<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1998
REGISTRATION NO. 333-46915
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
HELLER FINANCIAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 36-1208070
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
500 WEST MONROE STREET, CHICAGO, ILLINOIS 60661, (312) 441-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
DEBRA H. SNIDER, ESQ.
EXECUTIVE VICE PRESIDENT, CHIEF ADMINISTRATIVE OFFICER, GENERAL COUNSEL AND
SECRETARY
HELLER FINANCIAL, INC.
500 WEST MONROE STREET, CHICAGO, ILLINOIS 60661, (312) 441-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
LAWRENCE D. LEVIN, ESQ. ANDREW D. SOUSSLOFF, ESQ.
MARK D. WOOD, ESQ. SULLIVAN & CROMWELL
KATTEN MUCHIN & ZAVIS 125 BROAD STREET
525 WEST MONROE STREET, SUITE 1600 NEW YORK, NEW YORK 10004
CHICAGO, ILLINOIS 60661 (212) 558-4000
(312) 902-5200
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If the Registrant elects to deliver its latest annual report to security
holders or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of this prospectus is expected to be made pursuant to Rule 434,
check the following box: [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF SHARES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1) REGISTRATION FEE(2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Class A Common Stock, $0.25 par value.... $963,125,000 $284,122
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) of Regulation C under the Securities Act of 1933, as
amended.
(2) Previously paid.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectuses: one to be
used in connection with an offering of the Class A Common Stock in the United
States (the "U.S. Prospectus") and one to be used in connection with a
concurrent international offering of the Class A Common Stock outside the
United States (the "International Prospectus"). The forms are identical except
for certain differing pages for the International Prospectus which are
included herein following the form of U.S. Prospectus. Each differing page for
the International Prospectus is labeled "Alternate Page for International
Prospectus".
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 28, 1998
33,500,000 SHARES
LOGO
CLASS A COMMON STOCK
(PAR VALUE $0.25 PER SHARE)
----------
Of the 33,500,000 shares of Class A Common Stock offered, 30,150,000 shares
are being offered hereby in the United States and 3,350,000 shares are being
offered in a concurrent international offering outside the United States. The
initial public offering price and the aggregate underwriting discount per share
will be identical for both Offerings. See "Underwriting".
All of the shares of Class A Common Stock offered hereby are being sold by
the Company. The Company is currently an indirect, wholly-owned subsidiary of
The Fuji Bank, Limited. Upon completion of the Offerings, Fuji Bank will
beneficially own, indirectly, 100% of the outstanding shares of Class B Common
Stock of the Company. The Class B Common Stock, which has three votes per share
(except that the outstanding shares of Class B Common Stock, while held by Fuji
Bank, may never represent more than 79% of the combined voting power of all
outstanding shares of the Company's voting stock), is a class of common stock
separate from the Class A Common Stock, which has one vote per share.
Immediately following the Offerings, the 33,500,000 shares of Class A Common
Stock offered in the Offerings will represent 39.6% of the economic interest
(or rights of holders of common equity to participate in distributions in
respect of the common equity) in the Company (43.0% if the Underwriters' over-
allotment options are exercised in full) and, due to the limitation on the
voting power of the Class B Common Stock while held by Fuji Bank, 21.0% of the
combined voting power of all classes of voting stock of the Company (regardless
of whether the Underwriters' over-allotment options are exercised). The
remainder of the voting power and economic interest in the Company will be
beneficially held by Fuji Bank, which will therefore continue to be able to
exercise a controlling influence over the business and affairs of the Company
upon consummation of the Offerings. See "Risk Factors--Control by and
Relationship with Fuji Bank", "Certain Relationships and Related Transactions--
Relationship with Fuji Bank" and "Description of Capital Stock".
Prior to this offering, there has been no public market for the Class A
Common Stock. It is currently estimated that the initial public offering price
per share will be between $23.00 and $25.00. For factors to be considered in
determining the initial public offering price, see "Underwriting".
Shares of Class A Common Stock are being reserved for sale to certain
directors, officers, employees and benefit plans of the Company and certain
other designated individuals at the initial public offering price. See
"Underwriting". Such employees and directors will be entitled to purchase, in
the aggregate, less than 5% of the Class A Common Stock offered in the
Offerings.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE CLASS A COMMON STOCK.
The Class A Common Stock has been approved for listing on the New York Stock
Exchange, upon notice of issuance, under the symbol "HF".
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
-------------- ------------ ------------
<S> <C> <C> <C>
Per Share............................. $ $ $
Total (3)............................. $ $ $
</TABLE>
- -----
(1) The Company and Fuji Bank have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933.
(2) Before deducting estimated expenses of $2,200,000 payable by the Company.
(3) The Company has granted the U.S. Underwriters an option for 30 days to
purchase up to an additional 4,522,500 shares at the initial public
offering price per share, less the underwriting discount, solely to cover
over-allotments. Additionally, the Company has granted the International
Underwriters a similar option with respect to an additional 502,500 shares
as part of the concurrent international offering. If such options are
exercised in full, the total initial public offering price, underwriting
discount and proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting".
----------
The shares offered hereby are offered severally by the U.S. Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that the
shares will be ready for delivery in New York, New York, on or about
, 1998, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO. J.P. MORGAN & CO.
Joint Lead Managers
BT ALEX. BROWN
LEHMAN BROTHERS
MERRILL LYNCH & CO.
----------
The date of this Prospectus is , 1998.
<PAGE>
[INSIDE FRONT COVER GATEFOLD-LEFT]
On the left side of the page is the following text:
Heller Financial, Inc. has a 79 year history of consistently serving the needs
of mid-sized and small businesses both in the United States and around the
world.
The Company's mission is to provide high quality financial services and capital
that help mid-sized and small enterprises succeed, and to do so by building
strong positions in the markets it serves, and strong relationships with the
clients it serves.
Heller has a variety of commercial finance capabilities including:
. Asset based financing . Sales and vendor financing
. Corporate financing . Small business financing
. Real estate financing . International financing
. Equipment financing and leasing . Factoring and working capital loans
On the right side of the page are bar graphs presenting the following
financial data of the Company for the years 1993-1997:
NET INCOME APPLICABLE TO COMMON STOCK
Year (in millions)
---- -------------
1993 $107
1994 108
1995 115
1996 123
1997 144
TOTAL ASSETS
Year (in millions)
---- -------------
1993 $ 7,913
1994 8,476
1995 9,638
1996 9,926
1997 12,861
NEW BUSINESS VOLUME
Year (in millions)
---- -------------
1993 $ 2,084
1994 2,917
1995 3,854
1996 4,052
1997 5,970
COMMON STOCKHOLDERS' EQUITY
Year (in millions)
---- -------------
1993 $ 1,128
1994 1,205
1995 1,259
1996 1,342
1997 1,403
<PAGE>
[INSIDE FRONT COVER GATEFOLD--RIGHT]
The following text is at the top of the page
Heller Financial has a strong presence in over 40 offices throughout the
United States...
[This text is followed by a map of United States indicating office locations by
city]
In the middle of the page is the following text:
...and in 19 countries around the world.
This text is followed by a map of South America, Europe, Asia and Australia
indicating office locations by country
[LOGO]
Straight talk. Smart deals.
<PAGE>
AVAILABLE INFORMATION
Heller Financial, Inc. (the "Company") is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports and other information with
the Securities and Exchange Commission (the "Commission"). Reports and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's Regional Offices located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
materials may also be obtained from the web site the Commission maintains at
http://www.sec.gov. In addition, such materials may be inspected and copied at
the offices of the New York Stock Exchange (the "NYSE"), 20 Broad Street, New
York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-2 (herein, together with all amendments and exhibits, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"). This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information,
reference is hereby made to the Registration Statement.
----------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 1-6157) pursuant
to the Exchange Act are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997; and
(2) The Company's Current Reports on Form 8-K filed with the Commission
on January 29, 1998, January 30, 1998, February 20, 1998, February 27, 1998
and April 21, 1998.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, on the
written or oral request of any such person, a copy of any or all of the
documents incorporated herein by reference, other than exhibits to such
information (unless such exhibits are specifically incorporated by reference
into such documents). Requests should be directed to Heller Financial, Inc.,
500 West Monroe Street, Chicago, Illinois 60661, Attention: Treasurer,
telephone (312) 441-7000.
----------------
Any statement contained in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is, or is deemed to be, incorporated by reference herein modifies
or supersedes such statement. Any statement so modified shall not be deemed to
constitute a part of this Prospectus except as so modified, and any statement
so superseded shall not be deemed to constitute a part of this Prospectus.
----------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS
IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH
THE OFFERINGS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and consolidated financial
statements, including the notes thereto, appearing elsewhere in this Prospectus
or incorporated by reference herein. Unless the context indicates otherwise,
(i) references to the "Company" in this Prospectus are to Heller Financial,
Inc. together with its consolidated subsidiaries, (ii) references to "Fuji
Bank" in this Prospectus are to The Fuji Bank, Limited together with its
consolidated subsidiaries, (iii) references to "FAHI" in this Prospectus are to
Fuji America Holdings, Inc., a wholly-owned subsidiary of Fuji Bank and the
immediate parent of the Company and (iv) information contained in this
Prospectus assumes that the Class A Common Stock will be sold in the Offerings
at a price of $24.00 per share (the midpoint of the range set forth on the
cover page of this Prospectus) and that the Underwriters' over-allotment
options will not be exercised. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER
THE INFORMATION SET FORTH HEREIN UNDER THE HEADING "RISK FACTORS".
THE COMPANY
The Company is a leading diversified commercial financial services company
which provides a broad array of financial products and services to mid-sized
and small businesses in the United States and selected international markets.
The Company provides its products and services principally in five business
categories: (i) asset based finance ("Asset Based Finance"), which provides
secured loans and factoring through five business groups, (ii) Heller Real
Estate Financial Services ("Real Estate Finance"), which provides secured real
estate financing, (iii) Heller International Group, Inc. ("International
Group"), which provides international asset based financing and factoring, (iv)
Heller Corporate Finance ("Corporate Finance"), which provides collateralized
cash flow lending, and (v) Heller Project Finance ("Project Finance"), which
provides structured financing for domestic energy-related projects. The
Company's primary clients and customers are entities in the manufacturing and
service sectors having annual sales generally in the range of $5 million to
$250 million and in the real estate sector having property values generally in
the range of $1 million to $40 million.
The Company concentrates primarily on senior secured lending, with 89% of
lending assets and investments at December 31, 1997 being made on such basis.
Also, to a more limited extent, the Company makes subordinated loans and
invests in select debt and equity instruments. The Company believes that, as of
December 31, 1997, it was the fourth largest factoring operation in the United
States in terms of factoring volume (and the largest factoring operation
worldwide), the third largest originator of U.S. Small Business Administration
("SBA") 7(a) guaranteed small business loans (including leadership positions in
California and Texas) and among the largest lenders to private equity-sponsored
companies in the U.S. middle market. Additionally, the Company is a recognized
leader in real estate finance, vacation ownership lending and middle-market
equipment finance and leasing in the United States. The Company has built its
portfolio through effective asset origination capabilities, disciplined
underwriting and credit approval processes and effective portfolio management.
Most of the Company's business groups have also developed the ability to manage
asset, client and industry concentrations and enhance profitability by
distributing assets through securitizations, syndications and/or loan sales.
The Company's total lending assets and investments were $11.9 billion and
common stockholders' equity was $1.4 billion at December 31, 1997. For the year
ended December 31, 1997, the Company's net income increased 19% to $158
million, from $133 million for the prior year, while new business volume
increased 47% over the prior year, from $4.1 billion to $6.0 billion. Net
income applicable to common stock was $144 million for the year ended December
31, 1997, which represented an increase of 17% from $123 million for the prior
year. The credit quality of the Company's portfolio is reflected in nonearning
assets of $155 million, or 1.4% of total lending assets, at December 31, 1997.
3
<PAGE>
The Company was incorporated in 1919 under the laws of the State of Delaware.
As of March 31, 1998, the Company employed 2,362 people worldwide. Its
executive offices are located at 500 West Monroe Street, Chicago, Illinois
60661 (telephone: (312) 441-7000). The Company's web site address is
http://www.hellerfin.com.
STRATEGY
The Company is dedicated to delivering consistent growth in earnings and
assets, while maintaining the credit quality of its asset portfolio. Over the
past five years, the Company has achieved growth in earnings and assets through
its strong client orientation, productive origination network, disciplined
adherence to prudent credit principles and its long-standing leadership
positions in many of its target markets.
