Delaware corporation (the
"Company"), has 13,500,000 issued and outstanding shares of common stock,
par value $.01 per share (the "Company Common Stock"), all of which are
owned by Seller.
WHEREAS, the Company has filed a registration statement on Form S-
1 (File No. 33-72748) with the Securities and Exchange Commission ("SEC"),
and three amendments thereto. As used herein, the term "Registration
Statement" refers to such registration statement, as amended through
February 23, 1994.
WHEREAS, at or prior to the Closing referred to herein, the
Company intends to acquire from Seller the business, properties and assets,
and assume the liabilities (collectively, the "Predecessor Business")
described in the preliminary prospectus dated February 23, 1994 included in
Amendment No. 3 to the Registration Statement (the "Preliminary Prospectus")
in a series of transactions described in the Preliminary Prospectus as
comprising the restructuring, as such restructuring is modified by the terms
hereof (the "Restructuring").
WHEREAS, upon completion of the Restructuring, Buyer desires to
purchase from Seller, and Seller desires to sell to Buyer, all of the
Company Common Stock, subject to the terms and conditions of this Agreement.
WHEREAS, Buyer is willing to guaranty unconditionally indebtedness
of the Company pursuant to the Term Credit Agreement (the "Term Credit
Agreement") to be entered into between the Company and Seller in connection
with the Restructuring (the "Guaranty").
NOW, THEREFORE, in consideration of the mutual premises and
covenants, agreements, representations and warranties contained in this
Agreement, Seller and Buyer agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1 Transfer of Stock. On the Closing Date (as defined in
Section 2.1 hereof) and subject to the terms and conditions set forth in
this Agreement, Seller will sell, assign, transfer and deliver to Buyer all
of the Company Common Stock.
1.2 Consideration. On the Closing Date and subject to the terms
and conditions set forth in this Agreement, in reliance on the
representations, warranties, covenants and agreements of the parties
contained herein and in consideration of the sale, assignment, transfer and
delivery by Seller to Buyer of the Company Common Stock, Buyer will pay to
Seller $330,750,000 (the "Purchase Price").
ARTICLE II
CLOSING
2.1 The Closing. Subject to Section 8.1 hereof, the closing (the
"Closing") of the transactions contemplated by this Agreement shall take
place at the offices of Morgan, Lewis & Bockius, 2000 One Logan Square,
Philadelphia, Pennsylvania at 8:30 a.m., local time, on the later of
(i) April 1, 1994, (ii) the fifth business day following the satisfaction or
waiver of all of the conditions set forth in Article VI and Article VII
hereof or (iii) at such other place and time as may be agreed upon by Seller
and Buyer (the "Closing Date").
2.2 Delivery of and Payment for Company Common Stock; Guaranty.
At the Closing, subject to the satisfaction or waiver of the conditions set
forth herein: (i) Seller shall deliver or cause to be delivered to Buyer
certificates evidencing the Company Common Stock, properly endorsed for
transfer or accompanied by duly executed stock powers, in either case
executed in blank or in favor of Buyer or its nominee as Buyer may have
directed prior to the Closing Date, and otherwise in a form acceptable for
transfer on the books of the Company, (ii) Buyer shall deliver or cause to
be delivered to Seller the Purchase Price, by wire transfer of immediately
available funds, and (iii) Buyer shall deliver the Guaranty in accordance
with the Term Credit Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows, except
as otherwise set forth in a disclosure letter to Buyer of even date herewith
(the "Disclosure Letter"):
3.1 Corporate Organization, Etc. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and has full corporate power and authority to conduct its
business as it is now being conducted and own and lease its properties,
including the Company Common Stock. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and has full corporate power and authority to carry on its
business as it will be constituted upon completion of the Restructuring, and
to own and lease the properties and assets it will then own and lease and at
the Closing will be duly qualified as a foreign corporation to conduct the
business to be conducted by it upon completion of the Restructuring and is
in good standing in each jurisdiction in which such qualification will then
be required under applicable law, except jurisdictions in which the
Company's failure to be so qualified would not or could not reasonably be
expected to, individually or in the aggregate, result in a material adverse
change in the business, condition (financial or otherwise), assets,
liabilities or operations of the Company and the Company's Subsidiaries (as
defined in Section 3.4 hereof) taken as a whole, as the same will be
constituted upon completion of the Restructuring (a "Material Adverse
Effect").
3.2 Capital Stock. The authorized capital stock of the Company
consists of 50,000,000 shares of common stock, par value $.01 per share, and
5,000,000 shares of preferred stock, par value $.01 per share, of which only
the Company Common Stock is issued and outstanding, and no other shares of
any other class or series of capital stock are authorized, issued or
outstanding. All of the shares of Company Common Stock have been validly
issued and are fully paid, nonassessable and free of preemptive rights.
There are no subscriptions, options, convertible or exchangeable securities
or instruments, warrants, calls, rights, contracts, commitments,
understandings, restrictions or arrangements relating to or providing for
the issuance, sale, purchase, redemption, transfer, voting or registration
of any shares of Company Common Stock or other capital stock or ownership
interests in the Company.
3.3 Ownership of Stock. Seller has good, valid and marketable
title to the Company Common Stock free and clear of all liens, claims,
rights, Encumbrances or interests of any other person (collectively
"Encumbrances"), other than the restrictions imposed by federal and state
securities laws. Upon consummation of the transactions contemplated hereby,
Buyer will acquire good and valid title to the Company Common Stock, free
and clear of all Encumbrances, other than the restrictions imposed by
federal and state securities laws and any of the foregoing created by Buyer
or arising from its activities.
3.4 Subsidiaries. Upon completion of the Restructuring, the
Company will not own, directly or indirectly, capital stock or other equity
interests of any other corporation or entity amounting to 50% or more of
such equity interests outstanding, except as set forth on Schedule 3.4
attached hereto (each such corporation or other entity, a "Subsidiary").
Upon completion of the Restructuring, all the outstanding capital stock of
each Subsidiary will be owned directly or indirectly by the Company free and
clear of all Encumbrances, and will be validly issued, fully paid,
nonassessable and free of preemptive rights. Upon completion of the
Restructuring there will be no subscriptions, options, convertible or
exchangeable securities or instruments, warrants, calls, rights, contracts,
commitments, understandings, restrictions or arrangements relating to or
providing for the issuance, sale, purchase, redemption, transfer, voting or
registration of any shares of capital stock or other ownership interests in
any Subsidiary, except for liens or rights granted in connection with
"Financing Transactions" (as defined in Section 3.11 hereof) and
securitization transactions in the ordinary course of business. Each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, has full corporate
power and authority to carry on its business as it is now conducted and as
it will be constituted upon completion of the Restructuring and to own and
lease the properties and assets it now owns and leases and will then own and
lease, and is duly qualified as a foreign corporation to conduct the
business currently and to be conducted by it upon completion of the
Restructuring and is in good standing in each jurisdiction in which such
qualification is now or will then be required under applicable law, except
jurisdictions in which the failure to be so qualified or otherwise
authorized would not or could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
3.5 Authorization, Etc. Seller has full corporate power and
authority to execute and deliver this Agreement and to carry out the
transactions contemplated hereby. The Board of Directors of Seller has
authorized the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby and no shareholder approval or other
corporate proceedings on the part of Seller is necessary to approve and
authorize the execution and delivery by Seller of this Agreement and the
consummation by Seller of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Seller. This
Agreement constitutes a valid and binding agreement of Seller, assuming the
due execution of the Agreement by Buyer, enforceable against Seller in
accordance with its terms, except that (a) such enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally and
(b) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
3.6 No Conflict. The execution and delivery of this Agreement by
Seller does not, and the consummation of the transactions contemplated
hereby and compliance with the provisions hereof will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of
time or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or the loss of a material benefit under, any
provision of the Certificate of Incorporation or Bylaws of Seller or the
Company, or any loan or credit agreement, note, bond, mortgage, indenture,
lease, management agreement or other agreement, instrument, permit,
franchise, license, judgment, order, decree, statute, or regulation
applicable to Seller, the Company or any Subsidiary, or any of their
respective properties or assets, including, in the case of the Company and
the Subsidiaries, as the same will be constituted upon completion of the
Restructuring, other than any such conflicts, violations or defaults which
individually and in the aggregate will not have a Material Adverse Effect.
3.7 SEC Filings. The Registration Statement and Preliminary
Prospectus comply in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the rules and
regulations of the SEC thereunder (the "Rules and Regulations") and neither
of such documents contains any untrue statement of a material fact or omits
to state a material fact required to be stated therein or necessary in order
to make the statements therein not misleading. The financial statements
included in the Registration Statement and Preliminary Prospectus comply as
to form in all material respects with applicable accounting requirements and
the published rules and regulation of the SEC with respect thereto, have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated
financial position of the Company and the Predecessor Business as at the
dates thereof and the results of operations of the Predecessor Business for
the periods covered thereby.
3.8 Compliance with Law; Governmental Authorizations. Neither
the Company nor any Subsidiary is, nor is the Predecessor Business being
operated, in violation of any federal, state, local or foreign law, statute,
rule, regulation, ordinance or code or any order, judgment, writ,
injunction, decree or award entered by any federal, state, local or foreign
court, arbitrator or other forum of competent jurisdiction, except for any
violation or violations which would not or could not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect.
3.9 No Violation. None of the Company, Seller nor any of their
respective subsidiaries (i) is in violation of its Certificate of
Incorporation or Bylaws, or (ii) is in default and no event has occurred
which, with notice or lapse of time or both, would constitute such a
default, in the due performance or observance of any term, covenant or
condition contained in any loan or credit agreement, note, bond, mortgage,
indenture, lease, management agreement or other agreement, instrument,
permit, franchise, license, judgment, order, decree, statute, or regulation
applicable to Seller, the Company or any of their respective subsidiaries
which relates to or affects the Predecessor Business, except for such
violations, defaults or failures which would not have a Material Adverse
Effect.
3.10 Consents and Approvals. Except for the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), or as set forth in the Preliminary Prospectus, no consent, approval
or authorization of, or notice to, or declaration, filing or registration
with, any governmental or regulatory authority is required to be made or
obtained by Seller, the Company or any Subsidiary in connection with the
consummation of the Restructuring or the execution, delivery and performance
of this Agreement by Seller or the consummation by Seller of the
transactions contemplated hereby, except (i) as disclosed in Schedule 3.10,
annexed hereto or (ii) for such as would not reasonably be expected to have
a Material Adverse Effect.
3.11 Title to Properties. The Company and each Subsidiary has, or
will have, upon completion of the Restructuring, good and marketable title
to all properties and assets described in the Preliminary Prospectus as to
be owned by it upon completion of the Restructuring, free and clear of
Encumbrances, except (i) as disclosed in the Preliminary Prospectus,
including the financial statements therein; and (ii) except for Permitted
Liens. "Permitted Liens" shall mean, when applicable, such liens,
imperfections of title, easements and encumbrances as are (i) disclosed in
the financial statements or the notes thereof included in the Registration
Statement, (ii) created to secure liabilities incurred by the Predecessor
Business in Financing Transactions entered into in the ordinary course of
business and assumed by the Company in the Restructuring, (iii) for current
taxes not yet due and payable, (iv) disclosed in the Disclosure Letter,
(v) rights to the use or ownership of assets provided by the documents and
similar documents entered into in connection with Financing Transactions
("Financing Documents"), (vi) created and subject to indemnification of
Seller by third parties under the Financing Documents or similar documents
entered into after December 31, 1993, (vii) worker's, carrier's or
materialmen's liens, or (viii) not substantial in character, amount or
extent and do not materially detract from the value, or materially interfere
with the present or intended use of the property subject thereof.
"Financing Transactions" shall mean financing transactions conducted by the
Predecessor Business with respect to any type of property under which Seller
is the lessor, lessee, the seller, the lender or an assignee thereof and of
the type which is reflected in the Consolidated Balance Sheet of the
Predecessor Business at December 31, 1993 included in the Registration
Statement in the lines captioned "investment in finance leases," "investment
in notes receivable," or "investment in operating leases, net of accumulated
depreciation."
3.12 No Material Adverse Change. Since December 31, 1993 and
except as set forth in the Preliminary Prospectus, there has been no
material adverse change in the business, condition (financial or otherwise),
assets, liabilities or operations of the Company, the Subsidiaries or the
Predecessor Business, except for such changes as do not, in the aggregate,
have a Material Adverse Effect.
3.13 Certain Agreements. Except as set forth in the Preliminary
Prospectus as modified by this Agreement, there are no severance, employment
or similar agreements or understandings between the Company or any
Subsidiary on the one hand, and any current or former director, officer or
other employee of the Company or any Subsidiary, on the other hand, under
which the rights of a party are triggered solely upon a change of control of
the Company or any Subsidiary.
3.14 Brokers and Finders. None of the Company, the Subsidiaries
and Buyer is or will be liable for any brokerage, finder or other similar
fee or commission in connection with the transactions contemplated hereby
based upon arrangements made by or on behalf of Seller, the Company, any
Subsidiary or any affiliate thereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
4.1 Corporate Organization. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and has full corporate power and authority to carry on its
business as it is now being conducted, and to own and lease its properties
and assets it owns and leases and is duly qualified as a foreign corporation
to conduct its business and is in good standing in each jurisdiction in
which such qualification is required under applicable law, except
jurisdictions in which Buyer's failure to be so qualified would not or could
not reasonably be expected to, individually or in the aggregate, result in a
material adverse change in the business, condition (financial or otherwise),
assets, liabilities or operations of Buyer and its subsidiaries taken as a
whole.
4.2 Authorization, Etc. Buyer has full corporate power and
authority to execute and deliver this Agreement and the Guaranty and to
carry out the transactions contemplated hereby and thereby. The Board of
Directors has duly approved and authorized the execution and delivery of
this Agreement and the Guaranty and the consummation of the transactions
contemplated hereby and thereby, and no shareholder approval or other
corporate proceedings on the part of Buyer are necessary to approve and
authorize the execution and delivery of this Agreement or the Guaranty by
Buyer and the consummation by Buyer of the transactions contemplated hereby
and thereby. The Agreement has been duly and validly executed and delivered
by Buyer. The Agreement constitutes, and the Guaranty, when executed and
delivered by Buyer, will constitute, a valid and binding obligation of
Buyer, assuming the due execution of the Agreement by Seller, enforceable
against Buyer in accordance with their respective terms, except that
(a) such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws nor or hereafter in effect
relating to creditors' rights generally and (b) the remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before
which any preceding therefor may be brought.
4.3 No Conflict. Except as disclosed in Schedule 4.3, the
execution and delivery of this Agreement and the Guaranty by Buyer do not,
and the consummation by Buyer of the transactions contemplated hereby and
thereby and compliance with the provisions hereof and thereof will not,
conflict with, or result in any violation of, or default (with or without
notice or lapse of time or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or the loss of a
material benefit under, any provision of the Certificate of Incorporation or
Bylaws of Buyer, or any loan or credit agreement, note, bond, mortgage,
indenture, lease, management agreement or other agreement, instrument,
permit, franchise, license, judgment, order, decree, statute, or regulation
applicable to Buyer, or any of its properties or assets, other than any such
conflicts, violation or defaults which individually and in the aggregate
will not have a material adverse change in the business, condition
(financial or otherwise), assets, liabilities or operations of Buyer and its
subsidiaries taken as a whole (a "Buyer Material Adverse Effect").
4.4 Acquisition for Investment. Buyer is acquiring the Company
Common Stock solely for its own account and not with a view to any
distribution or other disposition of such stock or any part thereof, or
interest therein, except in accordance with the Securities Act.
4.5 Brokers and Finders. Seller will not be liable for any
brokerage, finder or other similar fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on
behalf of Buyer.
4.6 Financial Statements and Reports. As of their respective
dates, all periodic and current reports, proxy statements and registration
statements filed by Buyer and GFC Financial Corporation, a Delaware
corporation ("GFCFC"), with the SEC since December 31, 1992 (collectively,
the "SEC Filings") did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading, except, in the case of any SEC Filing, any
statement or omission therein which has been corrected or otherwise
disclosed or updated in a subsequent SEC Filing. Since December 31, 1992,
each of Buyer and GFCFC has filed with the SEC all reports and all other
filings required to be filed with the SEC under the rules and regulations of
the SEC. The audited consolidated financial statements and unaudited
interim condensed consolidated financial statements of Buyer and its
subsidiaries, GFCFC and its subsidiaries and persons acquired by Buyer or
GFCFC included or incorporated by reference in the SEC Filings have been
prepared in accordance with generally accepted accounting principles applied
on a consistent basis (except as may be indicated therein or in the notes
thereto) and fairly present the consolidated financial position of Buyer,
GFCFC or any such acquired person, as the case may be, as at the dates
thereof and the results of its operations, subject, in the case of the
unaudited interim financial statements, to normal year-end adjustments.
4.7 Absence of Adverse Changes. Since December 31, 1993, except
as disclosed in the SEC Filings, there has been no Buyer Material Adverse
Effect.
4.8 Availability of Financing. Buyer has furnished Seller with a
true and complete copy of the letter dated March 3, 1994 from Merrill
Lynch & Co. to GFCFC with respect to a forward underwriting of debt
securities, which letter is in full force and effect on the date hereof.
ARTICLE V
COVENANTS AND AGREEMENTS
5.1 Conduct of Business. Until the Closing, Seller will conduct
or cause to be conducted the Predecessor Business only in the ordinary
course, consistent with past practice, except as disclosed in the
Preliminary Prospectus. Without limiting the generality of the foregoing,
Seller further covenants that, except (i) as disclosed in the Preliminary
Prospectus, as modified by the terms of this Agreement, (ii) as consented to
by Buyer in writing or (iii) as contemplated by the Restructuring, Seller
shall:
(a) use reasonable efforts consistent with good business
judgment to (i) preserve intact the present business organization of the
Predecessor Business, the Company and the Subsidiaries, (ii) keep available
the services of the employees of the Predecessor Business, the Company and
each Subsidiary, (iii) maintain in full force and effect all licenses,
permits and franchises of the Predecessor Business, the Company and the
Subsidiaries and (iv) preserve the present relationships of the Predecessor
Business, the Company and the Subsidiaries with those persons having
business dealings with them;
(b) not permit the Predecessor Business, the Company or any
Subsidiary to (i) except as specifically provided in this Agreement, borrow
or agree to borrow any funds or incur, whether directly or by way of
guarantee, any obligation for borrowed money, except in the ordinary course
of business, consistent with past practice; (ii) make any capital
expenditure individually in excess of $500,000 or in the aggregate in excess
of $3,000,000 or execute any material lease, lease renewal or lease
amendment under which the Company or a Subsidiary is a lessee, other than
capital expenditures in connection with Financing Transactions entered into
in the ordinary course of business, which capital expenditures shall not
exceed $500,000 individually or $3,000,000 in the aggregate, or incur any
material commitment or liability therefor; (iii) make any change in
financial reporting or accounting methods or practices, except as required
by law or GAAP; (iv) knowingly waive or commit to waive any rights the
waiver of which would or could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect; (v) make any material change
in its lending, leasing or tax practices or policies; or (vi) agree to do
any of the foregoing;
(c) not permit the Predecessor Business, the Company or any
Subsidiary to (i) make or agree to make any increase in the compensation
payable or to become payable to any employee, agent, consultant or other
similar representative of the Predecessor Business, the Company or any
Subsidiary, or make or agree to make any increase in any bonus or incentive
compensation or commission plan, insofar as it may relate to employees of
the Predecessor Business, except in each case (x) as may be required under
agreements in existence on February 28, 1994 or (y) in the ordinary course
of business consistent with past practices, (ii) pay or agree to pay to any
employee welfare, pension, retirement, profit-sharing or similar payment or
arrangement for any personnel of the Predecessor Business except pursuant to
existing plans and arrangements described in the Preliminary Prospectus as
modified by the terms hereof or (iii) enter into any new employment,
management or consulting agreement affecting the Predecessor Business, the
Company or any Subsidiary;
(d) not permit the Predecessor Business, the Company or any
Subsidiary to make any single credit arrangement or capital expenditure in
excess of $25 million;
(e) cause all reserves and other similar amounts reflected
in the books and records of the Predecessor Business, the Company and each
Subsidiary to be established and reflected on a basis consistent with those
reserves and other similar amounts and reserving methods followed in
preparing the financial statements included in the Preliminary Prospectus;
and
(f) not elect or appoint any new members to the Board of
Directors of the Company.
5.2 Access to Books, Records and Properties.
(a) Seller agrees that from the date hereof through the
Closing Date, it will give or cause to be given (at no charge, cost or
expense to Buyer) to Buyer and its auditors and other representatives and
agents full access to all premises, properties, books, records, work papers
and employees of or pertaining to the Company, each Subsidiary and the
Predecessor Business, and to cause their respective officers and employees
to furnish to Buyer such financial and operating data and other information
with respect to the properties and the conduct of the businesses of the
Predecessor Business, the Company and each Subsidiary, as Buyer shall from
time to time request; provided, however, that any such investigation shall
be conducted during normal business hours and in such manner as not to
interfere unreasonably with the operation of the businesses of Seller, the
Company, or any Subsidiary. Without limiting the foregoing, Buyer shall
have the right to maintain up to two of its representatives at the offices
of the Predecessor Business, the Company and/or each Subsidiary, and Seller
shall provide (or cause to be provided) reasonable office space, secretarial
assistance and photocopying facilities to such representatives.
(b) Buyer agrees that from the date hereof through the
Closing Date, it will give or cause to be given (at no charge, cost or
expense to Seller) to Seller and its auditors and other representatives and
agents full access to all premises, properties, books, records, work papers
and relevant employees of Buyer and to cause its officers and employees to
furnish to Seller such financial and operating data and other information as
Seller shall from time to time request, but in each case only to the extent
any of the foregoing relate to the financial condition and results of
operations of Buyer; provided, however, that any such investigation shall be
conducted during normal business hours and in such manner as not to
interfere unreasonably with the operation of Buyer. Without limiting the
foregoing, Buyer shall provide (or cause to be provided) reasonable office
space, secretarial assistance and photocopying facilities to such
representatives.
(c) Any investigation conducted by or on behalf of Buyer or
Seller pursuant to this Section 5.2 or otherwise shall not affect such
person's right to rely on the representations and warranties of the other
set forth herein and in the Prospectus.
5.3 Filings and Consents.
(a) As soon as practicable after execution and delivery of
this Agreement, Buyer and Seller shall make or cause to be made all filings
required under the HSR Act relating to the Restructuring and the
transactions contemplated hereby. In addition, Buyer and Seller will each
furnish or cause to be furnished all information as may be required by the
United States Federal Trade Commission or Department of Justice under the
HSR Act in order that the requisite approvals for the purchase and sale of
the Company Common Stock, and the transactions contemplated hereby, be
obtained or to cause any applicable waiting periods to expire or terminate.
The parties hereto will cooperate with each other with respect to obtaining,
as promptly as practicable, all necessary consents, approvals and
authorizations described in Schedules 3.10 and 4.3 necessary to authorize,
approve or permit the consummation of the transactions contemplated hereby.
(b) Seller will take (and will cause each of the Company and
the Subsidiaries to take) all commercially reasonable steps necessary or
desirable, and proceed diligently and in good faith and use all commercially
reasonable efforts, to obtain as promptly as practicable the approvals,
authorizations, notices, declarations, filings and registrations with all
governmental and regulatory authorities and third persons described in
Schedule 3.10 required to be made or obtained by Seller, the Company or any
Subsidiary in connection with the execution, delivery and performance of
this Agreement by Seller and the consummation by Seller of the Restructuring
and the transactions contemplated hereby. Without limiting the generality
of the foregoing, Buyer shall cooperate with Seller and the Company in
seeking to obtain consents to assignments of contracts and other rights and
obligations included in the Assets and Assumed Liabilities (as defined in
the Assets Purchase Agreement to be entered into by the Company and the
Seller in connection with the Restructuring (the "Assets Purchase
Agreement"). In connection therewith, Buyer shall consider in good faith
entering into a guarantee with respect to the Company obligations under such
Asset or Assumed Liability.
5.4 Tax Matters.
(a) Seller Taxes. Seller shall be liable for, shall pay and
shall indemnify and hold Buyer, the Company and the Subsidiaries harmless
against (i) all Taxes of the Company and the Subsidiaries measured with
respect to net income attributable to any taxable year or taxable period
ending on or before the Closing Date, (ii) any liability of the Company and
the Subsidiaries for Taxes, not arising from the Predecessor Business, of
any affiliated group of which the Company or any Subsidiary was a member at
any time up to and including the Closing Date pursuant to Treasury
Regulation Section 1.1502-6 (or any similar provision of law), and (iii) any
other Taxes payable by any affiliate of Seller, the Company and the
Subsidiaries as a result of the Restructuring and the transactions
contemplated hereunder, except as otherwise provided in Section 7.2(c)
of the Assets Purchase Agreement. Any tax sharing, tax allocation or tax
indemnification agreement in effect to which the Company or any Subsidiary
is a party shall be terminated and the Company and the Subsidiaries shall
have no obligations under such agreements.
(b) Tax Treatment. Buyer and Seller agree to report the
transactions contemplated under the Assets Purchase Agreement and this
Agreement as a taxable sale of assets by Seller to the Company for income
tax purposes. Buyer, however, shall have the right to make protective
elections under Section 338(h)(10) of the Code and any state or local
counterparts. Therefore, at Buyer's option, Seller and Buyer shall make the
elections pursuant to Section 338(h)(10) of the Code and any state or local
counterpart (the "Tax Election"), concerning the transactions contemplated
by this Agreement. Buyer may make such election for some jurisdictions and
not for others in Buyer's sole and absolute discretion. Within 15 days
after the date hereof, Seller shall provide Buyer with a list of
jurisdictions in which the Predecessor Business is conducted. On or before
the Closing Date, Buyer shall provide Seller with a list of all
jurisdictions in which Buyer intends to make the Tax Election. To effect
any Tax Election, Buyer and Seller agree at the Closing to execute the
appropriate form, statement or election in such other manner as may be
required by any rule or regulation of the Internal Revenue Service and any
additional election statement or related filing required by relevant state
or local taxing authorities. The parties shall allocate the Consideration
among the respective assets of the Company and Subsidiaries in accordance
with Section 1060 of the Code.
(c) Refunds and Credits. Any refunds and credits for Taxes
shall be for the account of the party who is responsible for such Taxes
under this Agreement or the Assets Purchase Agreement.
(d) Control of Tax Proceedings. Whenever any Taxing
authority asserts a claim, makes an assessment, or otherwise disputes the
amount of Taxes for which Seller is or may be liable, in whole or in part,
under this Agreement, Buyer shall promptly inform Seller and Seller shall
have the right to control any resulting proceedings and to determine whether
and when to settle any such claim, assessment or dispute to the extent such
proceedings or determinations would materially affect the amount of Taxes
for which Seller is liable under this Agreement. Buyer and Seller shall
jointly participate in any proceedings for Sales Taxes, as defined in
Section 7.2(c) of the Assets Purchase Agreement.
(e) Definition. "Tax" (including with correlative meaning,
the terms "Taxes" and "Taxable") means (i) any income, gross receipts, ad
valorem, premium, excise, value-added, sales, use, transfer, franchise,
license, severance, stamp, occupation, service, lease, withholding,
employment, payroll, premium, property or windfall profits tax, alternative
or add-on-minimum tax, or other tax, fee or assessment, together with any
interest and any penalty, addition to tax or additional amount imposed by
any governmental authority responsible for the imposition of any such tax,
with respect to the Company or any Subsidiary, (ii) any liability of the
Company or any Subsidiary for the payment of any amount of the type
described in clause (i) as a result of the Company or any Subsidiary being a
member of an affiliated or combined group with, or a successor to, or
transferee of, any other corporation at any time on or prior to the Closing
Date, and (iii) any liability of the Company or any Subsidiary pursuant to
any tax sharing, tax allocation, tax indemnification or tax reimbursement
agreement in effect at any time on or prior to the Closing Date.
5.5 Employee Benefits and Employment. Seller, the Company and
Buyer shall take or cause to be taken such actions as may be necessary to
implement the provisions of Section 5.1 of the Assets Purchase Agreement to
be entered into between the Company and Seller in connection with the
Restructuring, as modified by this Agreement.
5.6 Completion of the Restructuring; Asset Purchase Agreement.
On or prior to the Closing, Seller and the Company will complete the
Restructuring. In the Restructuring: (a) none of the executive
compensation plans, arrangements and agreements described in the Preliminary
Prospectus under the heading "Management-Executive Compensation After the
Offering" shall be established, (b) the Company shall not enter into the
revolving credit facility described under the heading "Terms of
Indebtedness-Revolving Credit Facility," (c) the public offering of common
stock of the Company contemplated by the Registration Statement shall be
suspended neither the Company nor Buyer shall pay or bear any of the costs
thereof, including without limitation legal, accounting, SEC and NASD fees
or any amounts that may be due or payable to the prospective underwriters
therein, (d) Seller shall make payment of the bonus amounts referred to
under the caption "Management Incentive Arrangements" in the Preliminary
Prospectus, and neither the Company nor Buyer shall pay or bear any of the
costs thereof, (e) Seller and the Company shall not enter into the Agreement
with Respect to Certain Real Estate, and (f) the Seller and the Company
shall enter into the Assets Purchase Agreement in the form of Annex A
attached hereto. In the Restructuring all instruments of conveyance and
assumption, contracts and other documents shall be subject to the review of
Buyer, and shall be subject to Buyer's reasonable approval, it being
understood that, except as provided herein, the substance of such documents
shall be as described in the Preliminary Prospectus and no changes shall be
required in the forms of the Term Credit Agreement and the Management
Agreement between the Company and Seller, filed as exhibits to Amendment No.
3 to the Registration Statement, except as set forth on Annex B, attached
hereto and except as may be required to conform any provision thereof to the
terms and provisions hereof.
5.7 Notification of Certain Events. Each of Buyer and Seller
shall inform the other in writing of, and contemporaneously with such notice
will provide to the other true and complete copies of all information and
documents relating to, any event, transaction or circumstance occurring
after the date hereof that causes or is reasonably likely to cause any of
its covenants or agreements under this Agreement or the documents to be
entered into in connection with the Restructuring, to be breached or that
renders or is reasonably likely to render untrue any of its representations
or warranties contained in this Agreement or in any such documents. Each of
Seller and Buyer shall use commercially reasonable efforts to cure, before
the Closing, (a) any such breach or misrepresentation by it and (b) any
violation or breach of any of its representations, warranties, covenants or
agreements in this Agreement, whether occurring or arising before or after
the date hereof.
5.8 Covenant to Satisfy Conditions. Seller and Buyer agree to
use all reasonable efforts to assure that the conditions to each other
party's obligations hereunder set forth in Article VI and Article VII hereof
are satisfied, insofar as such maters are within the control of such party.
5.9 Non-Solicitation of Employees. Seller agrees that, for a
period beginning on the date hereof and ending on the third anniversary of
the Closing Date, neither Seller nor any subsidiary of Seller, or any
affiliate thereof, will, without Buyer's prior written consent, directly or
indirectly solicit any person who is expected to be or is an employee of the
Company or any Subsidiary immediately upon completion of the Restructuring
to pursue employment opportunities other than with Buyer, the Company or any
Subsidiary.
5.10 Confidentiality. Each party hereto will hold and will cause
its officers, directors, employees, consultants, advisory and other agents
to hold in strict confidence, unless compelled to disclose by judicial or
administrative process or, in the opinion of its counsel, by other
requirement of law (collectively, "Legal Requirements"), all confidential
documents and information concerning the other party furnished it by such
other party or its representatives in connection with the transactions
contemplated by this Agreement (except to the extent that such information
(i) is or was previously known by the party to which it was furnished,
(ii) is or becomes in the public domain through no fault of such party, or
(iii) is later lawfully acquired from other sources by the party to which it
was furnished), and each party will not release or disclose such information
to any other Person, except its auditors, attorneys, financial advisors and
other consultants and advisers in connection with this Agreement (unless
compelled to so disclose by Legal Requirements) and shall not use such
information other than in connection with this Agreement or the transactions
contemplated hereby until after the Closing Date. If the transactions
contemplated by this Agreement are not consummated, such confidence shall be
maintained to the extent required above, and such information shall not be
used to the detriment of, or in relation to any investment in, another party
hereto and all such documents (including copies, summaries and analyses
thereof) shall be returned to the party that provided such documents
immediately upon the written request of such other party; provided that
instead of delivering any summaries or analyses, the same may be destroyed
if such destruction is confirmed in writing to the other party. Each party
shall be deemed to have satisfied its obligation to hold confidential
information concerning or supplied by the other party if it exercises the
same care as it takes to preserve confidentiality for its own similar
information.