Management believes that the following operating principles have been key to
the Company's success and will continue to guide its business strategy in the
future:
. Maintain "superior client focus" in targeted mid-sized and small
business markets throughout all economic cycles
. Build and maintain a strong financial profile through a sound capital
structure, a diversified and high-quality asset portfolio and
conservative reserve levels
. Adhere to prudent credit standards and actively manage the Company's
portfolio
. Enhance productivity by leveraging existing operating platforms,
selectively investing in technology and people and practicing
disciplined expense management
. Develop, attract and retain experienced professionals by maintaining a
vibrant culture that promotes delegation, accountability, creativity and
teamwork
Adhering to these operating principles, the Company intends to continue its
earnings and asset growth by employing the following strategies:
MAINTAIN AND BUILD LEADERSHIP POSITIONS IN SELECTED MID-SIZED AND SMALL
BUSINESS MARKETS. The Company's proven ability to develop client relationships
and originate transactions with mid-sized and small businesses throughout
economic cycles has resulted in leadership positions in several of its
businesses. In addition, since 1992, the Company has entered several markets in
which the Company believes it has developed an effective infrastructure to
enable it to establish leadership positions. This strategy has resulted in
compound annual growth in new business volume of 25% over the past five years.
The Company seeks further growth by (i) continuing to develop the well-
established market positions of its domestic and international factoring,
Corporate Finance and Heller Small Business Lending ("Small Business Lending")
businesses, by offering a broad array of innovative financing products and
services, (ii) continuing to expand the capabilities of Real Estate Finance,
including origination of fixed rate commercial mortgages held for ultimate
securitization ("CMBS"), and (iii) further developing the market positions of
certain other asset based lending businesses, such as Heller Equipment Finance
and Leasing ("Equipment Finance and Leasing"), Heller Business Credit
("Business Credit") and Heller Sales Finance ("Sales Finance"), by building
upon its proven competencies and technical expertise. The Company believes that
the businesses which comprise its Asset Based Finance portfolio represent an
attractive combination of growth potential, earnings consistency and credit
quality.
CONTINUE TO GROW THE COMPANY'S INTERNATIONAL BUSINESSES. The Company has a
significant international presence in factoring and asset based financing, and
has had subsidiaries and joint ventures in many international markets for more
than 25 years. These enterprises provide a solid base for consistent growth in
international earnings and also provide the Company with the opportunity to
meet the international financing needs of its domestic client base.
4
<PAGE>
MAINTAIN PRUDENT CREDIT STANDARDS AND ACTIVE PORTFOLIO MANAGEMENT. The
Company has built a disciplined "credit culture" supported by portfolio and
risk management processes. The Company establishes clearly defined credit
strategies for each of its businesses, permitting them to make quick credit
decisions under disciplined guidelines. Additionally, the Company believes that
it has developed an expertise in structuring sophisticated transactions that
enables it to accommodate unique client needs without compromising credit
quality. The Company has centralized the administration of credit policy and
portfolio management to ensure consistency in credit strategy, efficiency in
credit analysis and processing and the ability to monitor credit quality and
portfolio composition closely. The Company believes that its risk management
systems, portfolio management and servicing capabilities, and client-oriented
structuring capabilities will continue to support long-term profitability.
ENHANCE CAPITAL MARKETS AND DISTRIBUTION EXPERTISE. As a complement to their
strong origination capabilities, most of the Company's business groups have
developed competencies in the syndication and/or securitization of lending
assets, and the Company plans to prudently expand these capabilities. The
Company believes that these skills will be increasingly important to the
Company's ability to (i) maximize its origination strength by providing broader
market access to higher quality credits, (ii) manage customer and asset
concentrations, (iii) generate income growth in competitive markets through
syndication fees and securitization gains and (iv) meet a broader array of the
financial needs of its current clients.
INCREASE OPERATING EFFICIENCIES WITHIN THE COMPANY. The Company has
established a framework for its business categories that it believes can
support the profitable addition of a significant level of assets. The Company
believes it is recognizing significant economies of scale in certain of its
established businesses (domestic and international factoring and Corporate
Finance), and expects to improve economies of scale in its other businesses as
they grow and achieve critical mass. The Company believes that its recent and
ongoing investments in building its Asset Based Finance businesses and its Real
Estate Finance CMBS capability provide effective operating platforms for these
businesses, and that continued strong growth in new business using these
existing platforms will generate productivity improvements in the future. The
Company has also invested in technology and support systems, significantly
upgrading its technology infrastructure in 1997 to streamline the management of
portfolio accounts, increase its efficiency in processing high transaction
volumes and enable Intranet and Internet communications and commerce. In
addition, the Company will selectively pursue strategic acquisition
opportunities of businesses and portfolios of assets that it believes will
generate additional economies of scale and productivity improvements.
RELATIONSHIP WITH FUJI BANK
Presently, all of the outstanding common stock of the Company is indirectly
owned by Fuji Bank, headquartered in Tokyo, Japan, through the Company's
immediate parent, FAHI. Fuji Bank also directly owns 21% of the outstanding
shares of International Group, a consolidated subsidiary of the Company engaged
in international factoring and asset based financing activities. Fuji Bank will
sell its interest in International Group to the Company upon consummation of
the Offerings. Fuji Bank is one of the largest banks in the world, with total
deposits of $301 billion at September 30, 1997. See "Risk Factors--Control by
and Relationship with Fuji Bank", "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General" and "Certain
Relationships and Related Transactions".
Upon consummation of the Offerings, Fuji Bank will beneficially own all
51,050,000 of the outstanding shares of the Company's Class B Common Stock,
$0.25 par value per share (the "Class
5
<PAGE>
B Common Stock"), which has three votes per share (except that the outstanding
shares of Class B Common Stock, while held by Fuji Bank, may never represent
more than 79% of the combined voting power of all outstanding shares of the
Company's voting stock) but is otherwise identical in all material respects to
the Company's Class A Common Stock, $0.25 par value per share (the "Class A
Common Stock"), which has one vote per share. Upon consummation of the
Offerings, the Class B Common Stock beneficially owned by Fuji Bank will, due
to the limitation on the voting power of the Class B Common Stock while held by
Fuji Bank, represent, in the aggregate, 79.0% of the combined voting power of
all of the outstanding shares of Class A Common Stock and Class B Common Stock
(collectively, the "Common Stock") (regardless of whether the Underwriters'
over-allotment options are exercised) and 60.4% of the economic interest (or
rights of holders of common equity to participate in distributions in respect
of the common equity) in the Company (57.0% if the Underwriters' over-allotment
options are exercised in full). For as long as Fuji Bank continues to
beneficially own shares of Common Stock representing more than 50% of the
combined voting power of the Class A Common Stock and Class B Common Stock,
Fuji Bank will be able to direct the election of all of the members of the
Board of Directors of the Company (the "Board of Directors") and exercise a
controlling influence over the business and affairs of the Company. Fuji Bank
has advised the Company that its current intent is to continue to hold all of
the Common Stock beneficially owned by it following the Offerings. Fuji Bank,
FAHI and the Company have agreed not to sell or otherwise dispose of any shares
of Common Stock for a period of 180 days after the date of this Prospectus,
without the prior written consent of Goldman, Sachs & Co. From time to time,
the Company and Fuji Bank have entered into, and can be expected to continue to
enter into, agreements and business transactions, and the Company's Amended and
Restated Certificate of Incorporation will include certain provisions relating
to the Company's relationship with Fuji Bank. See "Risk Factors--Control by and
Relationship with Fuji Bank", "Risk Factors--Shares Eligible for Future Sale;
Possible Future Sales by Fuji Bank", "Certain Relationships and Related
Transactions--Relationship with Fuji Bank", "Ownership of Common Stock",
"Shares Available for Future Sale", "Description of Capital Stock" and
"Underwriting".
THE OFFERINGS
The offering hereby of 30,150,000 shares of Class A Common Stock initially
being offered in the United States (the "U.S. Offering") and the offering of
3,350,000 shares of Class A Common Stock initially being offered in a
concurrent international offering outside of the United States (the
"International Offering") are collectively referred to as the "Offerings". The
closing of each Offering is conditioned upon the closing of the other Offering.
CLASS A COMMON STOCK OFFERED:
U.S. Offering..................... 30,150,000 shares
International Offering............ 3,350,000 shares
Total.......................... 33,500,000 shares
COMMON STOCK OUTSTANDING AFTER THE
OFFERINGS*:
Class A Common Stock.............. 33,500,000 shares
Class B Common Stock.............. 51,050,000 shares
Total.......................... 84,550,000 shares
- --------
* Excludes (i) 505,912 shares of restricted Class A Common Stock and 1,242,250
shares of Class A Common Stock issuable upon the exercise of options, which
shares of restricted Class A Common Stock and options are to be granted to
certain officers and employees of the Company upon consummation of the
Offerings, and (ii) 4,593,088 shares of Class A Common Stock reserved for
issuance with respect to awards that may be granted in the future under the
Heller Financial, Inc. 1998 Stock Incentive Plan. See "Management--Executive
Compensation--The 1998 Stock Incentive Plan".
6
<PAGE>
USE OF PROCEEDS....................... The net proceeds to the Company
from the Offerings are estimated to
be approximately $762 million ($876
million if the Underwriters' over-
allotment options are exercised in
full), (i) $450 million of which
will be used to repay indebtedness
of the Company, consisting of a
subordinated promissory note in the
principal amount of $450 million
issued on February 24, 1998 as a
dividend to FAHI and (ii)
approximately $309 million of which
is expected to be paid as a cash
dividend to FAHI, as the sole
holder of the Class B Common Stock,
following the consummation of the
Offerings. See "Use of Proceeds".
NYSE SYMBOL FOR CLASS A COMMON STOCK.. HF
DIVIDENDS; VOTING RIGHTS; CONVERSION.. The holders of Class A Common Stock
and Class B Common Stock share
ratably on a per share basis in all
dividends and other distributions
on the Common Stock declared by the
Board of Directors, except that
holders of Class A Common Stock
will not be entitled to receive the
cash dividend which the Company
expects to pay to FAHI, as the sole
holder of the Class B Common Stock,
with a portion of the net proceeds
of the Offerings. See "Dividend
Policy", "Use of Proceeds", and
"Description of Capital Stock--
Common Stock--Dividends". With
certain exceptions, the Class A
Common Stock and Class B Common
Stock vote together as a single
class. However, the holders of
Class A Common Stock are entitled
to one vote per share and the
holders of Class B Common Stock are
entitled to three votes per share
(except that the outstanding shares
of Class B Common Stock, while held
by Fuji Bank, may never represent
more than 79% of the combined
voting power of all outstanding
shares of the Company's voting
stock). See "Description of Capital
Stock--Common Stock--Voting
Rights". Under certain
circumstances, shares of Class B
Common Stock convert or are
convertible into an equivalent
number of shares of Class A Common
Stock. See "Description of Capital
Stock--Common Stock--Conversion".
CONTROLLING STOCKHOLDER............... For information regarding the
Company's controlling stockholder,
see "Risk Factors--Control by and
Relationship with Fuji Bank" and
"Certain Relationships and Related
Transactions--Relationship with
Fuji Bank".
RISK FACTORS.......................... For a discussion of certain
considerations relevant to an
investment in the Class A Common
Stock, see "Risk Factors".
7
<PAGE>
SUMMARY FINANCIAL DATA
The results of operations and balance sheet data of the Company for each of
the years in the three-year period ended December 31, 1997 and as of December
31, 1997 and 1996, respectively, were derived from the audited consolidated
financial statements of the Company, including the notes thereto, appearing
elsewhere in this Prospectus. The results of operations and balance sheet data
for each of the years in the two-year period ended December 31, 1994 and as of
December 31, 1995, 1994 and 1993, respectively, except 1994 and 1993 net income
applicable to common stock and pro forma amounts for all years, were derived
from audited consolidated financial statements of the Company, including the
notes thereto, which are not presented herein. The data presented below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997(1) 1996 1995 1994 1993
------- ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net interest income.................. $ 408 $ 355 $ 387 $ 366 $ 356
Operating revenues................... 754 533 620 557 517
Operating expenses................... 357 247 216 195 174
Provision for losses................. 164 103 223 188 210
Income before income taxes and
minority interest................... 233 183 181 174 133
Net income........................... 158 133 125 118 117
Net income applicable to common
stock............................... 144 123 115 108 107
Pro forma net income applicable to
common stock per share(2)........... 1.70
<CAPTION>
DECEMBER 31,
---------------------------------------
1997(1) 1996 1995 1994 1993
------- ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Receivables.......................... $10,722 $8,529 $8,085 $7,616 $7,062
Allowance for losses of receivables.. (261) (225) (229) (231) (221)
Total assets......................... 12,861 9,926 9,638 8,476 7,913
Commercial paper and short-term
borrowings.......................... 3,432 2,745 2,223 2,451 1,981
Long-term debt....................... 6,004 4,761 5,145 3,930 3,968
Total debt.......................... 9,436 7,506 7,368 6,381 5,949
Total liabilities.................... 11,096 8,402 8,208 7,107 6,625
Preferred stock...................... 275 125 125 125 125
Common equity........................ 1,403 1,342 1,259 1,205 1,128
Total stockholders' equity.......... 1,678 1,467 1,384 1,330 1,253
Pro forma book value per common
share(2)(3)......................... 16.59
</TABLE>
- -------
(1) The financial data presented for 1997 reflect the Company's purchase
(through its subsidiary, International Group) of its joint venture
partner's interest in Factofrance Heller, S.A. ("Factofrance") in April
1997 for $174 million, which resulted in Factofrance being reported on a
consolidated basis with the Company as of the date of acquisition. The
Company financed this acquisition through the issuance of senior debt. The
premium related to this purchase was allocated as follows: $78 million to
goodwill and $18 million to a noncompetition agreement. The consolidation
of Factofrance resulted in increases of $2.0 billion, $94 million, $59
million and 570 in total assets, operating revenues, operating expenses and
number of employees, respectively, during 1997 as compared to 1996. This
acquisition had a modest favorable impact on the Company's 1997 net income,
as earnings from the Company's increased ownership interest in Factofrance
were partially offset by costs related to the acquisition (including
interest on the senior debt issued to finance the acquisition).