5.11 Certain Key Employees. Buyer shall offer to Messrs. Lam,
Buchanan, Messina and Vandervalk employment contracts, and seek in good
faith to enter into such contracts, containing normal and customary
provisions consistent with the following, subject to modification with the
consent of the respective proposed employee:
(a) Term: three years;
(b) Relocation: no relocation to another city required during
the term of the agreement;
(c) Cash compensation: salary, short and long-term bonus
opportunities not less favorable in the aggregate than those presently in
effect;
(d) Equity-based compensation: stock grants, stock appreciation
rights or other equity-based compensation not materially less favorable, in
the aggregate, than that described in the Registration Statement; provided
that the management stock purchase arrangements and related loans described
in the Preliminary Prospectus under "Management-Executive Compensation After
the Offering-Management Stock Purchase Arrangements" shall not be considered
in connection with the foregoing.
5.12 SEC Filings. Buyer shall furnish or make available to Seller
true and complete copies of all SEC Filings and any additional such filings
made by Buyer or GFCFC from the date hereof through the Closing Date.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller to consummate the transactions
contemplated by this Agreement are subject, in the discretion of Seller, to
the fulfillment, at or prior to the Closing, of each of the following
conditions, unless waived in writing by Seller.
6.1 Representations and Warranties. The representations and
warranties made by Buyer in this Agreement shall be true and correct in all
material respects as of the date hereof and on and as of the Closing Date
with the same force and effect as though such representations and warranties
had been made on and as of the Closing Date.
6.2 Performance. Buyer shall have performed in all material
respects all of its obligations under this Agreement to be so performed by
Buyer on or prior to the Closing Date.
6.3 Officer's Certificate. Buyer shall have delivered to Seller
a certificate, dated the Closing Date and executed by an appropriate officer
of Buyer, certifying to the fulfillment of the conditions specified in
Sections 6.1 and 6.2 hereof.
6.4 Injunctions. On the Closing Date, there shall be no
injunction, writ, preliminary restraining order or other order in effect of
any nature issued by a court or governmental agency of competent
jurisdiction directing that the transactions provided for herein not be
consummated, and no proceeding seeking such action shall be pending or
threatened.
6.5 Governmental Filings and Consents. All consents, approvals
and waivers from governmental authorities or agencies, and all consents,
approvals, waivers and authorizations described in Schedules 3.10 and 4.3
hereto, necessary to permit Buyer and Seller to consummate the transactions
contemplated hereby shall have been obtained, except for such consents,
approvals or waivers the failure of which to obtain would not have,
individually or in the aggregate, a Material Adverse Effect.
6.6 Opinion of Counsel. Seller shall have received an opinion or
opinions of counsel for Buyer reasonably satisfactory to Seller as to the
matters set forth in Annex C, attached hereto.
6.7 Other Documents. Seller shall have received such other
instruments, certificates and documents as it shall reasonably request to
evidence satisfaction of the conditions to its obligations hereunder.
6.8 Absence of Credit Change. Subsequent to the date hereof
(i) no downgrading shall have occurred in the rating accorded or proposed to
be accorded Buyer's existing or proposed debt securities by Moody's,
Standard & Poor's or Duff & Phelps, and (ii) no such organization shall have
publicly announced that it has under surveillance or review, with possible
negative implications, its rating or proposed rating of any of existing or
proposed debt securities of Buyer.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions
contemplated by this Agreement are subject, in the discretion of Buyer, to
the fulfillment, at or prior to the Closing, of each of the following
conditions, unless waived in writing by Buyer.
7.1 Representations and Warranties. The representations and
warranties made by Seller in this Agreement shall be true and correct in all
material respects as of the date hereof and on and as of the Closing Date
with the same force and effect as though such representations and warranties
had been made on and as of the Closing Date.
7.2 Performance. Seller shall have performed in all material
respects all of its respective obligations under this Agreement to be so
performed by Seller on or prior to the Closing Date, including without
limitation consummation of the Restructuring in accordance with Section 5.6
hereof.
7.3 Officer's Certificate. Seller shall have delivered to Buyer
a certificate, dated the Closing Date and executed by Seller, as applicable,
certifying to the fulfillment of the conditions specified in Sections 7.1
and 7.2 hereof.
7.4 Injunctions. On the Closing Date, there shall be no
injunction, writ, preliminary restraining order or other order in effect of
any nature issued by a court or governmental agency of competent
jurisdiction directing that the transactions provided for herein not be
consummated as provided herein, and no proceeding seeking such action shall
be pending or threatened.
7.5 Governmental Filings and Consents; Third Party Consents. All
consents, approvals and waivers from governmental authorities or agencies
and all consents, approvals, waivers and other authorizations described in
Schedules 3.10 and 4.3 hereto necessary to permit Buyer and Seller to
consummate the transactions contemplated hereby shall have been obtained,
except for such consents, approvals and waivers the failure of which to
obtain would not have, individually or in the aggregate, a Material Adverse
Effect or a Buyer Material Adverse Effect.
7.6 Opinion of Counsel. Buyer shall have received an opinion of
or opinions of counsel for Seller reasonably satisfactory to seller as to
the matters set forth in Annex D, attached hereto.
7.7 Resignations. Seller shall have delivered the written
resignations of those officers and directors of the Company and each
Subsidiary as Buyer may request not later than five business days prior to
the Closing.
7.8 Other Documents. Seller shall have received such other
instruments, certificates and documents as it shall reasonably request to
evidence satisfaction of the conditions to its obligations hereunder.
ARTICLE VIII
TERMINATION
8.1 Termination. This Agreement may be terminated and abandoned
at any time prior to Closing:
(a) by the mutual written consent of Seller and Buyer;
(b) by either Seller or Buyer in the event the Closing has
not occurred by June 1, 1994 (the "Cut-Off Date"), unless the failure of
such consummation shall be due to the failure of the party seeking to
terminate this Agreement to fulfill any of its obligations under this
Agreement;
(c) by either Seller or Buyer if (i) the other party shall
have failed to comply in any material respect with any of the covenants or
agreements contained in this Agreement to be complied with by it at or prior
to such date of termination within five business days following receipt by
the noncomplying party of written notice of such failure to comply or (ii)
any representation or warranty of the other party shall not be true in all
material respects when made (provided such breach has not cured within five
business days following receipt by the breaching party of written notice of
the breach) or on and as of the Closing Date, as if made on and as of the
Closing Date;
(d) by Seller by written notice given to Buyer not later
than March 18, 1994, based upon Seller's review of the financial condition,
assets, liabilities or operations of GFCFC, Buyer and Buyer's subsidiaries.
8.2 Effect of Termination. In the event of any termination and
abandonment of this Agreement pursuant to this Article VIII, the terminating
party shall promptly give notice thereof to the other parties and this
Agreement shall forthwith become void and have not effect and neither party
to this Agreement shall have any liability to the other hereunder, except
with respect to any breach of any provisions of this Agreement.
8.3 Break Fee. In recognition of the costs and expenses to be
incurred by Seller in connection with this Agreement (including opportunity
costs), concurrently with the execution and delivery of this Agreement,
Buyer has paid the sum of $2,000,000 (the "Break Fee") to Seller to be
credited against the Purchase Price, refunded to Buyer or retained by Seller
as provided herein. Upon completion of the transaction contemplated hereby,
at the Closing, the Break Fee shall be credited, without interest, against
the Purchase Price payable by Buyer. In the event this Agreement shall be
terminated for any reason other than the failure of Buyer to obtain a
necessary waiver, consent or amendment of the agreement referred to in
Schedule 4.3, the Break Fee shall forthwith be refunded to Buyer, without
interest. In the event this Agreement shall be terminated because of the
failure of Buyer to obtain such waiver, consent or amendment, the Break Fee
shall be retained by Seller as compensation for its costs and expenses in
connection herewith.
ARTICLE IX
MISCELLANEOUS
9.1 Survival of Representations and Warranties. The
representations and warranties of Seller and Buyer contained in this
Agreement or in any instrument delivered pursuant hereto shall survive the
Closing Date and shall remain in full force and effect thereafter until
December 31, 1994; provided, however, that the representations and
warranties contained in Sections 3.2, 3.3 and 3.4 shall survive indefinitely
without limitation. No action or proceeding may be brought with respect to
any claim based on the breach of a representation or warranty unless written
notice thereof, setting forth in reasonable detail each such claim, shall
have been delivered to Seller or Buyer, as the case may be, prior to the
expiration of the applicable periods set forth above. Seller shall
indemnify and hold harmless the Buyer from, against and in respect of any
and all damages, losses, deficiencies, liabilities, costs and expenses
resulting from, relating to or arising out of any misrepresentation or
breach of warranty made by Seller in this Agreement; provided, however, that
Buyer shall make no claim against Seller for indemnification hereunder with
respect to a misrepresentation or breach of warranty unless and until the
aggregate amount of all such claims exceeds $5,000,000, whereupon Buyer may
claim indemnification only for the amount of such claims, or any portion
thereof, which exceeds $5,000,000. In determining the amount of claims
against Seller pursuant to this Section, the amount of any net tax benefit
(federal, state or local) realized by Buyer by reason of such claims shall
be deducted from the amount to be paid by Seller. The indemnification
provided for herein shall be limited to claims asserted and claim notices
delivered during the period specified above during which the relevant
representation and warranty remains in effect. The remedy provided by this
Section 9.1, subject to the limitations set forth herein, shall be the
parties' exclusive remedy for the recovery of any damages, losses,
deficiencies, liabilities, costs and expenses resulting from, relating to or
arising out of any misrepresentation or breach of warranty made by or on
behalf of Seller in this Agreement or in any certificate delivered by one
party to the other pursuant hereto.
9.2 Fees and Expenses. Each of the parties shall bear its own
expenses in connection with the negotiation and consummation of the
transactions contemplated by this Agreement except as expressly provided by
any other provision of this Agreement. All fees and expenses associated
with the transactions contemplated by the Registration Statement shall be
borne by Seller.
9.3 Governing Law. This Agreement shall be construed under and
governed by the laws of the State of New York without giving effect to the
conflicts of law provisions thereof.
9.4 Amendment. This Agreement may not be amended, modified or
supplemented except under the execution and delivery of a written agreement
executed by the parties hereto.
9.5 No Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by either party hereto
without the prior written consent of the other party; provided, however,
that Buyer shall be entitled to assign any of its rights, interests or
obligations hereunder to any of its affiliates (provided that in the event
of any such assignment Buyer shall remain liable for all obligations of
Buyer set forth herein).
9.6 Waiver. Any of the terms or conditions of this Agreement
which may be lawfully waived may be waived in writing at any time by the
party which is entitled to the benefits thereof. Any waiver of any of the
provisions of this Agreement by any party hereto shall be binding only if
set forth in an instrument in writing signed on behalf of such party. No
failure to enforce any provision of this Agreement shall be deemed to or
shall constitute a waiver of such provision and no waiver of any of the
provisions of this Agreement shall be deemed to or shall constitute a waiver
of any other provision hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
9.7 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given by delivery,
by telecopier or by mail (registered or certified by mail, postage prepared,
return receipt requested) to the respective parties as follows:
(a) If to Buyer by telecopier or mail:
Greyhound Financial Corporation
Dial Tower
Dial Corporate Center
Phoenix, Arizona 85077-1159
Attention: William J. Hallinan
Telecopy: (602) 207-4099
If to Buyer by hand:
Greyhound Financial Corporation
1850 N. Central Avenue, Suite 1159
Phoenix, Arizona 85004
Attention: William J. Hallinan
with a copy to:
Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, California 90071-3197
Attention: Andrew E. Bogen, Esq.
Telecopy: (213) 229-7520
(b) If to Seller:
Bell Atlantic Corporation
1717 Arch Street
Philadelphia, Pennsylvania 19103
Attention: Raymond E. Dombrowski, Jr., Esq.
Telecopy: (215) 563-3155
with a copy to:
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, Pennsylvania 19103
Attention: N. Jeffrey Klauder, Esq.
Telecopy: (215) 963-3299
or to such other address as any party hereto may, from time to time,
designate in a written notice given in like manner.
9.8 Complete Agreement. This Agreement and the other documents
and writings referred to herein or delivered pursuant hereto contain the
entire understanding of the parties with respect to the subject matter
hereof. There are no restrictions, agreements, promises, warranties,
covenants or undertakings other than those expressly set forth in such
documents with respect to the subject matter hereof or thereof. This
Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns. To
the extent this Agreement may conflict or be inconsistent with any other
document contemplated hereby, including without limitation the Assets
Purchase Agreement, Term Credit Agreement and Management Agreement to be
entered into in connection with the Restructuring, the terms of this
Agreement shall supersede the terms of any such other document
9.9 Publicity. No publication, press release or public
announcement of any nature shall be issued pertaining to this Agreement or
the transactions contemplated hereby without the prior consent of the other
party hereto (which shall not be unreasonably withheld) or except as
required by applicable Law or by obligations pursuant to any listing
agreement with any securities exchange or any securities exchange
regulation, in which case the party proposing to issue such publication or
press release or make such announcement shall use reasonable efforts to
consult with the other party before issuing any such publication or press
release.
9.10 Headings. The headings contained in this Agreement are for
reference only and shall not affect in any way the meaning or interpretation
of this Agreement.
9.11 Severability. Any provision of this Agreement which is
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality,
or unenforceability, without affecting in any way the remaining provisions
hereof in such jurisdiction or rendering that or any other provision of this
Agreement invalid, illegal or unenforceable in any other jurisdiction.
9.12 No Third Party Beneficiaries. Nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the
parties hereto or their respective successors and permitted assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.
9.13 Counterparts; Facsimile Signatures. This Agreement may be
executed in one or more counterparts, all of which shall be considered one
and the same agreement and each of which shall be deemed an original. This
Agreement may be executed by facsimile signature which shall be deemed to be
an original. Any party that executes this Agreement by facsimile signature
agrees to provide the other party with a signed original promptly after the
date hereof.
IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to
be executed by their duly authorized officers as of the day and year first
above written.
BELL ATLANTIC TRICON LEASING
CORPORATION
By: . . . .
Name: .
Title: .
GREYHOUND FINANCIAL CORPORATION
By: . . . .
Name: .
Title: .
ANNEX B
MODIFICATIONS TO RESTRUCTURING DOCUMENTATION
* * * *
MODIFICATIONS TO TERM CREDIT AGREEMENT
*
Section 1.1 (Certain Definitions) shall be amended as
described below:
All terms defined by reference to existing Article 5 and
the definitions of "Agreement Accounting Principles," "Material Subsidiary"
and "Revolving Credit Agreement" shall be deleted.
All definitions of terms that are also defined (or in
respect of which there is a corresponding term defined) in the Fifth
Amendment and Restatement dated as of May 18, 1993 of Credit Agreement dated
as of May 31, 1976 (as so amended and restated, as further amended by the
First Amendment thereto dated as of January 31, 1994, the "GFC Credit
Agreement") among Greyhound Financial Corporation, the Lenders party
thereto, Bank of America National Trust and Savings Association, Chemical
Bank and Citibank, N.A., as Agents, and Citibank, N.A., as Administrative
Agent, shall be conformed to the terms defined in the GFC Credit Agreement,
and shall be deemed to be amended to conform to any changes therein after
the date of the Term Credit Agreement and to terms defined in any
replacement for the GFC Credit Agreement.
The definition of "Restructuring" shall be amended by
adding the following phrase to the end thereof:
, as such transaction is modified by the terms of the Stock
Purchase Agreement dated as of March 4, 1994 among Bell Atlantic TriCon
Leasing Corporation and Greyhound Financial Corporation (the "Stock Purchase
Agreement").