(2) Based upon 84,550,000 shares of Common Stock to be outstanding upon
consummation of the Offerings. Excludes (i) 505,912 shares of restricted
Class A Common Stock and 1,242,250 shares of Class A Common Stock issuable
upon the exercise of options, which shares of restricted Class A Common
Stock and options are to be granted to certain officers and employees of
the Company upon consummation of the Offerings, and (ii) 4,593,088 shares
of Class A Common Stock reserved for issuance with respect to awards that
may be granted in the future under the Heller Financial, Inc. 1998 Stock
Incentive Plan. The Company will compute the cost of stock options in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"). If the Company were to use Statement
of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") and had the stock options been issued effective
January 1, 1997, the compensation cost of these stock options would have
reduced net income by $2.1 million, and pro forma net income applicable to
common stock per share would have been $1.68 for 1997. The annual cost of
the stock options was determined through the development of a valuation
model which included assumptions of a ten-year option life, a risk-free
interest rate of 5.67%, a dividend yield of 1.6%, and volatility of 19.44%
based on industry peers' volatility. See "Management--Executive
Compensation--The 1998 Stock Incentive Plan".
(3)Book value represents total stockholders' equity, net of preferred stock.
8
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997(1) 1996 1995 1994 1993
------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PROFITABILITY
Net interest income as a percentage of AFE(2).. 4.0% 4.1% 4.6% 4.7% 4.7%
Non-interest operating revenues as a percentage
of AFE(2)..................................... 3.5 2.0 2.7 2.5 2.2
Operating revenues as a percentage of AFE(2)... 7.5 6.1 7.3 7.2 6.9
Return on average common stockholders'
equity(3)..................................... 10.5 9.4 9.3 9.2 10.0
Return on AFE(2)............................... 1.6 1.5 1.5 1.5 1.6
Ratio of earnings to combined fixed charges and
preferred stock dividends(4).................. 1.39x 1.36x 1.34x 1.45x 1.44x
Salaries and general operating expenses as a
percentage of AFE(2).......................... 3.5% 2.8% 2.6% 2.5% 2.3%
Ratio of operating expenses to operating
revenues...................................... 47.3 46.3 34.8 35.0 33.7
Common dividend payout ratio(5)................ 47.7 47.2 47.0 20.4 1.9
</TABLE>
<TABLE>
<CAPTION>
AS OF, OR FOR THE YEAR ENDED, DECEMBER 31,
-------------------------------------------------
1997(1) 1996 1995 1994 1993
---------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT NUMBER OF EMPLOYEES
AND OFFICE LOCATIONS)
<S> <C> <C> <C> <C> <C>
CREDIT QUALITY
Ratio of earning loans
delinquent 60 days or more
to receivables............ 1.4% 1.7% 1.4% 1.4% 2.1%
Ratio of net writedowns to
average lending assets.... 1.5 1.3 2.9 2.4 2.8
Ratio of total nonearning
assets to total lending
assets.................... 1.4 3.3 3.6 4.0 5.9
Ratio of allowance for
losses of receivables to
receivables............... 2.4 2.6 2.8 3.0 3.1
Ratio of allowance for
losses of receivables to
net writedowns............ 1.8x 2.1x 1.0x 1.3x 1.1x
Ratio of allowance for
losses of receivables to
nonearning impaired
receivables............... 185.1% 85.2% 87.7% 81.3% 83.7%
LEVERAGE
Ratio of debt (net of
short-term investments) to
total stockholders'
equity.................... 5.2x 5.0x 5.0x 4.7x 4.7x
Ratio of commercial paper
and short-term borrowings
to total debt............. 36.4% 36.6% 30.2% 38.4% 33.3%
OTHER
Total lending assets and
investments (6)........... $ 11,928 $ 9,620 $ 9,039 $ 8,443 $ 7,742
Funds employed(2).......... 10,673 9,030 8,542 7,991 7,309
Total managed assets(7).... 11,800 9,574 9,137 8,414 7,422
Number of employees........ 2,339 1,527 1,487 1,404 1,307
Number of office locations. 63 52 36 33 24
</TABLE>
- -------
(1) The financial data presented for 1997 reflect the Company's purchase
(through its subsidiary, International Group) of its joint venture
partner's interest in Factofrance in April 1997 for $174 million, which
resulted in Factofrance being reported on a consolidated basis with the
Company as of the date of acquisition. The Company financed this
acquisition through the issuance of senior debt. The premium related to
this purchase was allocated as follows: $78 million to goodwill and $18
million to a noncompetition agreement. The consolidation of Factofrance
resulted in increases of $2.0 billion, $94 million, $59 million and 570 in
total assets, operating revenues, operating expenses and number of
employees, respectively, during 1997 as compared to 1996. This acquisition
had a modest favorable impact on the Company's 1997 net income, as earnings
from the Company's increased ownership interest in Factofrance were offset
by costs related to the acquisition (including interest on the senior debt
issued to finance the acquisition).
(2) Funds employed include lending assets and investments, less credit
balances of factoring clients. The Company believes funds employed are
indicative of the dollar amount which it has loaned to borrowers. Average
funds employed ("AFE") reflect the average of lending assets and
investments, less credit balances of factoring clients.
(3) Return on average common stockholders' equity is computed as net income
less preferred stock dividends paid, divided by average total stockholders'
equity net of preferred stock.
(4) The ratio of earnings to combined fixed charges and preferred stock
dividends is calculated by dividing (i) income before income taxes,
minority interest and fixed charges by (ii) fixed charges plus preferred
stock dividends.
(5) Common dividend payout ratio is computed as common dividends paid, divided
by net income applicable to common stock.
(6) Total lending assets and investments consist of receivables, repossessed
assets, equity and real estate investments, operating leases, debt
securities and investments in international joint ventures.
(7) Total managed assets include funds employed, plus receivables previously
securitized or sold and currently managed by the Company.
9
<PAGE>
RECENT DEVELOPMENTS
Set forth below is unaudited consolidated financial data and ratios of the
Company for the periods indicated. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements, including
the notes thereto, appearing elsewhere in this Prospectus. Operating results
presented for the three months ended March 31, 1998 are not necessarily
indicative of the operating results that may be expected for the year ended
December 31, 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
--------- ------------
(IN MILLIONS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
RESULTS OF OPERATIONS:
Operating revenues............................... $ 186 $ 141
Operating expenses............................... 94 62
Provision for losses............................. 15 22
Net income....................................... 48 39
Net income applicable to common stock............ 43 36
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Receivables...................................... $10,676 $10,722
Allowance for losses of receivables.............. (261) (261)
Preferred stock.................................. 275 275
Common equity.................................... 988(1) 1,403
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1997
--------- ------------
<S> <C> <C>
SELECTED DATA AND RATIOS:
Operating revenues as a percentage of AFE........ 6.7% 6.4%
Return on average common stockholders' equity.... 13.3 10.8
Return on AFE.................................... 1.7 1.8
Ratio of net writedowns to average lending
assets.......................................... 0.6 1.0
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
Ratio of total nonearning assets to total lending
assets.......................................... 1.6% 1.4%
Ratio of earning loans delinquent 60 days or more
to receivables.................................. 1.4 1.4
Ratio of allowance for losses of receivables to
receivables..................................... 2.4 2.4
Ratio of senior debt (net of short-term
investments) to total stockholders' equity...... 7.0x(1) 5.1x
Ratio of commercial paper and short-term
borrowings to senior debt....................... 36% 36%
Total lending assets and investments............. $11,955 $11,928
Funds employed................................... 10,687 10,673
</TABLE>
- --------
(1) Reflects a $450 million dividend paid to FAHI on February 24, 1998 in the
form of a subordinated promissory note. The Company intends to use $450
million of the net proceeds from the Offerings to repay such indebtedness.
See "Use of Proceeds" and "Dividend Policy".
Net income for the three months ended March 31, 1998 was $48 million, a 23%
increase over net income of $39 million for the same period in the previous
year. Net income applicable to common stock was $43 million for the three
months ended March 31, 1998, which represented an increase of 19% from $36
million for the three months ended March 31, 1997. The increase in net income
was principally due to growth in operating revenues, which increased $45
million, or 32%, compared to the prior year period due to growth in both net
interest income and non-interest income, including
10
<PAGE>
increases in fees and other income and factoring commissions (including the
securitization gain described below). Operating revenues as a percentage of AFE
rose to 6.7% for the first quarter of 1998, compared to 6.4% for the first
quarter of 1997. The consolidation of Factofrance had the effect of increasing
operating revenues, operating expenses and factoring commissions by $27
million, $21 million and $14 million, respectively, and decreasing income of
international joint ventures by $3 million, for the first quarter of 1998, as
compared to the same period in the previous year. The Company's increased
ownership of Factofrance had a modest favorable impact on net income for the
three months ended March 31, 1998 as earnings were offset by costs of the
acquisition.
New business volume for the first quarter of 1998 totaled $1.7 billion, an
80% increase over new business volume of $951 million for the first quarter of
1997. Growth in new business volume was due to strong originations activity,
primarily in Real Estate Finance and Corporate Finance. Total lending assets
and investments of $12.0 billion at March 31, 1998 represented a slight
increase over $11.9 billion in total lending assets and investments at December
31, 1997, as growth from new business was offset by portfolio runoff,
syndications and the securitization of approximately $1.1 billion of CMBS
receivables in the first quarter of 1998. The Company realized a pre-tax gain
of $11 million on this securitization, which the Company anticipates may cause
operating revenues and net income in the first quarter of 1998 to be higher
than those in certain other quarters of 1998. The Company did not retain any
residual risk in this securitization, as all of the receivable-backed
securities were sold to third parties on a non-recourse basis. See "Business--
Real Estate Finance". Net writedowns totaled $15 million, or 60 basis points,
during the first quarter of 1998 compared to $21 million, or 100 basis points,
in the prior year period. The Company maintained a low level of nonearning
assets at March 31, 1998, with nonearning assets totalling $166 million, or
1.6% of total lending assets, as compared to $155 million, or 1.4% of total
lending assets, at December 31, 1997. The ratio of earning loans delinquent 60
days or more to receivables remained constant at 1.4% at March 31, 1998 as
compared to December 31, 1997. Similarly, the Company's allowance for losses of
receivables was 2.4% of total receivables at both March 31, 1998 and December
31, 1997.
11
<PAGE>
RISK FACTORS
Prospective investors should carefully consider, in addition to the other
information contained or incorporated by reference in this Prospectus, the
following factors before purchasing the Class A Common Stock offered hereby.
ECONOMIC FACTORS
RISK OF ECONOMIC RECESSION OR DOWNTURN
The Company's business, financial condition and results of operations may be
affected by various economic factors, including the level of economic activity
in the markets in which the Company operates. Unfavorable economic conditions
may make it more difficult for the Company to maintain both its new business
origination volume and the credit quality thereof at levels previously
attained. The Company's growth is dependent to a significant degree upon its
ability to generate new finance receivables, and in an economic recession or
other adverse economic environment, growth in finance receivables may not be
attainable.
Certain of the Company's business categories are subject to industry-
specific economic factors. Demand for the Company's products with respect to
targeted industries is affected by demand for such industries' services and
products, and an economic downturn or slowdown in certain of these industries
could adversely affect the demand for the Company's products. For example, the
Company's U.S. factoring business, which generated 9.6% of the Company's
revenues in 1997, could be adversely affected by a downturn in the textile and
apparel markets, which are key markets served by such business. The textile
and apparel markets contributed 20% and 65%, respectively, of the Company's
U.S. factoring business revenues in 1997. Also, 17% of the Company's portfolio
of lending assets and investments in 1997 consisted of commercial real estate
finance assets. The Company's real estate finance activities could be
adversely affected by a downturn in the commercial real estate markets, which
markets have been characterized by cyclicality and may be significantly
affected by certain factors, such as changes in tax regulations or interest
rates. In addition, the Company realized 5.4% of its revenues in 1997 from net
gains on equity investments, the continuation of which is dependent upon the
performance of the equity markets, which have historically been volatile.
Volatility in the capital markets could also adversely affect the timing and
profitability of certain securitization transactions. Consequently, there can
be no assurance that adverse economic conditions generally or in the
commercial real estate markets, the capital markets or certain other markets
or industries served by the Company will not have a material adverse effect on
the Company's business, financial position or results of operations.
In an economic recession or under other adverse economic conditions,
nonearning assets and writedowns are likely to increase as debtors are more
likely to be unable to meet contractual terms and their payment obligations.