*
Section 2.2(b) (Current Note) shall be amended by replacing
the last sentence with the following:
The principal amount of the Current Note shall be due in
three equal installments on the 90th day following the Closing, the 180th
day following the Closing and on December 31, 1994, respectively.
Section 2.3(b) (Interest Rates-- Current Loan) shall be amended
by replacing the reference to "four percent (4.0%)" in the fifth sentence
with the reference "two percent (2.0%)."
*
Section 2.5 (Mandatory Prepayments) shall be amended by
deleting the second sentence therein and substituting therefor the
following:
After any such mandatory prepayment, payments required
under the Funded Debt Note shall be calculated by excluding from Schedule A
thereto the principal of and interest on the Retained Notes Payable (or any
portion thereof) in respect of which such mandatory prepayment of the Funded
Debt Loan is required to be made, regardless whether such Retained Notes
Payable (or such portion thereof) are repaid out of the proceeds of such
prepayment or otherwise.
*
A new Section 2.7, Commitment Fee, shall be added after
Section 2.6 and shall read as follows:
2.7 Commitment Fee. Simultaneous with the consummation of
the transactions contemplated by the Assets Purchase Agreement on the date
hereof, New TriCon shall pay to Old TriCon a loan commitment fee in the
amount of $13,500,000.
*
Sections 3.2 (Corporate Power and Authority) and 3.3
(Validity of Agreement and Notes) shall be amended to include reference to
Greyhound Financial Corporation ("GFC"), as guarantor, and to the guaranty
to be added as Article 9.
*
Sections 3.10 through 3.13 (Offering Disclosures,
Representations in Revolving Credit Agreement and the Retained Notes
Payable, Disclosure Generally, and No Default) shall be deleted.
*
Section 4.1(g) (Revolving Credit Agreement) shall be
deleted.
*
Article 5 (Covenants) shall be deleted in its entirety and
replaced with the following:
"5. Covenants
For so long as any Note, or any amount due hereunder, shall
remain unpaid, New TriCon agrees:
5.1. Compliance with Covenants in GFC Credit Agreement.
GFC and its Subsidiaries, including New TriCon shall comply with all of
their covenants and agreements contained in the GFC Credit Agreement, as it
may be amended, modified or supplemented from time to time after the date
hereof, or in any replacement credit facility therefor that may be in effect
from time to time. In the event that the GFC Credit Agreement and all
replacements therefor are terminated at any time while this Agreement
remains in effect, the covenants contained in the GFC Credit Agreement or
the latest of such replacements in effect immediately prior to termination
thereof shall be deemed to be incorporated herein by reference and shall
continue in effect for all purposes hereof, as thereafter amended, modified
or supplemented in accordance with the terms hereof. New TriCon promptly
shall inform Old TriCon of any defaults under the GFC Credit Agreement or
any replacement therefor. GFC shall give Old TriCon copies of all documents
or information delivered by GFC to any Lender (including without limitation
the Administrative Lender) pursuant to Section 4.01 (a), (b), (e), (f) or
(g) of the GFC Credit Agreement and of all requests for waivers or
amendments with respect to the GFC Credit Agreement not later than the date
such documents, information, notices and requests are first given to any
Lenders, and of any notice of default received by GFC with respect to the
GFC Credit Agreement within two business days after receipt thereof.
5.2 Maintenance of New TriCon as a Separate Subsidiary.
Until such time as New TriCon, GFC or GFC Financial Corporation, a Delaware
corporation, consummates an offering of equity securities in an amount such
that GFC is in compliance with Section 4.02(a) of the GFC Credit Agreement,
after giving effect to the transactions contemplated by the Stock Purchase
Agreement, New TriCon shall remain a separate subsidiary and shall not be
merged or consolidated with or into any other Person.
*
Section 6.1(a) (Defaults) shall be amended to read in its
entirety as follows:
(a) Failure to pay principal of or interest on any Note, or any
other amount payable hereunder, when due.
*
Section 6.1(b) (Defaults) shall be amended by replacing the
phrase "15 days" with the phrase "10 days."
*
Section 6.1(g) (Change of Control) shall be deleted. A new
Section 6.1(g) shall be added to the effect that an Event of Default shall
occur if the GFC guaranty ceases to be in full force and effect.
*
Sections 6.1(h) and (i) (insolvency defaults) shall be
revised to include references to GFC, as guarantor.
*
A new Article 9 shall be added to incorporate a GFC
unconditional guaranty of principal, interest and all other amounts payable
under the Funded Debt Note and the Current Note.
*
Section 8.2 (Successors and Survival of Terms) shall be
amended by adding at the end of the first sentence thereof, the following:
and except that Old TriCon shall not assign its rights with
respect to the Notes, or either of them, or the Loans, or either of them, in
any case in whole or in part, or any of its other rights under this
Agreement without the prior written consent of New TriCon, which shall not
unreasonably be withheld or delayed, except for assignments to affiliates of
Old TriCon.
Section 8.2 shall be further amended by adding the following at
the end:
Except as set forth in Section 5.2, nothing contained herein
shall prohibit the merger, liquidation with and into, or sale of all or
substantially all of the assets of New TriCon with or to GFC or any
affiliate thereof, provided that in the event New TriCon shall not be the
surviving corporation in such merger, GFC or any such affiliate shall first
have executed and delivered to Old TriCon its agreement, in such form as Old
TriCon may reasonably request, to assume the obligations of New TriCon
hereunder.
* Section 8.3 (Participations) shall be amended by adding the
following phrase at the endf of the paragraph:
, and (iii) the Participant shall be subject to the
approval of new TriCon, which approval shall not be unreasonably withheld or
delayed.
*
Section 8.8 (Governing Law) shall be amended by replacing
the words in the first sentence "Commonwealth of Pennsylvania" to with the
words "State of New York," and by deleting the submission by parties to
jurisdiction of Pennsylvania courts and inserting in place thereof a
submission to the jurisdiction of New York courts.
* * * *
MODIFICATIONS TO MANAGEMENT AGREEMENT
*
Section IX., INDEMNIFICATION, shall be amended as follows:
Subsection A. shall be amended by inserting the words "on
an after tax basis" after the words "indemnify and hold harmless" in the
first sentence thereof.
Subsection B. shall be amended by inserting the words "on
an after tax basis" after the words "TriCon shall indemnify.
Subsection C. shall be amended by inserting the words "on
an after tax basis" after the words "BATCL shall indemnify".
Annex C
Opinion of Buyer's Counsel
(i) The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the state of its
incorporation. Buyer has full corporate power and authority to carry on its
business, and to own and lease its properties and assets and is duly
qualified as a foreign corporation to conduct business and is in good
standing in each jurisdiction in which such qualification is required under
applicable law, except jurisdictions in which Buyer's failure to be so
qualified would not or could not reasonably be expected to, individually or
in the aggregate, result in a material adverse change in the business,
condition (financial or otherwise), assets, liabilities or operations of
Buyer and its subsidiaries taken as a whole;
(ii) The Buyer has full corporate power and authority to
execute and deliver the Stock Purchase Agreement and the Guaranty and to
carry out the transactions contemplated thereby;
(iii) Each of the Stock Purchase Agreement and the Guaranty
has been duly executed by, and is a valid and legally binding obligation of,
the Buyer, enforceable in accordance with its terms, except as enforcement
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect of general
application relating to or affecting creditors' rights, including, without
limitation, the effect of statutory or other laws regarding fraudulent
conveyances or transfers or preferential transfers and by general principles
of equity, whether considered in a proceeding in law or equity;
(iv) The execution and delivery of this Agreement and the
Guaranty by Buyer do not, and the consummation of the transactions
contemplated thereby and compliance with the provisions thereof will not,
conflict with, or result in any violation of, or default (with or without
notice or lapse of time or both) under, or give rise to a right of
termination, cancelation or acceleration of any obligation or the loss of a
material benefit under, any provision of the Certificate of Incorporation or
Bylaws of Buyer, or any loan or credit agreement, note, bond, mortgage,
indenture, lease, management agreement or other agreement, instrument,
permit, franchise, license, judgment, order, decree, statute, or regulation
applicable to Buyer, or any of its properties or assets, other than any such
conflicts, violation or defaults which individually and in the aggregate
will not have a material adverse effect on Buyer and its subsidiaries
considered as a whole.
(v) No consent, approval, or authorization of, or notice to, or
declaration, filing or registration with, any federal or state governmental
or regulatory authority is required to be made or obtained by Buyer in
connection with the execution and delivery of the Stock Purchase Agreement
and the consummation by the Buyer of the transactions contemplated thereby,
other than such filings as have been made and such consents, approvals and
authorizations as have been obtained.
Annex D
Opinion of Counsel
to Seller and the Company
(i) Each of Seller, the Company and each Subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation. Seller has full corporate power and
authority to conduct its business as it is now being conducted and own and
lease its properties, including in the case of Seller, the Company Common
Stock. The Company has full corporate power and authority to carry on its
business as constituted upon completion of the Restructuring, and to own and
lease its properties and assets, including without limitation those acquired
in the Restructuring, and is duly qualified as a foreign corporation to
conduct the business to be conducted by it following the Restructuring and
is in good standing in each jurisdiction in which such qualification is
required under applicable law, except jurisdictions in which the Company's
failure to be so qualified would not or could not reasonably be expected to,
individually or in the aggregate, result in a material adverse change in the
business, condition (financial or otherwise), assets, liabilities or
operations of the Company and the Subsidiaries taken as a whole, as the same
is constituted upon completion of the Restructuring (a "Material Adverse
Effect");
(ii) Seller has full corporate power and authority to execute
and deliver this Agreement and to carry out the transactions contemplated
hereby;
(iii) The Stock Purchase Agreement has been duly and validly
authorized, executed and delivered by, and is a valid and legally binding
obligation of Seller, enforceable against Seller in accordance with its
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect of general application relating to or affecting
creditors' rights, including, without limitation, the effect of statutory or
other laws regarding fraudulent conveyances or transfers or preferential
transfers and by general principles of equity, whether considered in a
proceeding in law or equity;
(iv) Each of the Assets Purchase Agreement, the Term Credit
Agreement and the Management Agreement (collectively the "Restructuring
Documents") has been duly and validly authorized, executed and delivered by,
and is a valid and legally binding obligation of, each of the Company and
Seller, enforceable against each of the Company and Seller in accordance
with its terms, except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect of general application relating to or affecting
creditors' rights, including, without limitation, the effect of statutory or
other laws regarding fraudulent conveyances or transfers or preferential
transfers and by general principles of equity, whether considered in a
proceeding in law or equity;
(v) The authorization, execution and delivery of the Stock
Purchase Agreement and the Restructuring Documents by Seller and the Company
do not, and the consummation of the transactions contemplated thereby by
Seller and the Company and compliance with the provisions hereof by Seller
and the Company will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time or both) under, or give
rise to a right of termination, cancelation or acceleration of any
obligation or the loss of a material benefit under, any provision of the
Certificate of Incorporation or Bylaws of Seller or the Company or any loan
or credit agreement, note, bond, mortgage, indenture, lease, management
agreement or other agreement, instrument, permit, franchise, license,
judgment, order, decree, statute, or regulation applicable to Seller, the
Company or any Subsidiary, or any of their respective properties or assets,
including, in the case of the Company, any Subsidiary and any of their
respective properties and assets, as the same are constituted following the
Restructuring, other than any such conflicts, violation or defaults which
individually and in the aggregate will not have a Material Adverse Effect.
(vi) The authorized, issued and outstanding capital stock of
the Company is as described in Section 3.2 of the Stock Purchase Agreement,
and the Company Common Stock is duly authorized, fully paid, validly issued,
and non-assessable;
(vii) To the best of such counsel's knowledge, there are no
outstanding subscriptions, options, convertible or exchangeable securities
or instruments, warrants, calls, rights, contracts, commitments,
understandings, restrictions or arrangements relating to or providing for
the issuance, sale, purchase, redemption, transfer, voting or registration
of any shares of Company Common Stock or other capital stock or ownership
interests in the Company;
(viii) The Restructuring has been consummated in accordance
with the Stock Purchase Agreement and the Restructuring Documents;
(ix) All of the outstanding capital stock of each Subsidiary
is owned directly or indirectly by the Company, to the best of such
counsel's knowledge, free and clear of all encumbrances, and is validly
issued, fully paid, nonassessable and, to the best of such counsel's
knowledge, free of preemptive rights. To the best of such counsel's
knowledge, there are no subscriptions, options, convertible or exchangeable
securities or instruments, warrants, calls, rights, contracts, commitments,
understandings, restrictions or arrangements relating to or providing for
the issuance, sale, purchase redemption, transfer, voting or registration of
any shares of capital stock or other ownership interests in any Subsidiary,
except for liens or rights granted in connection with financing transactions
and securitization transactions in the ordinary course of business. Each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, has full corporate
power and authority to carry on its business as it is now being conducted
and to own the properties and assets it now owns, and is duly qualified as a
foreign corporation to conduct the business conducted by it and is in good
standing in each jurisdiction in which such qualification is required under
applicable law, except jurisdictions in which the failure to be so qualified
or otherwise authorized would not or could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.
(x) No consent, approval or authorization of, or notice to,
or declaration, filing or registration with, any federal or state
governmental body is required to be made by Seller, the Company or the
Subsidiaries for the consummation of the Restructuring as contemplated by
the Stock Purchase Agreement and the Restructuring Documents or the sale by
the Seller of the Company Common Stock to the Buyer in accordance with the
provisions of the Stock Purchase Agreement, other than such filings as have
been made and such consents, approvals and authorizations as have been
obtained;
(ix) Upon the consummation of the transactions contemplated
in the Stock Purchase Agreement and assuming the Buyer is acquiring the
Company Common Stock from the Seller in good faith without any notice of an
adverse claim, the Buyer will be the owner of the Company Common Stock, free
of all Encumbrances.
SCHEDUE 4.3
Consents or waivers by lenders pursuant to the
various Greyhound Financial Corporation credit and loan
agreements, to the extent the transaction might result in a
violation of certain covenants.
LC940610.006
EXHIBIT 10.G
ANNEX A
ASSETS PURCHASE AGREEMENT
DATED AS OF MARCH __, 1994,
BETWEEN
TRICON CAPITAL CORPORATION
AND
BELL ATLANTIC TRICON LEASING CORPORATION
TABLE OF CONTENTS
Page
ARTICLE 1 - PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . -1-
1.1 Agreement to Sell . . . . . . . . . . . . . . . . . . . . . . -1-
1.2 Agreement to Purchase . . . . . . . . . . . . . . . . . . . . -3-
1.3 The Purchase Price . . . . . . . . . . . . . . . . . . . . . -4-
1.3.1 Purchase Price . . . . . . . . . . . . . . . . . . . . -4-
1.3.2 Payment of Purchase Price . . . . . . . . . . . . . . -4-
1.4 Assumption of Liabilities . . . . . . . . . . . . . . . . . . -5-
1.5 Closing Balance Sheet . . . . . . . . . . . . . . . . . . . . -6-
ARTICLE 2 - ORGANIZATION, CLOSING, ITEMS TO BE
DELIVERED, THIRD PARTY CONSENTS, CHANGE
IN NAME AND FURTHER ASSURANCES . . . . . . . . . . . . . -7-
2.1 Organization of New TriCon . . . . . . . . . . . . . . . . . -7-
2.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
2.3 Items to be Delivered at Closing . . . . . . . . . . . . . . -7-
2.4 Third Party Consents . . . . . . . . . . . . . . . . . . . . -8-
2.5 Further Assurances . . . . . . . . . . . . . . . . . . . . . -8-
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . -9-
3.1 Representations and Warranties of the Parties . . . . . . . . -9-
3.1.1 Corporate Existence . . . . . . . . . . . . . . . . . -9-
3.1.2 Corporate Power; Authorization;
Enforceable Obligations . . . . . . . . . . . . . . . -9-
3.1.3 Validity of Contemplated Transactions,
etc. . . . . . . . . . . . . . . . . . . . . . . . . . -9-
3.2 No Other Representations or Warranties of Seller . . . . . . -10-
3.3 Survival of Representations and Warranties . . . . . . . . . -10-
ARTICLE 4 - CONDITIONS PRECEDENT TO THE CLOSING . . . . . . . . . . . -10-
4.1 Conditions Precedent to Purchaser's Obligations . . . . . . . -10-
4.1.1 Representations, Warranties and
Covenants of Seller . . . . . . . . . . . . . . . . . -10-
4.1.2 Injunctions, etc. . . . . . . . . . . . . . . . . . . -11-
4.2 Conditions Precedent to the Obligations of Seller . . . . . . -11-
4.2.1 Representations, Warranties and
Covenants of Purchaser . . . . . . . . . . . . . . . . -11-
4.2.2 Injunctions, etc. . . . . . . . . . . . . . . . . . . -11-
4.2.3 Consents and Approvals . . . . . . . . . . . . . . . . -11-
4.2.4 Approval of Counsel and Other
Documents . . . . . . . . . . . . . . . . . . . . . . -11-
ARTICLE 5 - POST CLOSING MATTERS . . . . . . . . . . . . . . . . . . -12-
5.1 Employee Arrangements . . . . . . . . . . . . . . . . . . . . -12-
5.1.1 Hiring of Employees . . . . . . . . . . . . . . . . . -12-
5.1.2 Welfare Benefit Plans; Liabilities
Retained by Seller . . . . . . . . . . . . . . . . . . -15-
5.1.3 Pension Plan . . . . . . . . . . . . . . . . . . . . . -16-
5.1.4 Cooperation . . . . . . . . . . . . . . . . . . . . . -17-
5.2 Maintenance of Books and Records . . . . . . . . . . . . . . -18-
5.3 Mutual Assistance Regarding Taxes . . . . . . . . . . . . . . -19-
5.4 Payments Received . . . . . . . . . . . . . . . . . . . . . . -20-
5.5 Use of Name . . . . . . . . . . . . . . . . . . . . . . . . . -20-
5.6 UCC Matters . . . . . . . . . . . . . . . . . . . . . . . . . -21-
5.7 Discharge of Certain Liabilities . . . . . . . . . . . . . . -21-
ARTICLE 6 - INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . -21-
6.1 Indemnification of Purchaser and Related Persons . . . . . . -21-
6.2 Indemnification of Seller and Related Persons . . . . . . . . -22-
6.3 Method of Asserting Claims . . . . . . . . . . . . . . . . . -23-
6.4 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
6.5 Service of Process, Consent to Jurisdiction, Etc. . . . . . . -25-
ARTICLE 7 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . -26-
7.1 Compliance with Bulk Sales Laws . . . . . . . . . . . . . . . -26-
7.2 Brokerage; Expenses; Etc. . . . . . . . . . . . . . . . . . . -26-
7.3 Contents of Agreement; Amendment; Parties in Interest,
Assignment, Etc. . . . . . . . . . . . . . . . . . . . . . . -27-
7.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
7.5 New York Law to Govern . . . . . . . . . . . . . . . . . . . -28-
7.6 No Benefit to Others . . . . . . . . . . . . . . . . . . . . -28-
7.7 Headings, Gender and "Person." . . . . . . . . . . . . . . . -28-
7.8 Schedules and Exhibits . . . . . . . . . . . . . . . . . . . -28-
7.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . -28-
7.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . -29-
EXHIBITS
A Loan Agreement
B Management Agreement
C Form of Guarantee
SCHEDULES
1.1(vi) Subsidiaries
1.1(vii) Securitization and Swap Assets
1.1(4) Excluded Assets
<PAGE>
ASSETS PURCHASE AGREEMENT
ASSETS PURCHASE AGREEMENT, dated as of March __, 1994, by and
among BELL ATLANTIC TRICON LEASING CORPORATION, a Delaware corporation
("Seller"), and TRICON CAPITAL CORPORATION, a Delaware corporation
("Purchaser"; and together with Seller, the "Parties", and each, a "Party"),
with reference to the following Preamble:
Seller is engaged, inter alia, in the business of providing general
commercial finance and equipment leasing services (excluding the
Seller's leveraged lease and project finance transactions included in
the Excluded Assets referred to hereinafter, the "Business").
Purchaser has been formed as a Subsidiary of Seller to acquire the
hereinafter described Assets of Seller used in the Business in exchange
for the payment by the Purchaser of the Purchase Price hereinafter
described and the assumption by the Purchaser of the Assumed
Liabilities hereinafter described, all on the terms and conditions
described in this Agreement. Immediately after the consummation of the
purchase and sale of the Assets described herein, all of the
outstanding capital stock of the Purchaser shall be sold by Seller to
Greyhound Financial Corporation, a Delaware corporation ("GFC"),
pursuant to the Stock Purchase Agreement dated March __, 1994 between
Seller and GFC (the "Stock Purchase Agreement").
NOW, THEREFORE, in consideration of the Preamble and of the
respective covenants, representations, warranties and agreements herein
contained, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
ARTICLE 1 - PURCHASE AND SALE
1.1 Agreement to Sell. At the Closing hereunder (as defined in
Section 2.2 hereof) and except as otherwise specifically provided in this
Section 1.1, Seller shall grant, sell, convey, assign, transfer and deliver
to Purchaser, upon and subject to the terms and conditions of this
Agreement, all right, title and interest of Seller in and to (a) the
operations of the Business related to the Assets hereinafter described, as a
going concern, and goodwill associated therewith, and (b) all assets,
properties and rights of Seller described below which are used in the
Business (which Business, goodwill, assets, properties and rights are herein
sometimes called the "Assets"):
(i) all cash of Seller on hand or in bank accounts;
(ii) all assets, properties and rights of the Seller of a
type reflected in accordance with generally accepted accounting
principles consistently applied by Seller in accordance with past
practice on the financial statements described in Section 3.3.1 hereof
("GAAP"), under the line captioned "investment in finance leases" on
the Closing Balance Sheet (hereinafter defined);
(iii) all assets, properties and rights of the Seller of a
type reflected in accordance with GAAP under the line captioned
"investment in notes receivable" on the Closing Balance Sheet;
(iv) all assets, properties and rights of the Seller of a
type reflected in accordance with GAAP under the line captioned
"investment in operating leases, net of accumulated depreciation" on
the Closing Balance Sheet;
(v) all assets, properties and rights of the Seller of a
type reflected in accordance with GAAP under the line captioned "other
assets" on the Closing Balance Sheet;
(vi) the shares of capital stock or interests in the
entities listed in SCHEDULE 1.1(vi);
(vii) all rights of the Seller in connection with any of the
documents or agreements entered into in connection with all portfolio
securitization transactions entered into by Seller and all interest
rate swap transactions entered into by Seller, including without
limitation any rights of Seller in respect of the servicing, collection
or credit enhancement of the assets included in such securitized
portfolios (the "Securitization and Swap Assets"), including without
limitation those contemplated by the principal documents listed in
SCHEDULE 1.1(vii) hereto;
(viii) to the extent permitted by applicable law, all rights
of Seller under any written or oral contract, agreement, lease, plan,
instrument, registration, license, certificate of occupancy, other
permit or approval of any nature, intellectual property right, chose in
action, insurance claim, contracts in process, or other document,
commitment, arrangement, undertaking, practice, authorization solely
related to the foregoing Assets and Business which are not used by
Seller or any affiliate of Seller for any purpose other than the
conduct of the Business;
(ix) all proprietary computer software of Seller (including
documentation and related object and source codes) used solely in the
conduct of the Business and in existence on the Closing Date; provided
however that Purchaser shall only be granted a non-exclusive, royalty-
free, perpetual right to use such software to the extent it is used or
required for use by Seller or any affiliate of Seller after the
Closing;
(x) the right to any of Seller's claims for refunds related
to any federal, state, local, or foreign taxes of the type that are
being assumed by Purchaser pursuant to Section 1.4(f) hereof;
(xi) all office and other supplies and all files, records,
data, plans, contracts, customer and supplier lists of Seller related
to the foregoing; and
(xii) the rights to receive payments from affiliates arising
from the Business which transactions have been reflected on the Closing
Balance Sheet as a reduction in the amount on the line captioned "due
to affiliates".
Notwithstanding the foregoing, the Assets shall not include any of the
following (the "Excluded Assets"):
(1) the corporate seals, certificates of incorporation,
minute books, stock books, tax returns, books of account or other
records having to do with corporate organization of Seller;
(2) the rights which accrue or will accrue to Seller under
this Agreement;
(3) the assets, properties or rights related to Seller's
leveraged lease portfolio or project finance portfolio listed in
Attachment A to the Management Agreement referred to hereinafter, and
all contracts, instruments, files and records related thereto;
(4) The Aladdin Hotel and Casino located in Las Vegas,
Nevada, and any assets, properties and rights associated therewith (the
"Aladdin Assets"); or
(5) other assets, properties or rights set forth on SCHEDULE
1.1(5).
1.2 Agreement to Purchase. At the Closing hereunder, Purchaser shall
purchase the Assets from Seller, upon and subject to the terms and
conditions of this Agreement and in reliance on the representations,
warranties and covenants of Seller contained herein, in exchange for the
Purchase Price (hereinafter defined in Section 1.3 hereof). In addition,
Purchaser shall assume at the Closing and agree to pay, discharge or
perform, as appropriate, certain liabilities and obligations of Seller and
to indemnify Seller against certain liabilities as provided in this
Agreement.
1.3 The Purchase Price.
1.3.1 Purchase Price. The Purchase Price shall be an amount
equal to the amount by which the amount of "total assets" ("Total Assets")
exceeds the sum of the amount of "accounts payable and accrued expenses"
plus that portion of "due to affiliates" which does not represent amounts
due with respect to borrowings from Bell Atlantic Financial Services, Inc.
("Non-Debt Affiliate Obligations"), each as set forth on the Closing Balance
Sheet.
1.3.2 Payment of Purchase Price. On the Closing Date on account
of the Purchase Price, Purchaser shall (i) pay to Seller the amount of
$284,598,000 (the "Closing Payment") payable by wire transfer of immediately
available funds to such account as Seller shall designate, (ii) deliver to
Seller the Funded Debt Note in the aggregate principal amount equal to the
amount set forth on the Closing Balance Sheet on the line captioned "notes
payable" (as defined in and pursuant to the terms and conditions of the Loan
Agreement), reduced by the book value on the Closing Balance Sheet of the
Aladdin Assets, and (iii) deliver to Seller the Current Note (as defined in
and pursuant to the terms and conditions of the Loan Agreement) in the
aggregate principal amount equal to the amount by which the product of five
multiplied by the sum of the Cash Amount plus the Initial Capital Amount,
exceeds the sum of the Deferred Taxes Payment plus the principal amount of
the Funded Debt Note plus the book value on the Closing Balance Sheet of the
Aladdin Assets. On the tenth day following the Closing, Purchaser shall pay
to Seller, on account of the Purchase Price, an amount equal to the amount
of liability of Seller for deferred taxes related to the Business and the
Assets on the Closing Date as set forth on the Closing Balance Sheet, but
determined without reduction for any net deferred tax assets related to
subsidiaries of Seller whose capital stock is included in the Assets (the
"Deferred Taxes Payment"), payable by wire transfer of immediately available
funds to such account as Seller shall designate. If the Cash Amount
(hereinafter defined) exceeds the Closing Payment, Purchaser shall pay such
excess, without interest, within ten days after the Adjustment Date as
defined in Section 1.5 hereof, by wire transfer of immediately available
funds to such account as Seller shall designate in the amount of such
excess. If the Closing Payment exceeds the Cash Amount, Seller shall pay
such excess within ten days after the Adjustment Date, by wire transfer of
immediately available funds to such account as Purchaser shall designate in
the amount of such excess, without interest. The "Cash Amount" shall be
equal to one-sixth of the amount by which the sum of the Total Assets plus
the Initial Capital Amount exceeds the sum of Accounts Payable plus Non-Debt
Affiliate Obligations.
1.4 Assumption of Liabilities. At the Closing hereunder and except as
otherwise specifically provided in this Section 1.4, Purchaser shall assume
and agree to pay, discharge or perform, as appropriate, the following
liabilities and obligations (whether actual or contingent) of Seller (the
"Assumed Liabilities"):
(a) all liabilities and obligations of Seller of a type
reflected in accordance with GAAP under the line captioned "accounts payable
and accrued expenses" on the Closing Balance Sheet (the "Accounts Payable");
(b) all liabilities and obligations of Seller of a type
reflected in accordance with GAAP on the Closing Balance Sheet under the
line captioned "due to affiliates" which do not reflect amounts due with
respect to borrowings from Bell Atlantic Financial Services, Inc.;
(c) all liabilities and obligations of Seller in connection
with any of the portfolio securitization transactions and interest rate swap
transactions described in SCHEDULE 1.1(v);
(d) all liabilities and obligations of Seller with respect
to its Scheduled Employees, including without limitation those liabilities
and obligations to be assumed by Purchaser as described in Section 5.1
hereof, except as expressly provided in Section 5.1 hereof;
(e) all liabilities and obligations of Seller in respect of
the agreements, contracts, commitments and leases which are included in the
Assets and all liabilities and obligations of Seller in respect of the
agreements, contracts, commitments and leases principally related to the
Business and entered into by Seller in the ordinary course of Business; and
(f) the liabilities of Seller with respect to the Business
or the Assets for all Taxes, other than Taxes measured with respect to net
income through and including the Closing Date, provided that any Sales
Taxes, as defined in Section 7.2(c) shall be borne equally by the parties.
In no event, however, shall Purchaser assume or incur any liability or
obligation under this Section 1.4 or otherwise in respect of any liability
or obligations under the Excluded Assets except as described in the
Management Agreement referred to hereinafter.
1.5 Closing Balance Sheet. Not later than 30 days after the Closing
Date, Seller shall cause to be prepared the balance sheet of the Business
(including the Aladdin Assets but excluding the other Excluded Assets) at
the Closing Date in accordance with GAAP applied on a consistent basis with
the 1993 Balance Sheet. Such balance sheet shall not reflect any
liabilities of Purchaser. Purchaser shall make available to Seller all
books of account and other information and documents with respect to the
Business or the Purchaser as shall be necessary or helpful to permit Seller
to prepare such balance sheet and shall cause Purchasers' employees to
provide such assistance in connection therewith as Seller shall direct.
Seller shall cause Coopers & Lybrand ("C&L"), its independent
accountants, to review such financial statement in accordance with the
"review" provisions Statement on Auditing Standards No. 71, "Interim
Financial Information" of the American Institute of Certified Public
Accountants, and to issue, as soon as practicable but in any event not later
than 75 days after the Closing Date, its report thereon to Seller and
Purchaser to the effect that C&L is not aware of any material modifications
that should be made for the Closing Date balance sheet to be in conformity
with generally accepted accounting principles. The Seller shall also
prepare a detailed schedule setting forth the calculation of the amount of
the Purchase Price, the Deferred Taxes Payment and the Cash Amount and the
aggregate principal amount of the Funded Debt Note and the Current Note and
a statement to the effect that each of such amounts was calculated in
accordance with the provisions of this Agreement. C&L shall review such
schedule and report on any information which comes to C&L's attention that
causes C&L to believe that the calculations contained therein are not in
accordance with the provisions of this Agreement.
References in this Agreement to the "Closing Balance Sheet" shall
mean the balance sheet of the Business at the Closing Date, prepared and
reviewed as described in this Section 1.5. The "Adjustment Date" shall be
the second full business day after delivery of the report of C&L pursuant
hereto.
ARTICLE 2 - ORGANIZATION, CLOSING, ITEMS TO BE DELIVERED,
THIRD PARTY CONSENTS, CHANGE IN NAME
AND FURTHER ASSURANCES
2.1 Organization of New TriCon. Purchaser was incorporated as a
Delaware corporation on December 3, 1993. Thereafter, BAII purchased
13,500,000 shares of Common Stock of Purchaser for an aggregate purchase
price of $135,000 (the "Initial Capital Amount"). Immediately before
consummation of the Closing, BAII will make a contribution to the capital of
Purchaser in cash equal to the amount of the Closing Payment.
2.2 Closing. The closing (the "Closing") of the sale and purchase of
the Assets shall take place at 10:00 A.M., local time, on April ___, 1994 at
the offices of Morgan, Lewis & Bockius, 2000 One Logan Square, Philadelphia,
Pennsylvania 19103 or on such other date as may be mutually agreed upon in
writing by Purchaser and Seller. The date of the Closing is sometimes
herein referred to as the "Closing Date."