For example, the economic recession in the United States in the early 1990's
adversely impacted the Company's pre-1990 Corporate Finance and Real Estate
Finance portfolio, resulting in higher non-earning assets and writedowns.
These portfolios were underwritten with significantly higher risk parameters
than those parameters employed by the Company since 1990. Although the Company
maintains an allowance for losses of receivables in an amount which it
believes is sufficient to provide adequate protection against potential
writedowns in its entire portfolio, this allowance could prove to be
insufficient. Adverse economic conditions may cause declines in the Company's
ability to realize the value of collateral securing certain of the Company's
finance receivables or in the value of equipment subject to lease agreements.
See "--Allowance for Losses of Receivables".
An economic recession or downturn could contribute to a downgrading of the
Company's credit ratings, which likely would increase the Company's funding
costs, and could decrease its net interest income, limit its access to the
capital markets or result in a decision by the lenders under the Company's
existing bank credit facilities not to extend such credit facilities after
their expiration. There
12
<PAGE>
can be no assurance that a decline in economic conditions will not have a
material adverse effect on the Company's business, financial position or
results of operations. See "--Limitations Upon Liquidity and Capital Raising".
INTEREST RATE RISK
The Company's operating results and cash flow depend to a great extent upon
its level of net interest income (or "spread"), which is the difference
between total interest income earned on earning assets, such as loans and
investments, and total interest expense paid on interest-bearing liabilities,
such as borrowings. The amount of net interest income is affected by changes
in the volume and mix of earning assets, the level of rates earned on those
assets, the volume of interest-bearing liabilities and the level of rates paid
on those interest-bearing liabilities.
Although the Company has an active and comprehensive approach to managing
its interest rate risk, including matching the anticipated maturities of its
interest rate sensitive assets and interest rate sensitive liabilities and
closely monitoring product pricing to remain responsive to changing market
interest rates, significant increases in market interest rates, or (in the
case of floating rate borrowers) the perception that an increase may occur,
could adversely affect both the Company's ability to originate new finance
receivables and its ability to grow. Conversely, a decrease in interest rates
could result in an acceleration in the prepayment of owned and managed finance
receivables. In addition, changes in market interest rates or in the
relationships between short-term and long-term market interest rates or
between different interest rate indices (i.e., basis risk) could affect the
interest rates earned on interest-earning assets differently than the interest
rates paid on interest-bearing liabilities, which could result in an increase
in interest expense relative to interest income. An increase in market
interest rates also could adversely impact the ability of the Company's
floating-rate borrowers to meet their higher payment obligations, which could
result in an increase in nonearning assets and writedowns.
EXCHANGE RATE FLUCTUATIONS AND OTHER INTERNATIONAL FACTORS
At December 31, 1997, international revenues constituted 14.7% of the
Company's total revenues. Such international revenues were generated from
activities of the Company's subsidiaries and international joint ventures in
Europe (12.0%), Asia/Pacific (2.1%) and Latin America (0.6%). The Company
expects that in future years it will continue to generate a meaningful portion
of its revenues from international operations. Although, to date, foreign
currency exchange rate fluctuations have not had a material adverse effect on
the Company's business, financial condition or results of operations, there
can be no assurance that they will not have such a material adverse effect in
the future. Foreign currency exchange rate fluctuations can have a material
adverse effect on the total level of international revenues generated by the
Company from international asset based financing and factoring. Over time,
reported results from the Company's consolidated operations and joint ventures
in foreign countries may fluctuate in response to exchange rate movements in
relation to the U.S. dollar. Because Western European operations and joint
ventures, primarily in France and Holland, are the largest areas of the
Company's international activities, reported results will be most affected by
the exchange rate movements in the currencies of Western European countries.
Reported results will be influenced to a lesser extent by the exchange rate
movements in the currencies of other countries in which the Company's
subsidiaries and joint ventures are located. In addition, an economic
recession or downturn or increased competition in the international markets in
which the Company operates could adversely affect the Company. Other risks
inherent in conducting international business operations generally include
political and macro-economic instability, changes in regulatory requirements
and taxes, unreliability of judicial processes, and financial market
instability and illiquidity. For example, although not material to the
Company's consolidated financial results, during 1996 and 1997, the Company
recorded higher levels of nonearning assets and writedowns on receivables
which were originated by its Mexican subsidiary prior to the devaluation of
the Mexican peso in December 1994. There can be no assurance that one or more
of such factors will not have a material adverse
13
<PAGE>
effect on the Company's business, financial condition and results of
operations. In addition, instability or adverse economic conditions in
international markets may adversely affect the businesses of the Company's
domestic customers, which could adversely affect such customers' demand for
the Company's products. See "Certain Relationships and Related Transactions--
Purchase of Interest in International Group from Fuji Bank".
LIMITATIONS UPON LIQUIDITY AND CAPITAL RAISING
The Company's primary sources of funds are cash flow from operations,
commercial paper borrowings, issuances of medium-term notes and other term
debt securities, and, to a lesser extent, securitizations, syndications and
other loan sales. At December 31, 1997, commercial paper borrowings were $2.6
billion, and amounts due on term debt within one year were $2.0 billion. In
the past, a downgrade in the Company's credit ratings has resulted in an
increase in the Company's interest expense. There can be no assurance there
will not be a downgrade in the Company's credit ratings in the future or, if
such downgrading does occur, that it will not result in an increase in the
Company's interest expense or have an adverse impact on the Company's ability
to access the commercial paper market or the public and private debt markets.
These events could in turn have a material adverse effect on the Company's
business, financial position or results of operations. If the Company is
unable to access such markets on acceptable terms, it could utilize its bank
credit and receivable sale facilities, cash flow from operations and portfolio
liquidations to satisfy its liquidity needs. At December 31, 1997, the Company
had committed bank credit facilities totalling $4.0 billion, including $1.5
billion under a 364-day facility expiring April 7, 1998 (which the Company
intends to renew), representing 122% of outstanding commercial paper and
short-term borrowings from unaffiliated entities. Although the Company
believes that such bank credit and receivable sale facilities should provide
sufficient additional liquidity to the Company under foreseeable conditions,
there can be no assurance that such facilities would provide adequate
liquidity to the Company following a downgrade in its credit ratings or other
adverse conditions or that such facilities will be renewed.
The Company funds its operations independently of Fuji Bank and believes
that the business of, and the outlook for, Fuji Bank is not necessarily
closely related to the business of, and the outlook for, the Company. However,
in the past when Fuji Bank's credit ratings have been downgraded, the
Company's credit ratings have also been downgraded. On January 29, 1998,
Moody's Investors Service, Inc. ("Moody's") lowered the Company's senior debt
rating to A3 from A2 and its commercial paper rating to P-2 from P-1. Prior to
this rating action, Moody's had given credit to the implicit and explicit
support of Fuji Bank in determining the Company's credit ratings. This rating
action was triggered by the weakening of Fuji Bank's credit ratings and,
according to Moody's, placed the Company's credit ratings at levels that are
more reflective of the Company's underlying financial fundamentals without the
support of Fuji Bank. The Company estimates that its increased cost of
borrowing due to this rating action by Moody's in January 1998 will result in
an increase in interest expense for the Company, which increase is not
expected to exceed $10 million on an annual basis. There can be no assurance
that a future downgrading of Fuji Bank's credit ratings would not have a
material adverse impact on the Company's credit ratings. Therefore, a
deterioration in the financial condition of Fuji Bank could result in
increased borrowing costs to the Company and could impair the Company's access
to the public and private capital markets, which could have a material adverse
effect on the Company's business, financial position or results of operations.
For as long as Fuji Bank elects to maintain its beneficial ownership
percentage of the Company, the Company may be constrained in its ability to
raise common or preferred equity capital. Except as provided under the
Company's Keep Well Agreement with Fuji Bank, dated as of April 23, 1983 and
as subsequently amended (the "Keep Well Agreement"), Fuji Bank is not under
any obligation to make future capital contributions. See "Certain
Relationships and Related Transactions--Relationship with Fuji Bank--Keep Well
Agreement".
14
<PAGE>
CONTROL BY AND RELATIONSHIP WITH FUJI BANK
Fuji Bank is currently the beneficial owner of all of the common stock of
the Company. Upon consummation of the Offerings, Fuji Bank will beneficially
own 100% of the outstanding Class B Common Stock, which will, due to the
limitation on the voting power of the Class B Common Stock while held by Fuji
Bank, represent, in the aggregate, 79.0% of the combined voting power of all
of the outstanding Common Stock (regardless of whether the Underwriters' over-
allotment options are exercised) and 60.4% of the economic interest (or rights
of holders of common equity to participate in distributions in respect of the
common equity) in the Company (57.0% if the Underwriters' over-allotment
options are exercised in full). For as long as Fuji Bank continues to
beneficially own shares of Common Stock representing more than 50% of the
combined voting power of the Class A Common Stock and Class B Common Stock,
Fuji Bank will be able to direct the election of all of the members of the
Board of Directors and exercise a controlling influence over the business and
affairs of the Company, including any determinations with respect to (i)
mergers or other business combinations involving the Company, (ii) the
acquisition or disposition of assets by the Company, (iii) the incurrence of
indebtedness by the Company, (iv) the issuance of any additional Common Stock
or other equity securities and (v) the payment of dividends with respect to
the Common Stock. See "--Limitations upon Liquidity and Capital Raising".
Similarly, Fuji Bank will have the power to (i) determine matters submitted to
a vote of the Company's stockholders without the consent of the Company's
other stockholders, (ii) prevent or cause a change in control of the Company
or (iii) take other actions that might be favorable to Fuji Bank and
disadvantageous to the Company or holders of the Class A Common Stock. In the
foregoing situations or otherwise, various conflicts of interest between the
Company or the holders of the Class A Common Stock and Fuji Bank could arise.
Ownership interests of the Company's directors or officers in Fuji Bank's
common stock or service as a director, officer or other employee of both the
Company and Fuji Bank could create, or appear to create, potential conflicts
of interest when those directors, officers and employees are faced with
decisions that could have different implications for the Company or the
holders of Class A Common Stock, on the one hand, and Fuji Bank, on the other
hand. The Company's Amended and Restated Certificate of Incorporation will
include certain provisions relating to the allocation of business
opportunities that may be suitable for both the Company and Fuji Bank. See "--
Shares Eligible for Future Sale; Possible Future Sales by Fuji Bank", "Shares
Available for Future Sale", "Certain Relationships and Related Transactions--
Relationship with Fuji Bank" and "Description of Capital Stock--Certain
Certificate of Incorporation and By-Law Provisions--Corporate Opportunities".
ALLOWANCE FOR LOSSES OF RECEIVABLES
The Company maintains an allowance for losses of receivables at an amount
which it believes is sufficient to provide adequate protection against
potential losses in its entire receivables portfolio. The level of the
allowance for losses of receivables is determined principally on the basis of
(i) the current credit quality of the portfolio and trends in such quality,
(ii) the current mix of finance receivables, (iii) the size and historical
loss experience of the portfolio and (iv) current and anticipated future
economic conditions. The allowance for losses reflects management's judgment
of the loss potential, after considering factors such as the nature and
characteristics of obligors, the collectibility and workout potential of loans
identified as potential problems, economic conditions and trends, charge-off
experience, delinquencies and the value of underlying collateral and
guarantees, including recourse to dealers and manufacturers. Although the
allowance for losses of receivables in the Company's balance sheet as of
December 31, 1997 is considered adequate by the Company's management, there
can be no assurance that this allowance will prove to be adequate over time to
cover losses in the Company's receivables portfolio. This allowance for losses
may prove to be inadequate due to unanticipated adverse changes in the economy
generally or discrete events that adversely affect specific customers,
industries or markets. The Company's business, financial position or results
of operations could be materially adversely affected to the extent that the
Company's allowance for losses of receivables is insufficient to cover such
unanticipated changes or events. See "--Economic Factors--Risk of Economic
Recession or Downturn", "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Risk Management--Portfolio Quality--
Allowance for Losses".
15
<PAGE>
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's results of operations may vary significantly from quarter to
quarter based upon the timing of certain events, such as securitizations and
net investment gains, and upon other factors, including these "Risk Factors".
For example, the Company securitized approximately $1.1 billion of its CMBS
receivables in March 1998. The Company realized a gain on this securitization
that may cause operating revenues and net income in the first quarter of 1998
to be higher than those in certain other quarters of 1998. See "Prospectus
Summary--Recent Developments", "Business--Real Estate Finance" and Note 18 of
the notes to the consolidated financial statements appearing elsewhere in this
Prospectus.
ATTRACTION AND RETENTION OF QUALIFIED PERSONNEL
The Company's success depends to a significant degree upon the contributions
of management, sales and credit personnel. Competition for qualified personnel
in the commercial finance industry is intense, and there can be no assurance
that the Company will be able to attract and retain qualified and experienced
employees. The strength of the U.S. economy generally and the commercial
finance markets specifically, as well as enhanced competition within the
commercial finance markets, has intensified demand for qualified personnel
with significant industry experience, making hiring and retaining such
individuals by the Company increasingly difficult. Any difficulty in
attracting and retaining qualified employees on acceptable terms could have a
material adverse effect on the Company's business, financial position or
results of operations.
COMPETITION
The Company's markets are highly fragmented and extremely competitive and
are characterized by competitive factors that vary by product and geographic
region. The Company's competitors include other commercial finance companies,
national and regional banks and thrift institutions, investment banks, leasing
companies, investment companies, manufacturers and vendors. Competition from
both traditional competitors and new market entrants has been intensified in
recent years by an improving economy, growing marketplace liquidity and
increasing recognition of the attractiveness of the commercial finance
markets. In addition, the rapid expansion of the securitization markets is
dramatically reducing the difficulty in obtaining access to capital, which is
the principal barrier to entry into these markets. This is further
intensifying competition in certain market segments, including increasing
competition from specialized securitization lenders which offer aggressive
pricing terms.
The Company competes primarily on the basis of pricing, terms, structure and
service in many of its markets. Competitors of the Company seek to compete
aggressively on the basis of these factors and the Company may lose market
share to the extent it is unwilling to match its competitors' pricing, terms
and structure in order to maintain its spreads or to maintain its credit
discipline. To the extent that the Company matches competitors' pricing, terms
or structure, it may experience decreased spreads and/or increased risk of
credit losses. Many of the Company's competitors are large companies that have
substantial capital, technological and marketing resources, and some of these
competitors are larger than the Company and may have access to capital at a
lower cost than the Company. Further, the size and access to capital of
certain of the Company's competitors are being enhanced by the recent surge in
consolidation activity in the commercial and investment banking industries.
Also, the Company's competitors include businesses that are not affiliated
with bank holding companies and therefore are not subject to the same
extensive federal regulations that govern bank holding companies. As a result,
such non-banking competitors may engage in certain activities which currently
are prohibited to the Company. See "--Regulation", "Business--Competition" and
"Business--Regulation".
16
<PAGE>
REGULATION
The Company is subject to federal and state regulation and supervision in
the jurisdictions in which it operates. Such regulation and supervision are
primarily for the benefit and protection of the Company's customers, and not
for the benefit of investors, and could limit the Company's discretion in
operating its businesses and its opportunity to derive a profit from its
business. For example, state laws often establish maximum allowable finance
charges for certain commercial loans. Noncompliance with applicable statutes
or regulations could result in the suspension or revocation of any license or
registration at issue, as well as the imposition of civil fines and criminal
penalties. No assurance can be given that applicable laws or regulations will
not be amended or construed differently, that new laws and regulations will
not be adopted or that the Company will not be prohibited by state laws from
raising interest rates above certain desired levels, any of which could
adversely affect the business, financial condition or results of operations of
the Company. See "Business--Regulation".
Because the Company is an indirect subsidiary of Fuji Bank, the Company and
its activities are examined by the Board of Governors of the Federal Reserve
System (the "Federal Reserve") and are subject to limitations imposed by the
Bank Holding Company Act of 1956, as amended (the "Bank Holding Company Act"),
and related regulations of the Federal Reserve. The ability of the Company to
engage in new activities or to acquire securities or assets of another company
is regulated by the Bank Holding Company Act. In general, the new activity or
the activity of the other company must be one that the Federal Reserve has
determined to be closely related to banking, and the Company must have
obtained the approval of the Federal Reserve to engage in such activity. To
obtain the Federal Reserve's approval, Fuji Bank must submit a notice that
provides information both about the proposed activity or acquisition and about
the financial condition and operations of Fuji Bank and the Company. The Bank
Holding Company Act will continue to apply to the Company for as long as Fuji
Bank holds 25% or more of any class of the Company's voting stock or otherwise
is deemed to control the management or operations of the Company under the
Bank Holding Company Act and the Federal Reserve's regulations and
interpretations thereunder.
In addition, certain of the Company's equity investments and small business
lending activities are subject to the supervision and regulation of the SBA.
There can be no assurance that these regulations will not have a material
adverse effect on the Company's business, financial condition or results of
operations in the future. See "Business--Regulation".
LIMITATIONS UPON PAYMENT OF DIVIDENDS
The Company is prohibited from paying cash dividends on the Common Stock
unless all declared dividends on all outstanding shares of the Company's Fixed
Rate Noncumulative Perpetual Senior Preferred Stock, Series C (the "Series C
Preferred Stock") and full cumulative dividends on all outstanding shares of
the Company's Cumulative Perpetual Preferred Stock, Series A (the "Series A
Preferred Stock") have been paid. Though such dividends on the Company's
Series C Preferred Stock and Series A Preferred Stock have been paid in full
to date, there can be no assurance that the Company will continue to pay such
dividends on a timely basis.
Certain covenants in the Company's credit agreements have the indirect
effect of limiting the amount of dividends that the Company may pay. The most
restrictive of these covenants require that the Company not permit (i)
consolidated stockholders' equity (as defined in the credit agreements) at the
end of any fiscal quarter of the Company to be less than $1 billion ($900
million through March 31, 1998) or (ii) consolidated debt (as defined in the
credit agreements) to exceed ten times consolidated stockholders' equity (as
defined in the credit agreements) at the end of any fiscal quarter of the
Company. The Company may agree to further restrictions in other agreements
relating to loans, debt securities or other arrangements.
The declaration and payment of dividends by the Company are subject to the
discretion of the Board of Directors, and no assurance can be given that the
Company will pay dividends. The Company
17
<PAGE>
may cease to pay dividends at any time. The Board of Directors' determination
as to the payment of dividends will depend upon, among other things, general
business conditions, the Company's financial results, contractual, legal and
regulatory restrictions regarding the payment of dividends by the Company
(including those described above), the credit ratings of the Company and such
other factors as the Board of Directors may consider to be relevant. For a
discussion of the Company's dividend policy and certain related matters, see
"Dividend Policy".
The Company believes that maintaining its ratio of debt (net of short-term
investments) to total stockholders' equity within certain parameters is an
important factor in maintaining its existing credit ratings. Accordingly,
under certain circumstances, the Company's ability to pay dividends may be
restricted while the Company maintains levels of debt which management
believes are appropriate.
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE FUTURE SALES BY FUJI BANK
Fuji Bank has advised the Company that its current intent is to continue to
hold all of the Common Stock beneficially owned by it following the Offerings.
Fuji Bank, FAHI and the Company have agreed not to sell or otherwise dispose
of any shares of Common Stock for a period of 180 days after the date of this
Prospectus, without the prior written consent of Goldman, Sachs & Co. See
"Underwriting". Under the Keep Well Agreement, as currently in effect, neither
Fuji Bank nor any of its subsidiaries may sell, pledge or otherwise dispose of
shares of the Company's common stock, or permit the Company to issue shares of
its common stock, except to Fuji Bank or a Fuji Bank affiliate. However, prior
to the consummation of the Offerings, the Keep Well Agreement will be amended
to allow the Company or Fuji Bank or any of its affiliates to sell or dispose
of Common Stock to any person or entity, provided that after any such sale or
disposition, Fuji Bank (directly, or indirectly through one or more
subsidiaries) continues to hold greater than 50% of the combined voting power
of the outstanding Common Stock. This provision may be subject to further
amendment by the Company and Fuji Bank without the approval of any of the
Company's securityholders. As a result, there can be no assurance as to the
period of time during which Fuji Bank will continue to maintain the same
beneficial ownership of Common Stock to be beneficially owned by it
immediately following the Offerings. Subject to applicable federal securities
laws and the restrictions described above, after completion of the Offerings,
Fuji Bank may sell any and all of the shares of Common Stock owned by it.
Prior to consummation of the Offerings, the Company will grant certain
registration rights to Fuji Bank, its subsidiaries and any Qualified
Transferee (as defined below). Sales or distribution by any such person of
substantial amounts of Common Stock in the public market, or the perception
that such sales could occur, could adversely affect prevailing market prices
for shares of Class A Common Stock. See "Shares Available for Future Sale" and
"Certain Relationships and Related Transactions--Relationship with Fuji Bank--
Registration Rights Agreement".
NO PRIOR MARKET FOR CLASS A COMMON STOCK
Prior to the Offerings, there has been no public market for the Class A
Common Stock. The initial public offering price of the Class A Common Stock
will be determined by negotiations between the Company and the Underwriters.
There can be no assurance that the initial public offering price will
correspond to the price at which the Class A Common Stock will trade in the
public market subsequent to the Offerings or that an active public market for
the Class A Common Stock will develop and continue after the Offerings. See
"Underwriting".
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and the Company's Amended and Restated By-Laws may render more
difficult or have the effect of discouraging unsolicited takeover bids from
third parties or the removal of incumbent management of
18
<PAGE>
the Company. See "Description of Capital Stock--Certain Certificate of
Incorporation and By-Law Provisions". Although such provisions do not have a
substantial practical significance to investors while Fuji Bank controls the
Company, such provisions could have the effect of depriving stockholders of an
opportunity to sell their shares at a premium over prevailing market prices
should Fuji Bank's voting power decrease to less than 50%.
PAYMENT OF PROCEEDS TO FAHI
The Company currently expects that substantially all of the net proceeds of
the Offerings will be paid to FAHI (i) to repay indebtedness of the Company,
consisting of a subordinated promissory note in the principal amount of $450
million issued on February 24, 1998 as a dividend to FAHI and (ii) in respect
of a cash dividend to FAHI, as the sole holder of the Class B Common Stock,
following the consummation of the Offerings. Accordingly, the Company will
retain an insignificant portion of the net proceeds from the Offerings. See
"Use of Proceeds".
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains, and the documents incorporated by reference herein
contain, certain "forward-looking statements" (as defined in Section 27A of
the Securities Act) that are based on the beliefs of the Company's management,
as well as assumptions made by, and information currently available to, the
Company's management. The words "anticipates", "believes", "estimates",
"expects", "plans", "intends" and similar expressions are intended to identify
these forward-looking statements, but are not the exclusive means of
identifying them. These forward-looking statements reflect the current views
of the Company or its management and are subject to certain risks,
uncertainties and contingencies which could cause the Company's actual
results, performance or achievements to differ materially from those expressed
in, or implied by, these statements. These risks, uncertainties and
contingencies include, but are not limited to, the following: (i) the success
or failure of the Company's efforts to implement its business strategy; (ii)
the effect of economic conditions and the performance of borrowers; (iii)
actions of the Company's competitors and the Company's ability to respond to
such actions; (iv) the cost of the Company's capital, which depends in part on
the Company's portfolio quality, ratings, prospects and outlook and general
market conditions; (v) changes in governmental regulations, tax rates and
similar matters; and (vi) the other factors discussed under the heading "Risk
Factors" and elsewhere in this Prospectus. The Company assumes no obligation
to update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offerings, after the deduction of
estimated underwriting discounts and expenses payable by the Company, are
estimated to be approximately $762 million ($876 million if the Underwriters'
over-allotment options are exercised in full). The Company currently intends
to use $450 million of such net proceeds to repay indebtedness of the Company,
consisting of a $450 million promissory note issued on February 24, 1998 (the
"FAHI Note") as a dividend from the Company to FAHI. The FAHI Note, which is
subordinated to all senior indebtedness of the Company, bears interest at a
rate of LIBOR plus 0.50% per annum and matures on February 24, 2004. The FAHI
Note may be prepaid at any time without premium or penalty. The Company
currently expects to use approximately $309 million of the net proceeds to pay
a cash dividend to FAHI, as the sole holder of the Class B Common Stock,
following the consummation of the Offerings. See "Dividend Policy".
DIVIDEND POLICY
The holders of the Class A Common Stock and Class B Common Stock share
ratably on a per share basis in all dividends and other distributions on the
Common Stock declared by the Board of Directors, except that holders of Class
A Common Stock will not be entitled to receive the cash dividend which the
Company expects to pay to FAHI, as the sole holder of the Class B Common
Stock, with a portion of the net proceeds of the Offerings. The Company is
prohibited from paying cash dividends on the Common Stock unless all declared
dividends on all outstanding shares of Series C Preferred Stock and full
cumulative dividends on all outstanding shares of Series A Preferred Stock
have been paid. The Board of Directors currently intends to declare and pay
quarterly dividends on both its Class A Common Stock and Class B Common Stock.
It is expected that the first quarterly dividend to be paid ratably to the
holders of Class A Common Stock and Class B Common Stock will be the dividend
in respect of the quarter ending September 30, 1998, which will be the first
full quarter following consummation of the Offerings. This dividend will be
$0.09 per share (a rate of $0.36 per share annually) and will be paid in the
fourth quarter of 1998. The only dividend expected to be paid in respect of
the quarter ending June 30, 1998 is the dividend expected to be paid to FAHI
following the consummation of the Offerings. See "Use of Proceeds".
The declaration and payment of dividends by the Company are subject to the
discretion of the Board of Directors, and no assurance can be given that the
Company will pay such dividend or any further dividends. The determination as
to the payment of dividends will depend upon, among other things, general
business conditions, the Company's financial results, contractual, legal and
regulatory restrictions regarding the payment of dividends by the Company, the
credit ratings of the Company, planned investments by the Company and such
other factors as the Board of Directors deems relevant. See "Risk Factors--
Limitations Upon Payment of Dividends" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources".