2.3 Items to be Delivered at Closing. At the Closing and subject to
the terms and conditions herein contained:
(a) Seller shall deliver to Purchaser such bills of sale,
assignments, endorsements, and other good and sufficient instruments and
documents of conveyance and transfer as shall be reasonably necessary to
transfer and assign to Purchaser all of Seller's right, title and interest
in and to the Assets. Purchaser shall bear all cost and expense of
preparing, filing and recording all such documentary evidences of transfer.
(b) Purchaser shall deliver to Seller the following:
(i) the Closing Payment, Current Note and Funded Debt Note
in accordance with Section 1.3.2 hereof; and
(ii) an undertaking whereby Purchaser will assume and agree
to pay, discharge or perform, as appropriate, Seller's liabilities
and obligations to the extent and as provided in Section 1.4
hereof in form reasonably satisfactory to Seller and its counsel.
(c) The respective parties thereto shall execute and deliver
the following agreements and instruments:
(i) Loan Agreement, between Purchaser and Seller, in the
form of Exhibit A hereto (the "Loan Agreement"); and
(ii) Management Agreement, between Purchaser and Seller, in
the form of Exhibit B hereto.
(d) At or prior to the Closing, the parties hereto shall
also deliver to each other the agreements, opinions, certificates and other
documents and instruments referred to in Article 4 hereof.
2.4 Third Party Consents. To the extent that Seller's rights under
any agreement, contract, commitment, lease, authorization or other Asset to
be assigned to Purchaser hereunder may not be assigned without the consent
of another person which has not been obtained, this Agreement shall not
constitute an agreement to assign the same if an attempted assignment would
constitute a breach thereof or be unlawful. If any such required consent
shall not be obtained or if any attempted assignment would be ineffective or
would impair Purchaser's rights under the Asset in question so that
Purchaser would not in effect acquire the benefit of all such rights,
Seller, to the maximum extent permitted by law and the Asset, upon the
written request of the Purchaser and payment by Purchaser of all out-of-
pocket expenses of Seller in connection therewith, shall act after the
Closing as Purchaser's agent in order to obtain for it the benefits
thereunder and shall cooperate, to the maximum extent permitted by law and
the Asset, with Purchaser in any other reasonable arrangement designed to
provide such benefits to Purchaser. In connection with the assignment of
contracts and other rights and obligations in connection with the transfer
of the Assets, Seller, in its sole discretion, may enter into one or more
guarantees with respect to Purchaser's obligations under the contract, which
guarantee may be in the form of the Guarantee attached hereto as Exhibit C.
2.5 Further Assurances. Seller from time to time after the Closing,
at Purchaser's request and upon payment by Purchaser of all reasonable out-
of-pocket expenses of Seller in connection therewith, will execute,
acknowledge and deliver to Purchaser such other instruments of conveyance
and transfer and will take such other actions and execute and deliver such
other documents, certifications and further assurances as Purchaser may
reasonably require in order to vest more effectively in Purchaser, or to put
Purchaser more fully in possession of, any of the Assets, or to better
enable Purchaser to complete, perform or discharge any of the liabilities or
obligations assumed by Purchaser at the Closing pursuant to Section 1.4
hereof. Each of the parties hereto will cooperate with the other and
execute and deliver to the other parties hereto such other instruments and
documents and take such other actions as may be reasonably requested from
time to time by the other Party hereto as necessary to carry out, evidence
and confirm the intended purposes of this Agreement.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Parties. Each of the
Parties hereto hereby represents and warrants to the other that:
3.1.1 Corporate Existence. Such Party is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation.
3.1.2 Corporate Power; Authorization; Enforceable Obligations.
Such Party has the corporate power, authority and legal right to execute,
deliver and perform this Agreement. The execution, delivery and performance
of this Agreement by such Party have been duly authorized by all necessary
corporate and shareholder action. This Agreement has been, and the other
agreements, documents and instruments required to be delivered by such Party
in accordance with the provisions hereof will be, duly executed and
delivered on behalf of such Party by duly authorized officers of such Party,
and this Agreement constitutes, and such other agreements, documents and
instruments when executed and delivered will constitute, the legal, valid
and binding obligations of such Party, enforceable against such Party in
accordance with their respective terms.
3.1.3 Validity of Contemplated Transactions, etc. The execution,
delivery and performance of this Agreement by such Party does not and will
not violate or result in the breach of any material term, condition or
provision of, or require the consent of any other person which has not been
obtained under, (a) any material law, ordinance, or governmental rule or
regulation to which such Party is subject, (b) any judgment, order, writ,
injunction, decree or award of any court, arbitrator or governmental or
regulatory official, body or authority which is applicable to such Party,
(c) the charter documents of such Party, or (d) any material mortgage,
indenture, agreement, lease, plan, or Authorization, to which such Party is
a party, by which such Party may have rights or by which any of the Assets
may be bound, except for (i) the delivery and recording of title transfer
documentation (including without limitation UCC financing statement filings)
with various regulatory authorities with respect to the transfer of title to
certain of the Assets, and (ii) such consents as may be required under the
terms of the agreements, documents and instruments entered into for all
financing transactions conducted by the Business with respect to any type of
property under which Seller is the lessor, the seller, the lender or an
assignee thereof and which is reflected in the 1993 Balance Sheet in the
lines captioned "investment in finance leases", "investment in notes
receivable," or "investment in operating leases, net of accumulated
depreciation" (the "Financing Transactions").
3.2 No Other Representations or Warranties of Seller. In connection
with the transactions contemplated hereby and the Business and the Assets,
except as expressly set forth in Section 3.1, THE ASSETS ARE SOLD ON AN "AS
IS" BASIS AND SELLER MAKES NO REPRESENTATIONS OR WARRANTIES WHATSOEVER,
WHETHER EXPRESS OR IMPLIED OR STATUTORY, OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR OTHERWISE. IN ADDITION, SELLER SHALL NOT BE LIABLE TO
OR THROUGH PURCHASER FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL
LOSS OR DAMAGES OF ANY NATURE. Without limiting the generality of the
foregoing, Seller makes no representation regarding any matter with respect
to which a lessee, purchaser or borrower has represented to Seller or has
agreed to indemnify Seller in the Financing Documents, and each
representation of Seller herein is qualified to such extent.
3.3 Survival of Representations and Warranties. The representations
and warranties included or provided for herein shall survive the Closing.
ARTICLE 4 - CONDITIONS PRECEDENT TO THE CLOSING
4.1 Conditions Precedent to Purchaser's Obligations. All obligations
of Purchaser under this Agreement are subject to the fulfillment or
satisfaction, prior to or at the Closing, of each of the following
conditions precedent:
4.1.1 Representations, Warranties and Covenants of Seller. The
representations and warranties of Seller herein contained shall have been
true and correct in all material respects at the date of execution of this
Agreement; Seller shall have performed in all material respects all
obligations and complied in all material respects with all agreements,
undertakings, covenants and conditions required by this Agreement to be
performed or complied with by it at or prior to the Closing Date; and Seller
shall have delivered to the Purchaser a certificate dated the Closing Date
and signed by an officer of Seller to such effect.
4.1.2 Injunctions, etc. There shall not be any judgment, decree,
injunction, ruling or order of any court, governmental department,
commission, agency or instrumentality outstanding against Seller or
Purchaser which prohibits or materially restricts or delays consummation of
the Closing.
4.2 Conditions Precedent to the Obligations of Seller. All
obligations of Seller under this Agreement are subject to the fulfillment or
satisfaction, prior to or at the Closing, of each of the following
conditions precedent:
4.2.1 Representations, Warranties and Covenants of Purchaser.
The representations and warranties of Purchaser herein contained shall have
been true and correct in all material respects at the date of execution of
this Agreement; Purchaser shall have performed in all material respects all
obligations and complied in all material respects with all agreements,
undertakings, covenants and conditions required by this Agreement to be
performed or complied with by it at or prior to the Closing Date; and
Purchaser shall have delivered to the Seller a certificate dated the Closing
Date and signed by the President and by the Chief Financial Officer of
Purchaser to such effect.
4.2.2 Injunctions, etc. There shall not be any judgment, decree,
injunction, ruling or order of any court, governmental department,
commission, agency or instrumentality outstanding against Seller or
Purchaser which prohibits or materially restricts or delays consummation of
the Closing.
4.2.3 Consents and Approvals. Seller shall have obtained the
consents required by the terms of the contracts, commitments, agreements or
authorizations to which it is a party to the extent that Seller determines
that obtaining such consent is required, necessary or desirable under the
pertinent debt, lease, contract, commitment or agreement or other document
or instrument or under applicable orders, laws, rules or regulations, for
the consummation of the transactions contemplated hereby in the manner
herein provided.
4.2.4 Approval of Counsel and Other Documents. All steps to be
taken and all resolutions, papers and documents to be executed, and all
other legal matters in connection with the transactions contemplated by this
Agreement shall be subject to the approval of counsel for Seller.
ARTICLE 5 - POST CLOSING MATTERS
5.1 Employee Arrangements.
5.1.1 Hiring of Employees.
(a) Purchaser's Undertaking. Effective as of the Closing
Date, Purchaser shall offer employment with Purchaser to all of the
employees of Seller except James Parsons (all such employees, the "Scheduled
Employees"), except for employees who are on Long Term Disability on the
Closing Date ("Inactive Employees"). If an Inactive Employee becomes able
and willing to return to work to perform the same services performed by such
Inactive Employee prior to leave of absence within six months after the
Closing Date, Purchaser shall offer such Inactive Employee employment with
Purchaser. Any offer of employment to Scheduled Employees by Purchaser
shall be for employment at will and shall not be construed to limit the
ability of Purchaser to terminate any such Scheduled Employee at any time
for any reason. All such offers of employment pursuant to this Section
5.1.1(a) shall be for employment on terms and conditions which, taken in the
aggregate, are substantially comparable to the compensation and benefit
arrangements currently in effect for such employees, except as otherwise
provided in Sections 5.1.2 and 5.1.3. Each such Scheduled Employee (whether
or not actively at work) who accepts, as of the Closing Date, such offer of
employment (and each Inactive Employee upon being offered and accepting such
employment) shall hereinafter be referred to as a "Transferred Employee"
except that any Transferred Employee (i) who is on short term disability on
the Closing Date, (ii) who does not return to active employment, and (iii)
who becomes eligible for Long Term Disability under Seller's Long Term
Disability Plan on account of the disability the onset of which occurred
prior to the Closing Date, shall be treated for purposes of this Agreement
as an Inactive Employee on and after the date such Transferred Employee
becomes eligible for Long Term Disability.
(b) Employee Benefits.
(1) (A) In General. Subject to (c), (d) and (e) below
regarding severance, bonus, and vacation benefits payable to
certain Transferred Employees, on and after the Closing Date, the
Transferred Employees shall be provided with the employee benefits
being provided to Purchaser's own employees, subject to the terms
of those plans (the "Purchaser's Employee Benefits"), and shall
receive credit for service with Seller for purposes of eligibility
and vesting under all of Purchaser's welfare benefit plans and
qualified pension and profit sharing plans to the extent that such
service credit would be relevant. No exclusions for pre-existing
conditions shall apply to any disability or medical benefit plan
for which Transferred Employees may be eligible, except for
exclusions, if any, which are similar to exclusions under Seller's
corresponding plan.
(B) Notice. Except as otherwise expressly provided in
this Section 5.1, Seller, and effective as of the Closing,
Purchaser shall give notice to all Transferred Employees that,
except as otherwise expressly provided herein, all benefits and/or
accruals previously provided under the Plans will terminate on the
Closing Date and will be replaced by Purchaser's Employee
Benefits.
(2) Certain Welfare Benefits and Pay Status.
Notwithstanding anything to the contrary in Section 5.1, Seller
shall retain liability for the following employee benefits
provided as of the Closing Date to the Inactive Employees, without
regard to whether they become Transferred Employees, until the
affected Inactive Employee becomes a Transferred Employee and/or
is covered for the disability or condition under the disability or
medical benefit plans of Purchaser: (A) long-term disability
benefits; (B) worker's compensation benefits; and (C) any medical
or similar welfare benefits provided to employees receiving the
benefits described in (A) or (B). Notwithstanding anything in
this Section 5.1 to the contrary, each Inactive Employee shall
remain an employee (or former employee) of Seller until such date,
if ever, on which such Inactive Employee becomes a Transferred
Employee or otherwise commences active employment with Purchaser.
(c) Severance Benefits. Notwithstanding anything to the
contrary in this Section, Purchaser shall provide each Transferred Employee
whose employment is terminated by Purchaser within one year of the Closing
Date with the weeks of severance pay, if any, which would have been provided
to any Transferred Employee under the Seller's severance policy. On and
following the first anniversary of the Closing Date, Purchaser shall be free
to provide any severance benefits it chooses to Transferred Employees.
(d) Bonus. Notwithstanding anything to the contrary in
Section 5.1.1(b)(i) or the terms and conditions of the applicable commission
plan, program or policy of Seller (the "Bonus Plans"), Purchaser shall
provide each affected Transferred Employee with the bonus payments, if any,
attributable, respectively, to the periods prior to the Closing, in
accordance with the terms of the particular bonus program applicable to
affected Transferred Employees as in effect on the date before the Closing.
Purchaser shall also pay any bonus required to be paid under any bonus plans
maintained by Purchaser attributable to any period which is completed after
the Closing.
(e) Vacation, Leave of Absence and Short-term Disability
Benefits. Notwithstanding anything to the contrary in Section
5.1.1(b)(1)(A), Purchaser shall provide Transferred Employees with the
greater of: (i) the weeks of vacation to which they were entitled on the
day before the Closing; or (ii) the weeks of vacation to which similarly
situated employees of Purchaser are or may become entitled under the terms
of Purchaser's vacation policies. Transferred Employees shall also receive
credit for service with Seller for purposes of computing vacation benefits
to which similarly situated employees of Purchaser are or may become
entitled under the terms of Purchaser's vacation policies. Purchaser shall
likewise provide Transferred Employees with the greater of (i) unused leave
of absence and short-term disability benefits to which they were entitled on
the day before closing, or (ii) the leave of absence and short-term
disability benefits to which similarly situated employees of Purchaser are
or may become entitled under the terms of Purchaser's leave of absence and
short-term disability policies. On the first anniversary of the Closing
Date, Purchaser shall be free to amend, revise or terminate benefits under
the plans described in this subsection (e).
(f) WARN Act Compliance. Following the Closing Date,
Purchaser shall comply in all respects with the Worker's Adjustment and
Retraining Notification Act, P.L. 100-379, 102 Stat. 890, as amended (the
"WARN Act") and shall not take any action which would subject Purchaser or
Seller to any disclosure or announcement obligations under the WARN Act with
respect to employees of the Business. As of the date hereof, Purchaser does
not contemplate any "plant closing" or "employee layoff", as such terms are
used in the WARN Act, with respect to the Purchaser or the Transferred
Employees on or before January 1, 1995.
(g) Compliance with Law. Purchaser waives any and all
claims against Seller or Seller's employee benefit plans (including, without
limitation, the trustees of such plans) it may have under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") with respect to
employee benefits, or any benefit-related claims it may assert on behalf of
Transferred Employees against Seller or Seller's employee benefit plans
(including, without limitation, the trustees of such plans). Purchaser
agrees to indemnify Seller, Seller's employee benefit plans, trustees of
Seller's employee benefit plans and Seller's directors, officers and
employees, from any claim, lawsuit, settlement or judgment (including
reasonable attorneys' fees) and other expenses in connection therewith,
relating to any claim of any Transferred Employee concerning liability for
employee benefits which Purchaser has assumed under this Agreement, except
to the extent such claim is a direct consequence of the gross negligence of
the Seller or trustees of Seller's employee benefit plans, as determined by
a court or regulatory agency having jurisdiction of the matter. Solely with
respect to satisfaction of Purchaser's warranty and agreement under this
paragraph, Purchaser shall have the right to review the plan amendments
contemplated under Section 5.1.3(b) hereof.
5.1.2 Welfare Benefit Plans; Liabilities Retained by Seller.
(a) Seller shall retain and be responsible for the welfare
benefits:
(1) of all present and former employees, other than
Transferred Employees, and for retirees of Seller as of the
Closing Date; and
(2) of Transferred Employees which were incurred or accrued
prior to the Closing Date.