The Company paid cash dividends to its former immediate parent, Heller
International Corporation ("HIC"), of $43 million (plus $26 million in the
form of International Group preferred stock), $58 million and $54 million
during the years ended December 31, 1997, 1996 and 1995, respectively. The
dividends historically paid to HIC by the Company are not indicative of its
future dividend policy.
20
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1997, (i) the
capitalization of the Company and (ii) such capitalization as adjusted to give
effect to (a) the reclassification of the Company's common stock into shares
of Class A Common Stock and Class B Common Stock, (b) the registered issuance
of the Series C Preferred Stock in exchange for the Company's privately issued
Fixed Rate Noncumulative Perpetual Senior Preferred Stock, Series B (the
"Series B Preferred Stock") pursuant to registration rights of the holders of
Series B Preferred Stock, (c) the payment of a $450 million dividend to FAHI
in the form of the FAHI Note, (d) the sale by the Company of the 33,500,000
shares of Class A Common Stock offered in the Offerings and the application of
the estimated net proceeds therefrom, after deducting estimated underwriting
discounts and expenses of the Offerings, to repay indebtedness of the Company,
consisting of the FAHI Note, and to pay the cash dividend expected to be paid
to FAHI, as the sole holder of the Class B Common Stock, following the
consummation of the Offerings and (e) the Company's purchase of Fuji Bank's
21% interest in International Group for approximately $83 million, to be
effected upon consummation of the Offerings. See "Use of Proceeds". This table
is qualified by, and should be read in conjunction with, the consolidated
financial statements of the Company, including the notes thereto, appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------
ACTUAL AS ADJUSTED
------- -----------
(IN MILLIONS)
<S> <C> <C>
LONG-TERM DEBT:
Commercial paper and short-term borrowings............... $ 3,432 $ 3,432
Long-term debt........................................... 6,004 6,084
------- -------
Total debt............................................. 9,436 9,516
MINORITY INTEREST.......................................... 87 7
STOCKHOLDERS' EQUITY:
Cumulative Perpetual Senior Preferred Stock, Series A,
$0.01 par value, 5,000,000 shares authorized, issued and
outstanding, actual and as adjusted..................... 125 125
Fixed Rate Noncumulative Perpetual Senior Preferred
Stock, Series B, $0.01 par value, 1,500,000 shares
authorized, issued and outstanding, actual; no shares
authorized, issued and outstanding, as adjusted......... 150 --
Fixed Rate Noncumulative Perpetual Senior Preferred
Stock, Series C, $0.01 par value, no shares authorized,
issued and outstanding, actual; 1,500,000 shares
authorized, issued and outstanding, as adjusted......... -- 150
Class B Common Stock, $0.25 par value, 300,000,000 shares
authorized and 51,050,000 shares issued and outstanding,
actual and as adjusted(1)............................... 13 13
Class A Common Stock, $0.25 par value, no shares
authorized, issued and outstanding, actual; 500,000,000
shares authorized and 33,500,000 shares issued and
outstanding, as adjusted(2)............................. -- 8
Paid-in capital.......................................... 672 1,382
Retained earnings........................................ 718 --
------- -------
Total stockholders' equity............................. $ 1,678 $ 1,678
------- -------
Total capitalization................................. $11,201 $11,201
======= =======
</TABLE>
- --------
(1) In February 1998, the Company reclassified the 105 shares of the Company's
common stock held by FAHI into Class B Common Stock and declared and paid
a dividend of 51,049,895 shares of Class B Common Stock to FAHI. Such
reclassification and dividend have been retroactively reflected in the
December 31, 1997 totals.
(2) Excludes (i) 505,912 shares of restricted Class A Common Stock and
1,242,250 shares of Class A Common Stock issuable upon the exercise of
options, which shares of restricted Class A Common Stock and options are
to be granted to certain officers and employees of the Company upon
consummation of the Offerings, and (ii) 4,593,088 shares of Class A Common
Stock reserved for issuance with respect to awards that may be granted in
the future under the Heller Financial, Inc. 1998 Stock Incentive Plan. See
"Management--Executive Compensation--The 1998 Stock Incentive Plan".
21
<PAGE>
SELECTED FINANCIAL DATA
The results of operations and balance sheet data of the Company for each of
the years in the three-year period ended December 31, 1997 and as of December
31, 1997 and 1996, respectively, were derived from the audited consolidated
financial statements of the Company, and the notes thereto, appearing
elsewhere in this Prospectus. The results of operations and balance sheet data
for each of the years in the two-year period ended December 31, 1994 and as of
December 31, 1995, 1994 and 1993, respectively, except 1994 and 1993 net
income applicable to common stock and basic and diluted net income applicable
to common stock per share, and pro forma amounts for all years, were derived
from audited consolidated financial statements of the Company, and the notes
thereto, which are not presented herein. The data presented below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997(1) 1996 1995 1994 1993
------- ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest income....................... $ 924 $ 807 $ 851 $ 702 $ 620
Interest expense...................... 516 452 464 336 264
------- ------ ------ ------ ------
Net interest income................. 408 355 387 366 356
Fees and other income................. 206 79 148 117 88
Factoring commissions................. 104 55 50 53 50
Income of international joint
ventures............................. 36 44 35 21 23
------- ------ ------ ------ ------
Operating revenues.................. 754 533 620 557 517
Operating expenses.................... 357 247 216 195 174
Provision for losses.................. 164 103 223 188 210
------- ------ ------ ------ ------
Income before income taxes and
minority interest.................. 233 183 181 174 133
Income tax provision.................. 66 43 49 51 11
Minority interest..................... 9 7 7 5 5
------- ------ ------ ------ ------
Net income.......................... $ 158 $ 133 $ 125 $ 118 $ 117
======= ====== ====== ====== ======
Net income applicable to common
stock.............................. $ 144 $ 123 $ 115 $ 108 $ 107
Basic and diluted net income
applicable to common stock per
share(2)............................. 2.82 2.41 2.25 2.12 2.10
Pro forma net income applicable to
common stock per share(3)............ 1.70
<CAPTION>
DECEMBER 31,
---------------------------------------
1997(1) 1996 1995 1994 1993
------- ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Receivables........................... $10,722 $8,529 $8,085 $7,616 $7,062
Allowance for losses of receivables... (261) (225) (229) (231) (221)
Equity and real estate investments.... 488 419 428 399 167
Debt securities....................... 311 251 152 69 55
Operating leases...................... 195 135 113 166 148
Investment in international joint
ventures............................. 198 272 233 174 144
Total assets.......................... 12,861 9,926 9,638 8,476 7,913
======= ====== ====== ====== ======
Commercial paper and short-term
borrowings........................... 3,432 2,745 2,223 2,451 1,981
Long-term debt........................ 6,004 4,761 5,145 3,930 3,968
------- ------ ------ ------ ------
Total debt............................ $ 9,436 $7,506 $7,368 $6,381 $5,949
======= ====== ====== ====== ======
Total liabilities..................... $11,096 $8,402 $8,208 $7,107 $6,625
Preferred stock....................... 275 125 125 125 125
Common equity......................... 1,403 1,342 1,259 1,205 1,128
------- ------ ------ ------ ------
Total stockholders' equity........ $ 1,678 $1,467 $1,384 $1,330 $1,253
======= ====== ====== ====== ======
Pro forma book value per common
share(3)(4).......................... $ 16.59
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
AS OF, OR FOR THE YEAR ENDED,
DECEMBER 31,
---------------------------------------
1997(1) 1996 1995 1994 1993
------- ------ ------ ------ ------
(IN MILLIONS, EXCEPT NUMBER OF
EMPLOYEES AND OFFICE LOCATIONS)
<S> <C> <C> <C> <C> <C>
SELECTED DATA AND RATIOS:
PROFITABILITY
Net interest income as a percentage
of AFE(5).......................... 4.0% 4.1% 4.6% 4.7% 4.7%
Non-interest operating revenues as a
percentage of AFE(5)............... 3.5 2.0 2.7 2.5 2.2
Operating revenues as a percentage
of AFE(5).......................... 7.5 6.1 7.3 7.2 6.9
Return on average common
stockholders' equity(6)............ 10.5 9.4 9.3 9.2 10.0
Return on AFE(5).................... 1.6 1.5 1.5 1.5 1.6
Ratio of earnings to combined fixed
charges and preferred stock
dividends(7)....................... 1.39x 1.36x 1.34x 1.45x 1.44x
Salaries and general operating
expenses as a percentage of AFE(5). 3.5% 2.8% 2.6% 2.5% 2.3%
Ratio of operating expenses to
operating revenues................. 47.3 46.3 34.8 35.0 33.7
Common dividend payout ratio(8)..... 47.7 47.2 47.0 20.4 1.9
Cash dividends paid on common stock
per share(9)....................... $ 0.84 $ 1.14 $ 1.06 $ 0.43 $ 0.04
CREDIT QUALITY
Ratio of earning loans delinquent 60
days or more to receivables........ 1.4% 1.7% 1.4% 1.4% 2.1%
Ratio of net writedowns to average
lending assets..................... 1.5 1.3 2.9 2.4 2.8
Ratio of total nonearning assets to
total lending assets............... 1.4 3.3 3.6 4.0 5.9
Ratio of allowance for losses of
receivables to receivables......... 2.4 2.6 2.8 3.0 3.1
Ratio of allowance for losses of
receivables to net writedowns...... 1.8x 2.1x 1.0x 1.3x 1.1x
Ratio of allowance for losses of
receivables to nonearning impaired
receivables........................ 185.1% 85.2% 87.7% 81.3% 83.7%
LEVERAGE
Ratio of debt (net of short-term
investments) to total stockholders'
equity............................. 5.2x 5.0x 5.0x 4.7x 4.7x
Ratio of commercial paper and short-
term borrowings to total debt...... 36.4% 36.6% 30.2% 38.4% 33.3%
OTHER
Total lending assets and
investments(10).................... $11,928 $9,620 $9,039 $8,443 $7,742
Funds employed(5)................... 10,673 9,030 8,542 7,991 7,309
Total managed assets(11)............ 11,800 9,574 9,137 8,414 7,422
Number of employees................. 2,339 1,527 1,487 1,404 1,307
Number of office locations.......... 63 52 36 33 24
</TABLE>
- --------
(1) The financial data presented for 1997 reflect the Company's purchase
(through its subsidiary, International Group) of its joint venture
partner's interest in Factofrance in April 1997 for $174 million, which
resulted in Factofrance being reported on a consolidated basis with the
Company as of the date of acquisition. The Company financed this
acquisition through the issuance of senior debt. The premium related to
this purchase was allocated as follows: $78 million to
23
<PAGE>
goodwill and $18 million to a noncompetition agreement. The consolidation
of Factofrance resulted in increases of $2.0 billion, $94 million, $59
million and 570 in total assets, operating revenues, operating expenses
and number of employees, respectively, during 1997 as compared to 1996.
This acquisition had a modest favorable impact on the Company's 1997 net
income, as earnings from the Company's increased ownership interest in
Factofrance were partially offset by costs related to the acquisition
(including interest on the senior debt issued to finance the acquisition).
(2) Reflects historical net income applicable to common stock divided by
weighted average common shares outstanding of 51,050,000 in each year. The
historical net income applicable to common stock per share is not
indicative of future net income applicable to common stock per share. In
February 1998, the Company reclassified the 105 shares of the Company's
common stock held by FAHI into Class B Common Stock and declared and paid
a dividend of 51,049,895 shares of Class B Common Stock to FAHI. Such
reclassification and dividend have been retroactively reflected in the
Company's consolidated financial statements.
(3) Based upon 84,550,000 shares of Common Stock to be outstanding upon
consummation of the Offerings. Excludes (i) 505,912 shares of restricted
Class A Common Stock and 1,242,250 shares of Class A Common Stock issuable
upon the exercise of options, which shares of restricted Class A Common
Stock and options are to be granted to certain officers and employees of
the Company upon consummation of the Offerings, and (ii) 4,593,088 shares
of Class A Common Stock reserved for issuance with respect to awards that
may be granted in the future under the Heller Financial, Inc. 1998 Stock
Incentive Plan. The Company will compute the cost of stock options in
accordance with APB 25. If the Company were to use SFAS 123 and had the
stock options been issued effective January 1, 1997, the compensation cost
of these stock options would have reduced net income by $2.1 million, and
pro forma net income applicable to common stock per share would have been
$1.68 for 1997. The annual cost of the stock options was determined through
the development of a valuation model which included assumptions of a ten-
year option life, a risk-free interest rate of 5.67%, a dividend yield of
1.6%, and volatility of 19.44% based on industry peers' volatility. See
"Management--Executive Compensation--The 1998 Stock Incentive Plan".
(4) Book value represents total stockholders' equity, net of preferred stock.
(5) Funds employed include lending assets and investments, less credit balances
of factoring clients. The Company believes funds employed are indicative of
the dollar amount which it has loaned to borrowers. Average funds employed
("AFE") reflect the average of lending assets and investments, less credit
balances of factoring clients.