(b) Seller shall continue its employee benefit programs
applicable to the Transferred Employees as benefit programs for the
Transferred Employees until the Closing Date, but without increase in
benefits except as provided in the normal course of business or with
Purchaser's approval. Seller shall have no liability under any employee
benefit program of Seller with respect to the Transferred Employees, except
as specifically provided in Section 5.1 hereof, under the provisions of
ERISA or the Internal Revenue Code of 1986, as amended (the "Code")
(including COBRA). Seller shall not have any obligation to pay any
severance compensation or separation pay to the Transferred Employees.
Purchaser shall as of the Closing Date revise its health care plan to assume
any obligations for retiree health care coverage and benefits that
Transferred Employees are or may be eligible to receive under health plans
sponsored by Bell Atlantic (the "Bell Plans"). Purchaser shall be free to
amend, revise or terminate retiree benefits in respect of such Transferred
Employees (at any time after the Closing Date); provided that any such
amendment, revision or termination may not take effect prior to the first
anniversary of the Closing Date to the extent it has the effect of reducing
retiree benefits or coverage with respect to Transferred Employees. Seller
warrants that as of the Closing Date: (i) the written instruments governing
the Bell Plans expressly allow for the amendment, revision or termination of
such plans at any time, as to any person and for any reason; (ii) there are
no provisions in the written instruments governing the Bell Plans that would
impair or diminish Purchaser's legal right to amend, revise or terminate
retiree health coverage in respect of Transferred Employees; and (iii) to
the best knowledge of Seller and its affiliates (including Bell Atlantic),
there have been no communications (written or oral) that would materially
impair or diminish such legal right; provided, however, that no warranty is
given with respect to any such communications which may be known to officers
or employees of the Business but are not otherwise known to officers or
employees of Seller or its affiliates (other than the Transferred Employees
or any former employee of the Business).
5.1.3 Pension Plan.
(a) Seller shall be fully responsible for delivering
benefits accrued by Transferred Employees under its defined benefit pension
plan or plans (each a "Seller's Pension Plan") through the Closing Date. No
assets or liabilities shall be transferred from Seller's Pension Plans to
any plan maintained by Purchaser. Transferred Employees shall participate
in any defined benefit plan maintained by Purchaser on and after the Closing
Date consistent with the terms of such plan but with full recognition for
service credited under Seller's Pension Plan or Plans for all purposes
including vesting, eligibility, benefit accrual and early retirement.
Notwithstanding the foregoing, any benefit payable under Purchaser's defined
benefit plan shall be reduced in a manner not inconsistent with Code Section
401(a) dollar for dollar by benefits accrued through the Closing Date under
any Seller's Pension Plan, even if any of such benefit has already been
distributed, such reduction to be computed by expressing a participant's
benefit under Seller's Pension Plan (or Plans) in the same form and
commencing at the same time as the benefit payable under Purchaser's plan,
using the actuarial equivalence factors in effect under Seller's Pension
Plan (or Plans) and taking into account all subsidies for early retirement
or otherwise applicable to a particular benefit under Seller's Pension Plan
(or Plans). Purchaser and Seller agree that Transferred Employees in
Seller's Pension Plans shall have no further eligibility service under those
plans toward early retirement subsidies following the Closing Date; each
such Transferred Employee who has not met all requirements for early
retirement as of the Closing Date shall look solely to Purchaser's plans for
any early retirement subsidies. If Seller does not purchase annuities for
Transferred Employees or otherwise settle their accrued benefit under
Seller's Pension Plan for Transferred Employees, Purchaser shall pay to
Seller an amount equal to the benefit payments made to any Transferred
Employee from Seller's Pension Plan for Transferred Employees prior to the
date such Transferred Employee has begun to receive benefits under
Purchaser's Pension Plan for Transferred Employees, provided that this
sentence shall apply only to a Transferred Employee whose benefit under
Seller's Pension Plan for Transferred Employees does not reflect a full
actuarial reduction on account of early retirement; Purchaser shall make
full payment to Seller promptly upon presentation of a written statement
from Seller identifying the payments made. Purchaser shall assume under its
supplemental pension plan any obligations for benefits that eligible
Transferred Employees may have accrued under the Bell Atlantic Senior
Management Retirement Income Plan, the Bell Atlantic Executive Management
Retirement Income Plan, and the Bell Atlantic ERISA Excess Pension Plan.
(b) Within a reasonable period after the Closing Date not to
exceed 90 days, to the extent necessary, Seller shall amend Seller's Pension
Plan for Transferred Employees to provide (A) that each Transferred Employee
who is a participant in such plan on the Employment Transfer Date shall be
fully vested on such date in his or her accrued benefit under Seller's
Pension Plan for Transferred Employees. Future service with Purchaser will
be disregarded in determining eligibility for early retirement, and for
subsidized early retirement benefits, under Seller's Pension Plan for
Transferred Employees; and (B) that distributions to Transferred Employees
may commence at age 55 (regardless of service) at the Transferred Employee's
election subject to full actuarial reduction. In addition, a Transferred
Employee with an accrued benefit with a present value of less than $3,500
under Seller's Pension Plan for Transferred Employees shall be cashed out of
his or her benefit.
(c) Seller agrees to transfer to a defined contribution
401(k) plan established by Purchaser which qualifies under Code Section
401(a) as soon as practicable after the Closing Date the following: shares
of common stock of Bell Atlantic Corporation held for the account of
Transferred Employees under Seller's 401(k) plans, such transfer to be in
kind; and the value of all other investment accounts held for the account of
Transferred Employees under Seller's 401(k) plans, such transfer to be in
cash as determined by Bankers Trust (the plan trustee) consistent with
valuation of accounts for terminated participants generally, without
interest; provided such transfer shall be consistent with Code Section
414(1) and shall not jeopardize the qualification of Seller's Pension Plan
under Code Section 401(a).
(d) Seller shall retain and be responsible for retirement
benefits under the Bell Atlantic Retirement Plans and benefits under its
401(k) plans for former employees (other than Transferred Employees) and for
retirees of Seller as of the Closing Date.
5.1.4 Cooperation.
(a) With respect to all benefits for which Seller is liable
under this Section 5.1, Purchaser shall cooperate with Seller by promptly
providing the information reasonably requested by Seller to enable Seller to
perform its obligations. Purchaser shall direct all claimants and claims
for such benefits to Seller. Seller shall provide Purchaser with such
reasonable access prior to the Closing Date as may be necessary or
appropriate to enable Purchaser to enroll Scheduled Employees into
Purchaser's Employee Benefits and otherwise fulfill its obligations under
this Section 5.1.
(b) With respect to all benefits for which Purchaser is
liable under this Section 5.1 or otherwise provides to Transferred
Employees, Seller shall cooperate with Purchaser by promptly providing the
information reasonably requested by Purchaser to enable Purchaser to perform
its obligations. Without limiting the foregoing, Seller shall cooperate in
arranging for the regular and timely communication to Purchaser (or its
delegates) of information on Transferred Employee benefits under the
applicable Seller's Pension Plan for such purposes and at such times as
Purchaser (or its delegates) may reasonably require. Seller shall direct
all claimants and claims for such benefits to Purchaser.
(c) After the Closing Date, Seller and Purchaser each will
cooperate with the other in providing reasonable access to all information
required for the operation of, or the preparation and submission of reports
or notices required in connection with the operation of the employee benefit
programs maintained by Seller or Purchaser or their affiliates which covers
any of the Transferred Employees, including, without limitation, the
preparation and submission of reports or notices to the Retirement Benefit
Guaranty Corporation, the Department of Labor, the Internal Revenue Service,
or any other agency of the U.S. Government.
(d) The provisions of any employee benefit plan or program
of Seller relating to the amendment or termination by any employer sponsor
or other party to such plan or program shall not be abridged by this
Agreement.
5.2 Maintenance of Books and Records. Each of Seller and Purchaser
shall preserve, until the seventh anniversary of the Closing Date, all
records possessed or to be possessed by such Party relating to any of the
assets, liabilities or business of the Business prior to the Closing Date.
After the Closing Date, where there is a legitimate purpose, such Party
shall provide the other Party with access, upon prior reasonable written
request specifying the need therefor, during regular business hours, to (i)
the officers and employees of such Party and (ii) the books of account and
records of such Party, but, in each case, only to the extent relating to the
assets, liabilities or business of the Business prior to the Closing Date,
and the other parties and their representatives shall have the right to make
copies of such books and records; provided, however, that the foregoing
right of access shall not be exercisable in such a manner as to interfere
unreasonably with the normal operations and business of such Party; and
further, provided, that, as to so much of such information as constitutes
trade secrets or confidential business information of such Party, the
requesting Party and its officers, directors and representatives will use
due care to not disclose such information except (i) as required by law,
(ii) with the prior written consent of such Party, which consent shall not
be unreasonably withheld, or (iii) where such information becomes available
to the public generally, or becomes generally known to competitors of such
Party, through sources other than the requesting Party, its affiliates or
its officers, directors or representatives. Such records may nevertheless
be destroyed by a Party if such Party sends to the other parties written
notice of its intent to destroy records, specifying with particularity the
contents of the records to be destroyed. Subject to the last sentence of
Section 5.3(a) hereof, such records may then be destroyed after the 30th day
after such notice is given unless the other Party objects to the destruction
in which case the party seeking to destroy the records shall deliver such
records to the objecting party.
5.3 Mutual Assistance Regarding Taxes.
(a) Purchaser and Seller will provide each other such
assistance as may reasonably be required by either of them in connection
with the preparation of any return for taxes, any audit or other examination
by any taxing authority or any judicial or administrative proceedings
related to liability for taxes (including refunds) and will each provide the
other with any records or information relevant to such return, audit or
examination, proceedings or determination as are in its possession or
subject to its control. Such assistance shall include making employees
available on a mutually convenient basis to provide additional information
and explanation of any material provided pursuant hereto and shall include
providing copies of any relevant tax returns of Seller and the Subsidiaries.
All information provided pursuant to this Section 5.3(a) shall be held in
confidence, and not be disclosed to others for any reasons whatsoever,
except to the extent that such disclosure is required in order to effect the
intent of this Section 5.3(a) or such disclosure is required by the law.
Neither Purchaser nor Seller shall destroy any records related to the
Business necessary for tax return preparation or support in audits or other
tax proceedings for any period up to and including the Closing Date without
the prior written consent of the other.
(b) Except as may be required by applicable law, all tax
returns filed by or with respect to the activities of Purchaser after the
Closing Date shall reflect each Financing Transaction for federal, state and
local income tax purposes in a manner consistent with the characterization
of such Financing Transaction by Seller and its subsidiaries on their tax
returns prior to Closing and as set forth in the books and records of
Seller, and Purchaser shall not take or permit an affiliate of Purchaser to
take a position with any tax authority that is inconsistent with such
treatment or inconsistent with Seller's treatment of the transaction
contemplated by this Agreement.
(c) Purchaser shall be responsible for the preparation of
all tax returns relating to the Assets or the Business required to be filed
by Seller. Returns for taxes measured with respect to net income for
taxable periods ending on or before the Closing Date shall be forwarded to
Seller not less than fifteen days prior to the required due date for filing.
Seller shall be responsible for the actual filing and the payment of taxes
with respect to such returns. The filing of other tax returns shall be the
responsibility of Purchaser. In the case of the Sales Taxes, as defined in
Section 7.2(c), Purchaser and Seller shall cooperate in the preparation and
filing of any required returns.
5.4 Payments Received. Seller and Purchaser each agree that after the
Closing they will hold and will promptly transfer and deliver to the other,
from time to time as and when received by them, any cash, checks with
appropriate endorsements (using their reasonable efforts not to convert such
checks into cash), or other property that they may receive on or after the
Closing which properly belongs to the other Party, including without
limitation any insurance proceeds, and will account to the other for all
such receipts.
5.5 Use of Name. At the Closing hereunder, Seller and its affiliates
will assign, transfer and convey to Purchaser all right, title and interest,
including any trademark or service mark rights, to and in the names
"TriCon," "TriContinental," and variants thereof; provided, however, that
Seller and its affiliates shall be entitled to use such names in connection
with the maintenance and disposition of the leveraged leases, project
finance portfolio and Aladdin Assets included in the Excluded Assets.
Seller and its affiliates shall execute any and all documents and take such
other action as Purchaser shall reasonably request to evidence such
assignments. In no event shall Purchaser use the name "Bell Atlantic" or
any variant thereof; provided however that (i) Purchaser shall be permitted
to use the following descriptions for the Purchaser: "TriCon Capital
Corporation (or any successor name), formerly known as Bell Atlantic TriCon
Leasing Corporation or Bell Atlantic Capital Corp" until the 180th day after
the Closing, and (ii) Purchaser shall be permitted to use such name (a) in
connection with collection and legal proceedings with respect to agreements
involving the Business established on or prior to the Closing Date, (b) in
announcements of the transaction distributed to current or former customers
of Purchaser or any Purchaser subsidiary or otherwise and (c) on any
document or other materials used in the operation of the businesses of the
Purchaser and its subsidiaries, including, without limitation, sales
material, forms of agreements, invoices, letterhead and business cards in
existence on the Closing Date, until depletion, but in no event after the
180th day after the Closing. Notwithstanding the foregoing, Purchaser shall
not at any time be obligated hereunder to amend any agreements, documents or
instruments (including financing statements or similar documents) to alter
Purchaser's name or any name under which the Business has been conducted or
otherwise.
5.6 UCC Matters. From and after the Closing Date, Seller will
promptly refer all inquiries with respect to ownership of the Assets or the
Business to Purchaser. In addition, upon reimbursement by Purchaser of all
related out-of-pocket costs of Seller, Seller will execute such documents
and financing statements as Purchaser may request from time to time to
evidence transfer of the Assets to Purchaser, including any necessary
assignments of financing statements. Purchaser shall give Seller a power of
attorney in form and substance acceptable to Seller in its sole discretion
to execute such documents and financing statements.
5.7 Discharge of Certain Liabilities. From and after the Closing
Date, Purchaser shall pay and discharge, in accordance with past practice
but not less than on a timely basis, all Assumed Liabilities in accordance
with their respective terms.
ARTICLE 6 - INDEMNIFICATION
6.1 Indemnification of Purchaser and Related Persons. The Seller
shall indemnify and hold harmless, on an after-tax basis, the Purchaser, its
successors and assigns, and each person who controls the Purchaser within
the meaning of the Securities Act of 1933, as amended, and each person who
is an affiliate of the Purchaser within the meaning of Rule 405 promulgated
thereunder, and each officer and director of the Purchaser and any such
controlling person or affiliate, from, against and in respect of any and all
damages, losses, deficiencies, liabilities, costs and expenses, including
without limitation any and all actions, suits, claims, proceeding,
investigations, demands, assessments, audits, fines, judgments, civil
penalties, excise taxes costs and other expenses (including, without
limitation, reasonable legal fees and expenses) incident to the foregoing or
to the enforcement of this Section 6.1. ("Losses") (i) resulting from,
relating to or arising out of any liabilities related solely to the Excluded
Assets or the business of Seller after the Closing Date except to the extent
that Purchaser is obligated to indemnify Seller with respect thereto
pursuant to the provisions hereof or the exhibits hereto, or (ii) to the
extent arising out of any employee benefit plans, programs, contracts or
other arrangements, including but not limited to any employee benefit plan
within the meaning of Section 3(3) of ERISA, and any bonus, incentive, stock
option or deferred compensation plan maintained by Seller or any entity
affiliated at any time with Seller under Code Section 414, except to the
extent attributable to Transferred Employees (except as specifically assumed
or retained by Seller pursuant to Section 5.1 hereof).