(6) Return on average common stockholders' equity is computed as net income
less preferred stock dividends paid divided by average total stockholders'
equity net of preferred stock.
(7) The ratio of earnings to combined fixed charges and preferred stock
dividends is calculated by dividing (i) income before income taxes,
minority interest and fixed charges by (ii) fixed charges plus preferred
stock dividends.
(8) Common dividend payout ratio is computed as common dividends paid, divided
by net income applicable to common stock.
(9) Reflects cash dividends paid on common stock, divided by the weighted
average common shares outstanding of 51,050,000. The historical cash
dividends paid on common stock per share are not indicative of the future
cash dividends to be paid on common stock per share.
(10) Total lending assets and investments consist of receivables, repossessed
assets, equity and real estate investments, operating leases, debt
securities and investments in international joint ventures.
(11) Total managed assets include funds employed, plus receivables previously
securitized or sold and currently managed by the Company.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Selected Financial Data and consolidated financial statements, including the
notes thereto, appearing elsewhere in this Prospectus. The following
discussion and analysis contains certain "forward-looking statements" (as
defined in Section 27A of the Securities Act), which are generally identified
by the words "anticipates", "believes", "estimates", "expects", "plans",
"intends" and similar expressions. Such statements are subject to certain
risks, uncertainties and contingencies, including, but not limited to, those
set forth under the heading "Risk Factors", which could cause the Company's
actual results, performance or achievements to differ materially from those
expressed in, or implied by, such statements. See "Special Note Regarding
Forward-Looking Statements".
GENERAL
The Company is in the commercial finance business, providing primarily
collateralized financing and leasing products and related services to mid-
sized and small businesses in the United States and selected international
markets. The Company's operating revenues can be classified in two broad
categories: (i) net interest income and (ii) non-interest income. Net interest
income represents the total interest income earned by the Company, principally
through its financing and leasing activities, less the total interest expense
paid by the Company on its interest bearing liabilities, which largely relate
to the funding of these financing and leasing activities. Non-interest income
consists of factoring commissions, income from investments in international
joint ventures, and fees and other income. Fees include loan servicing income,
late fees, structuring fees, syndication fees and prepayment fees. Other
income includes real estate participation income, gains from investments and
from sales and securitizations of lending assets, and equipment residual
gains. The Company's primary expenses, other than interest expense, are
operating expenses, including employee compensation and general and
administrative expenses, and provisions for credit losses.
Prior to 1990, the Company's portfolio was not well-diversified with regard
to client concentration and consisted primarily of highly leveraged Corporate
Finance and Real Estate Finance assets. The pre-1990 portfolio contained
assets with a substantial amount of risk, which resulted in a significant
amount of net writedowns. The aggregate net writedowns on the lending assets
in the pre-1990 portfolio were $1.1 billion between 1991 and 1997. Since 1990,
the Company has changed its strategy and focused its efforts on decreasing the
risk of its Corporate Finance and Real Estate Finance businesses through
higher cash flow and collateral coverages, smaller retained positions and
greater liquidity, while building its Asset Based Finance businesses which
rely on more liquid collateral with more predictable value. As a result, the
Company has built a lower risk, though lower yielding, well-diversified
portfolio, with stronger collateralization. For these reasons, the Company
categorizes its pre-1990 Corporate Finance and Real Estate Finance portfolio
(its "pre-1990 portfolio") and the portfolio of its ongoing business
categories (its "current portfolio") separately. While building its current
portfolio, the Company has substantially reduced its pre-1990 portfolio by
over $5 billion since December 31, 1990 to $492 million at December 31, 1997
and expects such portfolio's impact to be insignificant beginning in 1998. In
this Prospectus, the pre-1990 portfolio is excluded from discussions of the
Company's ongoing business categories and business groups and from
presentations (both textual and tabular) of the financial condition and
results of these business categories and groups. This Prospectus includes
certain separate discussions and presentations regarding the composition and
performance of the pre-1990 portfolio.
In April 1997, the Company's subsidiary, International Group, completed its
acquisition of Factofrance, the leading factoring company in France, from the
Company's joint venture partner. Through this acquisition, International Group
increased its ownership interest in Factofrance from
25
<PAGE>
48.8% to 97.6%, which resulted in Factofrance being reported on a consolidated
basis with the Company as of the date of purchase. Operating revenues,
operating expenses, factoring commissions and fees and other income increased
by $94 million, $59 million, $51 million and $20 million, respectively, for
the year ended December 31, 1997 as a result of the Company's accounting for
Factofrance's results on a consolidated basis. In addition, income of
international joint ventures declined by $8 million, primarily due to this
consolidation of Factofrance. This acquisition had a modest favorable impact
on the Company's 1997 net income, as earnings from the Company's increased
ownership interest in Factofrance were partially offset by related costs
(including interest on senior debt issued to finance the acquisition).
Upon consummation of the Offerings, the Company plans to purchase the 21%
interest of Fuji Bank in International Group for total cash consideration of
approximately $83 million. The Company intends to finance this acquisition
through the issuance of senior debt, which will bear interest at a market rate
and have such other terms as are determined at the time of issuance. This
acquisition is expected to be accounted for using the purchase method of
accounting, and the Company's net income will no longer be reduced by a
minority interest in International Group, which totalled $10 million in 1997.
Subsequent to the acquisition, the Company will incur ongoing costs associated
with this acquisition, including interest expense related to the purchase
price and certain income tax expenses that will be incurred due to the
inclusion of International Group in the Company's consolidated U.S. federal
income tax return. The Company currently estimates that the effect on net
income of these costs and expenses will be approximately $5 million per year.
See "Certain Relationships and Related Transactions--Purchase of Interest in
International Group from Fuji Bank".
The Company's results of operations may vary significantly from quarter to
quarter based upon the timing of certain events, such as securitizations and
net investment gains, and upon other factors, including those discussed under
the heading "Risk Factors". For example, the Company securitized approximately
$1.1 billion of CMBS receivables in March 1998. The Company realized a gain on
this securitization that may cause operating revenues and net income in the
first quarter of 1998 to be higher than those in certain other quarters of
1998. See "Prospectus Summary--Recent Developments", "Business--Real Estate
Finance" and Note 18 of the notes to the consolidated financial statements
appearing elsewhere in this Prospectus.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
RESULTS OF OPERATIONS
OVERVIEW. For the year ended December 31, 1997, the Company's net income
totalled $158 million compared with $133 million for the prior year, an
increase of 19%, representing the Company's fifth consecutive year of record
net income. Net income applicable to common stock was $144 million for the
year ended December 31, 1997, which represented an increase of 17%, from $123
million for the prior year. This reflected an increase of $221 million, or
41%, in operating revenues, due to growth in both net interest income and non-
interest income. Of the increase in operating revenues, $94 million, or 43%,
related to the consolidation of Factofrance. Operating revenues as a
percentage of AFE rose to 7.5% in 1997 from 6.1% in 1996. See "--Operating
Revenues--Non-Interest Income". For the year ended December 31, 1997, new
business volume, which does not include factoring volume, totalled a record
$6.0 billion, an increase of 47% over the prior year. This increase was the
result of the Company's significant investment in building leadership
positions in its businesses and in expanding market coverage. The Company's
factoring volume totalled $15.5 billion in 1997, an $8.5 billion increase from
the prior year, primarily due to the consolidation of Factofrance. The credit
quality of the Company's portfolio was demonstrated by the low level of
nonearning assets, which totalled $155 million, or 1.4% of lending assets, at
December 31, 1997. In addition, the Company's allowance for losses of
receivables at year end was significantly in excess of 100% of nonearning
impaired
26
<PAGE>
receivables. The Company's pre-1990 portfolio was substantially reduced during
1997 and, as of December 31, 1997, represented 4% of total lending assets and
investments. See "Risk Management--Portfolio Quality--Pre-1990 Portfolio".
OPERATING REVENUES. The following table summarizes the Company's operating
revenues for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER
31,
-----------------------------
1997 1996
-------------- --------------
PERCENT PERCENT
AMOUNT OF AFE AMOUNT OF AFE
------ ------- ------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net interest income........................ $408 4.0% $355 4.1%
Non-interest income:
Fees and other income.................... 206 2.1 79 0.9
Factoring commissions.................... 104 1.0 55 0.6
Income of international joint ventures 36 0.4 44 0.5
---- --- ---- ---
Total operating revenues............... $754 7.5% $533 6.1%
==== === ==== ===
</TABLE>
Excluding the impact of the consolidation of Factofrance, operating revenues
increased by 24% in 1997 from the prior year.
Net Interest Income. The following table summarizes the Company's net
interest income for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
FOR THE
YEAR
ENDED
DECEMBER
31, INCREASE/(DECREASE)
---------- ---------------------
1997 1996 AMOUNT PERCENT
---- ---- --------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Interest income....................... $924 $807 $ 117 14.5%
Interest expense...................... 516 452 64 14.2
---- ---- ---------
Net interest income................. $408 $355 $ 53 14.9
==== ==== =========
Net interest income as a percentage
of AFE............................. 4.0% 4.1%
</TABLE>
Net interest income totalled $408 million for the year ended December 31,
1997, an increase of $53 million, or 15%, from the comparable prior year
period. This increase reflected growth in lending assets and investments and
the consolidation of Factofrance, which contributed $28 million to this
increase. Net interest margin as a percentage of AFE decreased to 4.0% at
December 31, 1997 from 4.1% at December 31, 1996. This decline reflected the
continued growth of the Company's lower risk, but lower yielding, Asset Based
Finance products, competitive pricing pressures in certain product groups and
higher originations of CMBS, which carry a lower yield than other products of
the Company.
Interest rates charged by the Company vary depending on risks and maturities
of loans, competition, current costs of borrowing to the Company, state usury
laws and other governmental regulations. The Company's portfolio of
receivables earns interest at both variable and fixed rates. The variable
rates float in accordance with various agreed upon reference rates, including
LIBOR, the Prime Rate, the Treasury Bill Rate and corporate based lending
rates.
The Company uses interest rate swaps as an important tool for financial risk
management, which enables it to match more closely the interest rate and
maturity characteristics of its assets and liabilities. As such, interest rate
swaps are used to change the characteristics of fixed rate debt to that
27
<PAGE>
of variable rate liabilities, to alter the characteristics of specific fixed
rate asset pools to more closely match the interest terms of the underlying
financing and to modify the variable rate basis of a liability to more closely
match the variable rate basis used for variable rate receivables. A
comparative analysis of the year-end principal outstanding and average
interest rates paid by the Company on its debt as of December 31, 1997 and
1996, before and after giving effect to interest rate swaps, is shown in the
following table:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1997 1996
--------------------- ---------------------
YEAR-END BEFORE AFTER YEAR-END BEFORE AFTER
BALANCE SWAPS SWAPS BALANCE SWAPS SWAPS
-------- ------ ----- -------- ------ -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Commercial paper--domestic
and foreign............... $2,560 5.71% N/A $2,576 5.63% N/A
Fixed rate debt............ 3,951 6.90 6.67% 2,905 7.02 6.62%
Variable rate debt......... 2,051 5.44 6.01 1,859 4.85 5.78
------ ------
Total.................... $8,562 6.19 6.44 $7,340 5.98 6.29
====== ======
</TABLE>
Non-Interest Income. The following table summarizes the Company's non-
interest income for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER
31, INCREASE/(DECREASE)
------------ ----------------------
1997 1996 AMOUNT PERCENT
----- ----- --------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Factoring commissions............. $ 104 $ 55 $ 49 89.1%
Income of international joint
ventures......................... 36 44 (8) (18.2)
Fees and other income:
Fee income and other (1)........ 84 52 32 61.5
Net investment gains............ 69 3 66 N/M
Real estate participation
income......................... 27 24 3 12.5%
Securitization gains............ 26 0 26 --
----- ----- ---------
Total fees and other income... $ 206 $ 79 $ 127 160.8
----- ----- ---------
Total non-interest income... $ 346 $ 178 $ 168 94.4
===== ===== =========
Non-interest income as a
percentage of AFE................ 3.5% 2.0%
</TABLE>
--------
(1) Fee income and other consists primarily of loan servicing income,
late fees, prepayment fees, other miscellaneous fees and equipment
residual gains.
The Company's non-interest income is composed of factoring commissions,
income of international joint ventures and fees and other income. Factoring
commissions increased $49 million, or 89%, from 1996 to 1997 due primarily to
the consolidation of Factofrance in 1997, as a result of which the Company
believes it became the largest factor in the world.
Income of international joint ventures represents the Company's share of the
annual earnings or losses of joint ventures. The Company includes this income
as part of operating revenues because these joint ventures have been, and will
continue to be, an integral part of the Company's strategy, as evidenced by
investments in joint ventures with operations in 15 countries, many of which
have been operating for over 25 years. The $8 million decrease in income from
international joint ventures from 1996 to 1997 was due primarily to the
consolidation of Factofrance.