6.2 Indemnification of Seller and Related Persons. The Purchaser
shall indemnify and hold harmless, on an after-tax basis, the Seller, its
successors and assigns, and each person who controls the Seller within the
meaning of the Securities Act of 1933, as amended, and each person who is an
affiliate of the Seller within the meaning of Rule 405 promulgated
thereunder, and each officer and director of the Seller and any such
controlling person or affiliate, from, against and in respect of any and all
damages, losses, deficiencies, liabilities, costs and expenses, including
without limitation any and all actions, suits, claims, proceeding,
investigations, demands, assessments, audits, fines, judgments, costs and
other expenses (including, without limitation, reasonable legal fees and
expenses) incident to the foregoing or to the enforcement of this Section
6.1. ("Losses") resulting from, relating to or arising out of any
(1) misrepresentation or breach of warranty by Purchaser
hereunder or under the Loan Agreement or Management
Agreement;
(2) non-fulfillment of any agreement or covenant of Purchaser
hereunder or under the Loan Agreement or Management
Agreement;
(3) any and all Assumed Liabilities;
(4) the conduct of the Business by the Seller except for the
Excluded Assets;
(5) the failure by the lessee, purchaser or borrower under the
Financing Transactions included in the Assets or similar
transactions which would have been included in the Assets had
the Closing taken place on or prior to the Closing Date to
comply with the terms of the lease, purchase or loan
documents related to such Financing Transactions (including
without limitation all indemnification provisions contained
therein);
(6) any matter arising with respect to any of the Securitization
and Swap Assets (including without limitation any of the
servicing agreements or interest rate swap transaction
related thereto);
(7) any matter arising out of the use by Seller or Purchaser of
the name Bell Atlantic, Bell Atlantic TriCon Leasing
Corporation or Bell Atlantic Capital Corp.;
(8) all obligations of Seller under any guarantee entered into
with respect to the Business or this transaction (including
without limitation any guarantees entered into pursuant to
Section 2.5 hereof); and
(9) except as otherwise expressly provided herein, any matter
arising out of the transfer of the Assets or Business to
Purchaser, the employment of the Scheduled Employees by
Purchaser and any claims by third persons with respect to the
transactions contemplated hereby.
Such indemnification obligation of Seller hereunder shall continue after the
Closing and shall not expire or be terminable by Purchaser and shall be
without limitation as to amount.
6.3 Method of Asserting Claims. All claims for indemnification under
Section 6.2 shall be asserted and resolved as follows:
(A) In the event that any claim or demand for which the Purchaser
would be liable to the Seller hereunder is asserted against or sought to be
collected by a third party, the Seller shall notify the Purchaser of such
claim or demand, specifying the nature of such claim or demand and the
amount or the estimated amount thereof to the extent then feasible (which
estimate shall not be conclusive of the final amount of such claim or
demand) (the "Claim Notice"). The Purchaser shall have 30 days from its
receipt of the Claim Notice (the "Notice Period") to notify the Seller (1)
whether or not it disputes its liability to the Seller hereunder with
respect to such claim or demand, and (2) if it does not dispute such
liability, whether or not it desires, at its sole cost and expense, to
defend the Seller against such claim or demand; provided, however, that the
Seller is hereby authorized prior to and during the Notice Period to file
any motion, answer or other pleading which it shall deem necessary or
appropriate to protect its interests. In the event that the Purchaser
notifies the Seller within the Notice Period that it does not dispute such
liability and desire to defend against such claim or demand, then except as
hereinafter provided, the Purchaser shall have the right to defend by
appropriate proceedings, which proceedings shall be promptly settled or
prosecuted to a final conclusion in such a manner as to avoid any risk of
the Seller becoming subject to liability for any other matter. If the
Seller desires to participate in, but not control, any such defense or
settlement it may do so at its sole cost and expense. If, in the reasonable
opinion of the Seller, any such claim or demand involves an issue or matter
which could have a materially adverse effect on the business, operations,
assets, properties or prospects of the Seller or an affiliate of the Seller,
the Seller shall have the right to control the defense or settlement of any
such claim or demand, and its reasonable costs and expenses thereof shall
not be included as part of the indemnification obligations of the Purchaser
hereunder. If the Purchaser does not dispute its liability with respect to
such claim or demand or elects not to defend against such claim or demand,
whether by not giving timely notice as provided above or otherwise, then the
amount of any such claim or demand, or, if the same be contested by the
Purchaser or by the Seller (but the Seller shall not have any obligation to
contest any such claim or demand), then that portion thereof as to which
such defense is unsuccessful, shall be conclusively deemed to be a liability
of the Purchaser hereunder (subject, if the Purchaser has timely disputed
liability, to a determination that the disputed liability is covered by
these indemnification provisions).
(B) In the event that the Seller should have a claim against the
Purchaser hereunder which does not involve a claim or demand being asserted
against or sought to be collected from it by a third party, the Purchaser
shall promptly send a Claim Notice with respect to such claim to the Seller.
If the Purchaser does not notify the Seller within the Notice Period that it
disputes such claim, the amount of such claim shall be conclusively deemed a
liability of the Purchaser hereunder.
(C) Nothing herein shall be deemed to prevent Seller from making
a claim hereunder for potential or contingent claims or demands provided the
Claim Notice sets forth the basis for any such potential or contingent claim
or demand and the estimated amount thereof to the extent then feasible and
Seller has reasonable grounds to believe that such a claim or demand will be
made.
(D) In the event that Seller has the right to recover any Losses
under any insurance policies in effect from time to time and Seller, in its
sole discretion, determines to pursue such rights, any recovery under such
insurance actually received by Seller shall not be deemed a Loss hereunder;
provided that Seller shall not be required hereby to (i) maintain any
insurance policy or to (ii) to make any claim under any insurance policy
maintained by Seller unless Seller is reimbursed by Purchaser for an amount
which Seller determines, in its sole discretion, is equal to all expenses
and increased future premium costs resulting therefrom.
6.4 Payment. In the event that Purchaser is required to make any
payment under this Article 6, Purchaser shall promptly pay the indemnified
party the amount so determined. If there should be a dispute as to the
amount or manner of determination of any indemnity obligation owed under
this Article 6, Purchaser shall nevertheless pay when due such portion, if
any, of the obligation as shall not be subject to dispute. The difference,
if any, between the amount of the obligation ultimately determined as
properly payable under this Article 6 and the portion, if any, theretofore
paid shall bear interest as provided in the last sentence of this Section
6.4. Upon the payment in full of any claim, either by setoff or otherwise,
Purchaser shall be subrogated to the rights of the indemnified party against
any person, firm, corporation or other entity with respect to the subject
matter of such claim. If all or part of any indemnification obligation
under this Agreement is not paid when due, then the Purchaser shall pay the
indemnified party or parties interest on the unpaid amount of the obligation
for each day from the date the amount became due until payment in full,
payable on demand, at the fluctuating rate per annum which at all times
shall be two percentage points in excess of the lowest rate generally
charged from time to time by CoreStates Bank, N.A. and publicly announced by
such bank as its so-called "prime rate."
6.5 Service of Process, Consent to Jurisdiction, Etc.
(A) The Purchaser irrevocably consents to the service of any
process, pleadings, notices or other papers by the mailing of copies thereof
by registered, certified or first class mail, postage prepaid, to such
person at such person's address set forth in Section 7.4 hereof, or by any
other method provided or permitted under Pennsylvania law.
(B) The Purchaser irrevocably and unconditionally (1) agrees that
any suit, action or other legal proceeding arising out of this Agreement may
be brought in the United States District Court for the Eastern District of
Pennsylvania or, if such court does not have jurisdiction or will not accept
jurisdiction, in any court of general jurisdiction in the County of
Montgomery, Pennsylvania; (2) consents to the jurisdiction of any such court
in any such suit, action or proceeding; and (3) waives any objection which
such Shareholder may have to the laying of venue of any such suit, action or
proceeding in any such court.
ARTICLE 7 - MISCELLANEOUS
7.1 Compliance with Bulk Sales Laws. Purchaser and Seller hereby
waive compliance by Purchaser and Seller with the bulk sales law and any
other similar laws in any applicable jurisdiction in respect of the
transactions contemplated by this Agreement. Seller shall indemnify
Purchaser from, and hold it harmless against, any liabilities, damages,
costs and expenses resulting from or arising out of (i) the parties' failure
to comply with any of such laws in respect of the transactions contemplated
by this Agreement, or (ii) any action brought or levy made as a result
thereof, other than the Assumed Liabilities, on such terms as expressly
assumed, by Purchaser pursuant to this Agreement.
7.2 Brokerage; Expenses; Etc.
(a) The parties hereto represent and warrant that all
negotiations relative to this Agreement have been carried on by them
directly without the intervention of any person, firm or corporation. Each
Party will indemnify the other and hold such other party harmless against
and in respect of any claim for brokerage or other commissions relative to
this Agreement or the transactions contemplated hereby made by any person,
firm or corporation claiming through it.
(b) Except as otherwise expressly provided herein, each
Party hereto shall pay its own expenses, including, without limitation, the
reasonable fees and expenses of its counsel, incurred in connection with
this Agreement and the transactions contemplated hereby.
(c) Purchaser and Seller agree to cooperate to reduce any
and all federal, state and local sales, documentary and other transfer taxes
other than taxes measured by net income ("Sales Taxes"), if any, due as a
result of the purchase, sale or transfer of the Assets (including without
limitation taxes incurred in connection with any Section 338 election made
by Purchaser or any person controlled by Purchaser). Purchaser and Seller
agree to bear equally any Sales Taxes that may become due.
7.3 Contents of Agreement; Amendment; Parties in Interest, Assignment,
Etc. This Agreement sets forth the entire understanding of the parties
hereto with respect to the subject matter hereof. Any previous agreements
or understandings between the parties regarding the subject matter hereof
are merged into and superseded by this Agreement. This Agreement may be
amended, modified or supplemented only by written instrument duly executed
by each of the parties hereto. All representations, warranties, covenants,
terms and conditions of this Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective heirs, legal
representatives, successors and permitted assigns of the parties hereto,
provided that no Party hereto shall assign this Agreement or any right,
benefit or obligation hereunder. Any term or provision of this Agreement
may be waived at any time by the Party entitled to the benefit thereof by a
written instrument duly executed by such Party.
7.4 Notices. All notices, consents or other communications required
or permitted to be given under this Agreement shall be in writing and shall
be deemed to have been duly given when delivered personally, delivery
changes prepaid, or three business days after being sent by registered or
certified mail (return receipt requested), postage prepaid, or one business
day after being sent by a nationally recognized express courier service,
postage or delivery charges prepaid, to the parties at their respective
addresses stated below. Notices may also be given by prepaid telegram or
facsimile and shall be effective on the date transmitted if confirmed within
24 hours thereafter by a signed original sent in the manner provided in the
preceding sentence. Any Party may change its address for notice and the
address to which copies must be sent by giving notice of the new address to
the other parties in accordance with this Section 7.4, except that any such
change of address notice shall not be effective unless and until received.
If to Purchaser, to:
TriCon Capital Corporation
95 Route 17 South
Paramus, NJ 07652
Attention: Frederick C. Bauman
FAX: 201-712-3710
If to Seller, to:
Bell Atlantic Capital Corporation
1717 Arch Street
Philadelphia, PA 19103
Attention: Raymond E. Dombrowski, Jr.
FAX: 215-563-3155
7.5 New York Law to Govern. This Agreement shall be governed by and
interpreted and enforced in accordance with the laws of the State of New
York, without giving effect to the conflicts of law provisions thereof.
7.6 No Benefit to Others. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto and their respective successors and assigns, and they shall
not be construed as conferring any rights on any other persons.
7.7 Headings, Gender and "Person." All section headings contained in
this Agreement are for convenience of reference only, do not form a part of
this Agreement and shall not affect in any way the meaning or interpretation
of this Agreement. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine, or
neuter, as the context requires. Any reference to a "person" herein shall
include an individual, firm, corporation, partnership, trust, governmental
authority or body, association, unincorporated organization or any other
entity.
7.8 Schedules and Exhibits. All Exhibits and Schedules referred to
herein are intended to be and hereby are specifically made a part of this
Agreement.
7.9 Severability. Any provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall be ineffective to the extent of such
invalidity or unenforceability without invalidating or rendering
unenforceable the remaining provisions hereof, and any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
7.10 Counterparts. This Agreement may be executed in any number of
counterparts and any Party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all
of which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more
counterparts taken together shall have been executed and delivered by the
parties. It shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the date first written.
ATTEST: TRICON CAPITAL CORPORATION
By______________________ By___________________________
As its As its
ATTEST: BELL ATLANTIC TRICON
LEASING CORPORATION
________________________ By___________________________
As its As its
<PAGE>
INDEX OF DEFINED TERMS
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
Securitization and Swap Assets . . . . . . . . . . . . . . . . . . . . -2-
Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
Non-Debt Affiliate Obligations . . . . . . . . . . . . . . . . . . . . -4-
Closing Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
Deferred Taxes Payment . . . . . . . . . . . . . . . . . . . . . . . . -4-
Cash Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
Assumed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
Closing Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . -6-
Adjustment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
Initial Capital Amount . . . . . . . . . . . . . . . . . . . . . . . . -7-
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
Loan Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
Financing Transactions . . . . . . . . . . . . . . . . . . . . . . . . -10-
Scheduled Employees . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
Inactive Employees . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
Transferred Employee . . . . . . . . . . . . . . . . . . . . . . . . . -12-
Purchaser's Employee Benefits . . . . . . . . . . . . . . . . . . . . . -12-
Bonus Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
WARN Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
Seller's Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . -16-
Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
Sales Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
EXHIBIT 12
GREYHOUND FINANCIAL CORPORATION
Computation of Ratio of Income to Combined Fixed Charges
and Preferred Stock Dividends
(Dollars in Thousands)
Year Ended December 31,
------------------------------------------------
1993 1992 1991 1990 1989
------------------------------------------------
Net income (loss) before
income taxes $ 64,123 $ 50,593 $(37,014) $ 40,216 $ 37,249
Add leveraged lease 1,505 1,059 1,758 389 1,100
adjustment
Add fixed charges:
Interest expense 126,152 136,107 157,560 171,652 167,250
One-third of rent expense 1,387 1,498 1,148 581 700
-------- -------- -------- -------- --------
Total fixed charges 127,539 137,605 158,708 172,233 167,950
-------- -------- -------- -------- --------
Net income as adjusted $193,167 $189,257 $123,452 $212,838 $206,299
-------- -------- -------- -------- --------
Ratio of income to fixed
charges 1.51 1.38 --- 1.24 1.23
======== ======== ======== ======== ========
Preferred stock dividends
on a pre-tax basis 3,682 2,826
Total combined fixed
charges and
preferred
stock dividends $131,221 $140,431 $158,708 $172,233 $167,950
-------- -------- -------- -------- --------
Ratio of income to
combined
fixed charges and
preferred stock
dividends 1.47 1.35 --- 1.24 1.23
======== ======== ======== ======== ========
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-51216 of Greyhound Financial Corporation on Form S-3 of our report dated
March 4, 1994, appearing in this Annual Report on Form 10-K of Greyhound
Financial Corporation for the year ended December 31, 1993.
/s/ DELOITTE & TOUCHE
- ----------------------------------
Phoenix, Arizona
March 10, 1994
EXHIBIT 23.A
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement on
Form S-3 (File No. 33-51216) of our report dated February 7, 1994 on our
audits of the consolidated financial statements of TriCon Capital
Corporation-Predecessor Business, which report is included in this Annual
Report on Form 10-K and includes an explanatory paragraph for certain
accounting changes.
/s/ COOPERS & LYBRAND
----------------------------------
New York, New York
March 9, 1994
EXHIBIT 23.B
CONCENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our Firm under the caption "Experts" in the
Registration Statement on Form S-3 (File No. 33-51216) of Greyhound
Financial Corporation.
/s/ COOPERS & LYBRAND
---------------------------------
New York, New York
March 9, 1994
EXHIBIT 23.C
INDEPENDENT AUDITORS' CONSENT
-----------------------------
We consent to the incorporation by reference in the Registration Statement
No. 33-51216 of Greyhound Financial Corporation on Form S-3 of our report on
Fleet Factors Corporation (a wholly-owned subsidiary of Fleet Financial
Group, Inc.) dated January 28, 1994, which is included in the Form 8-K of
Greyhound Financial Corporation dated February 14, 1994 and is incorporated
by reference in the Form 10-K of Greyhound Financial Corporation for the
year ended December 31, 1993. We also consent to the reference to our Firm
under the heading "Experts" in the Prospectus, which is part of the
Registration Statement.
/s/ KPMG PEAT MARWICK
-----------------------------------
Providence, Rhode Island
March 10, 1994