Fees and other income totalled $206 million for 1997, an increase of $127
million from the prior year, due to increases in net investment gains,
securitization gains and fee income and other. Fee
28
<PAGE>
income and other increased due to $20 million from the consolidation of
Factofrance, and a $10 million gain resulting from the termination of the
Company's agreement with Belgravia Financial Services ("Belgravia"). See
"Business--Real Estate Finance".
Net investment gains increased $66 million during 1997 due to a lower level
of losses and writedowns in 1997, as compared to 1996. Gross investment gains
were $119 million and $106 million, while losses and writedowns on investments
were $50 million and $103 million, in 1997 and 1996, respectively. Losses and
writedowns on equity investments were higher in 1996 primarily due to
writedowns during the year totalling $53 million on one pre-1990 Corporate
Finance investment. Net investment gains are generated primarily from
investment activity by Corporate Finance and junior participating lending
activity by Real Estate Finance. The Company also has certain investments from
its pre-1990 portfolio and from direct equity investment activities, an area
in which the Company is no longer pursuing new transactions, which
historically have added significant volatility to the level of net investment
gains. As a result of the pursuit of smaller individual transaction sizes by
Corporate Finance and Real Estate Finance and the significant liquidation of
the pre-1990 and direct equity portfolios, the Company expects that, while net
investment gains will vary from year to year, the level of this volatility
will be reduced. The Company also recognized a $7 million gain in 1997 as a
result of changing to the equity method of accounting for limited partnerships
and fund investments.
During 1997, the Company generated $26 million of securitization gains,
primarily through a CMBS securitization in the second quarter. The Company did
not retain any residual risk in this securitization transaction, as all of the
securities were sold to third parties on a non-recourse basis. The Company
expects to periodically securitize CMBS and other receivables in the future.
See "Business--Real Estate Finance".
OPERATING EXPENSES. The following table summarizes the Company's operating
expenses for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER
31, INCREASE/(DECREASE)
------------ ---------------------
1997 1996 AMOUNT PERCENT
----- ----- --------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Salaries and other compensation..... $ 214 $ 154 $ 60 39.0%
General and administrative expenses. 143 93 50 53.8
----- ----- ---------
Total............................. $357 $247 $ 110 44.5
===== ===== =========
Operating expenses as a percentage
of AFE............................. 3.5% 2.8%
</TABLE>
Operating expenses, excluding the impact of the Factofrance consolidation,
increased by $51 million, or 21%, in 1997, as compared to 1996. This increase
was primarily due to the Company's continued investment in developing
leadership positions for its Asset Based Finance businesses and expansion of
loan origination and portfolio management resources in the Company's CMBS loan
area, the opening of 11 new offices, increased investment in technology and
higher costs associated with record new business originations.
29
<PAGE>
ALLOWANCE FOR LOSSES. The following table summarizes the changes in the
Company's allowance for losses of receivables, including the Company's
provision for losses of receivables and repossessed assets, for the years
ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER
31, INCREASE/(DECREASE)
------------ ----------------------
1997 1996 AMOUNT PERCENT
----- ----- --------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Balance at the beginning of the
year........................... $ 225 $ 231 $ (6) (2.6)%
Provision for losses.......... 164 103 61 59.2
Writedowns.................... (169) (163) (6) (3.7)
Recoveries.................... 23 55 (32) (58.2)
Factofrance consolidation..... 18 -- 18 N/M
Transfers and other........... -- (1) 1 N/M
----- ----- ---------
Balance at the end of the year.. $ 261 $ 225 $ 36 16.0%
===== ===== =========
</TABLE>
The provision for losses increased to $164 million in 1997 from $103 million
in 1996. This increase primarily resulted from provisions due to growth in
lending assets, combined with lower levels of recoveries in 1997. Gross
writedowns were slightly higher than the prior year at $169 million for 1997
versus $163 million for 1996, while recoveries totalled $23 million in 1997
versus $55 million for 1996. Net writedowns on the current portfolio totalled
$62 million, or 0.6% of total average lending assets, in 1997 versus $41
million, or 0.5% of total average lending assets, in 1996. The Company expects
lower levels of writedowns in future periods due to significantly lower
writedowns on the pre-1990 portfolio. As of December 31, 1997, the ratio of
the Company's allowance for losses of receivables to receivables was 2.4%,
compared to 2.6% as of December 31, 1996. This decrease in such ratio
reflected the continued improvement of the credit quality of the Company's
portfolio. The Company intends to continue to systematically evaluate the
appropriateness of the allowance for losses of receivables and to adjust the
allowance to reflect any changes in the credit quality of the Company's
portfolio.
INCOME TAXES. The Company's effective income tax rate was 28% for 1997 and
23% for 1996, in each case below the statutory rate due to the use of foreign
tax credits, the effect of earnings from international joint ventures and
certain favorable tax issue resolutions. The effective tax rates for 1997 and
1996 were reduced by the effects of nonrecurring items, including $15 million
of net foreign tax credit carryover utilization in 1997. In future periods,
the Company expects its effective tax rate to more closely approximate the
statutory rate.
30
<PAGE>
LENDING ASSETS AND INVESTMENTS
Total lending assets and investments increased $2.3 billion, or 24%, during
1997 reflecting record new business originations of $6.0 billion, a $1.5
billion increase from the consolidation of Factofrance and $5.3 billion of
paydowns, loan sales, syndications and securitizations. During 1997, new
business volume represented a 47% increase over 1996, as the Company realized
the benefit of the market positions held by Asset Based Finance, Corporate
Finance and Real Estate Finance. In addition, the Company liquidated 50% of
the remaining portion of its pre-1990 portfolio, which as of December 31, 1997
represented 4% of total lending assets and investments. The following table
presents the Company's lending assets (which consist of receivables and
repossessed assets) and investments by business line and asset type as of
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1997 1996
------------------ --------------
AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
BY BUSINESS CATEGORY:
Asset Based Finance....... $ 4,726 40% $4,258 44%
International Group (1)... 2,361(2) 20(2) 609 6
Real Estate Finance....... 2,093 18 1,514 16
Corporate Finance......... 2,010 17 2,016 21
Project Finance........... 144 1 160 2
Pre-1990 portfolio........ 492 4 979 10
Other..................... 102 -- 84 1
------- --- ------ ---
Total lending assets and
investments............ $11,928 100% $9,620 100%
======= === ====== ===
BY ASSET TYPE:
Receivables............... $10,722 90% $8,529 89%
Repossessed assets........ 14 -- 14 --
------- --- ------ ---
Total lending assets.... 10,736(2) 90(2) 8,543 89
Equity and real estate
investments.............. 488 4 419 4
Debt securities........... 311 3 251 3
Operating leases.......... 195 1 135 1
International joint
ventures................. 198 2 272 3
------- --- ------ ---
Total lending assets and
investments............ $11,928 100% $9,620 100%
======= === ====== ===
Total managed assets.... $11,800 $9,574
Funds employed.......... $10,673 $9,030
</TABLE>
- --------
(1) Includes $198 million in investments in international joint ventures,
representing 2% of total lending assets and investments, in 1997, and
$272 million in investments in international joint ventures,
representing 3% of total lending assets and investments, in 1996.
(2) Reflects the consolidation of Factofrance in April 1997.
The Company's portfolio is concentrated in secured asset based lending, as
the combined domestic and consolidated international asset based finance
portfolios totalled nearly $7 billion in lending assets and investments, or
58% of total lending assets and investments, at December 31, 1997. During
1997, the Asset Based Finance portfolio, substantially all of which is
domestic, grew to $4.7 billion in lending assets and investments, or 40% of
total lending assets and investments, at December 31, 1997, due to a 32%
increase in new business originations. Real Estate Finance grew to $2.1
billion in lending assets and investments at December 31, 1997, as
originations of CMBS receivables totalled $1.1 billion in 1997 versus $500
million in 1996. The Company securitized approximately $1.1 billion of its
CMBS receivables in March 1998, and, as a result, Real Estate Finance assets
declined in the first quarter of 1998. Corporate Finance generated new
business volume of over $1.3 billion in 1997, but its lending assets and
investments remained unchanged compared to 1996, due primarily to syndications
and runoff in the portfolio.
31
<PAGE>
Concentrations of lending assets of 5% or more at December 31, 1997 and
1996, based on the standard industrial classifications of the borrowers, were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
-------------- --------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
General industrial machines................ $637 6% $500 6%
Food, grocery and miscellaneous retail..... 603 6 669 8
Business services.......................... 556 5 435 5
Department and general merchandise retail
stores.................................... 511 5 987 12
</TABLE>
The general industrial machines classification is distributed among
machinery used for many different industrial applications. The majority of
lending assets in the food, grocery and miscellaneous retail category are
revolving and term facilities with borrowers that are primarily in the
business of manufacturing and retailing of food products. The business
services category is primarily comprised of computer and data processing
services, credit reporting and collection and miscellaneous business services.
The department and general merchandise retail stores category is primarily
comprised of factored accounts receivable, which represent short-term trade
receivables from numerous customers. The reduction in department and general
merchandise retail stores lending assets in 1997 reflected the sale of $500
million of factored accounts receivable under a $550 million factored accounts
receivable facility. See "--Liquidity and Capital Resources".
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
RESULTS OF OPERATIONS
OVERVIEW. During 1996, the Company made significant progress in developing
the market positions and operating platforms of its Asset Based Finance
businesses and strengthening asset quality through the addition of lower risk
assets and the significant reduction of pre-1990 Corporate Finance and Real
Estate Finance assets. Despite the costs of these efforts, the Company was
able to increase net income to $133 million for the year ended December 31,
1996, representing a 6% increase over the prior year. This increase was due to
a significantly lower provision for losses, which more than offset the
reduction in operating revenues and the increase in spending for developing
businesses. The decline in the provision for losses was a result of the
continued strong credit quality of the newer Asset Based Finance businesses
and the current Corporate Finance and Real Estate Finance portfolios,
significant decrease in gross writedowns on the pre-1990 portfolio and the
recognition of several large recoveries on the pre-1990 portfolio. The
reduction in operating revenues reflected the shift in the Company's portfolio
to lower risk, but also lower yielding, assets, coupled with lower net
investment gains and a decline in the level of fee accelerations.
OPERATING REVENUES. The following table summarizes the Company's operating
revenues for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------------
1996 1995
-------------- --------------
PERCENT PERCENT
AMOUNT OF AFE AMOUNT OF AFE
------ ------- ------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net interest income......................... $355 4.1% $387 4.6%
Non-interest income:
Fees and other income..................... 79 0.9 148 1.7
Factoring commissions..................... 55 0.6 50 0.6
Income of international joint ventures.... 44 0.5 35 0.4
---- --- ---- ---
Total operating revenues................ $533 6.1% $620 7.3%
==== === ==== ===
</TABLE>
32
<PAGE>
Net Interest Income. The following table summarizes the Company's net
interest income for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, INCREASE/(DECREASE)
-------------------- ----------------------
1996 1995 AMOUNT PERCENT
--------- --------- --------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Interest income........... $ 807 $ 851 $ (44) (5.2)%
Interest expense.......... 452 464 (12) (2.6)
--------- --------- ---------
Net interest income..... $ 355 $ 387 $ (32) (8.3)
========= ========= =========
Net interest income as a
percentage of AFE...... 4.1% 4.6%
</TABLE>
Net interest income decreased by 8.3% in 1996 as compared to 1995,
reflecting the continued shift of the portfolio to lower risk, but also lower
yielding, Asset Based Finance products, competitive pricing pressures and
lower levels of fee accelerations. Interest income yields decreased to 10.8%
during 1996 from 11.7% in 1995. Interest expense decreased to 6.5% in 1996
from 6.9% in 1995 due to the decline in the average borrowing rate.
A comparative analysis of the year-end principal outstanding and average
interest rates paid by the Company on its debt as of December 31, 1996 and
1995, before and after giving effect to interest rate swaps, is shown in the
following table:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1996 1995
--------------------- ---------------------
YEAR-END BEFORE AFTER YEAR-END BEFORE AFTER
BALANCE SWAPS SWAPS BALANCE SWAPS SWAPS
-------- ------ ----- -------- ------ -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Commercial paper-- domestic
and foreign............... $2,576 5.63% N/A $2,067 5.96% N/A
Fixed rate debt............ 2,905 7.02 6.62% 2,699 7.26 6.91%
Variable rate debt......... 1,859 4.85 5.78 2,449 5.59 6.36
------ ------
Total.................... $7,340 5.98 6.29 $7,215 6.32 6.65
====== ======
</TABLE>
Non-Interest Income. The following table summarizes the Company's non-
interest income for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER
31, INCREASE/(DECREASE)
------------ ----------------------
1996 1995 AMOUNT PERCENT
----- ----- --------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Factoring commissions............ $ 55 $ 50 $ 5 10.0%
Income of international joint
ventures........................ 44 35 9 25.7
----- ----- ---------
Fees and other income:
Fee income and other(1)........ 52 49 3 6.1
Net investment gains........... 3 74 (71) N/M
Real estate participation
income........................ 24 24 -- --
Securitization gains........... -- 1 (1) N/M
----- ----- ---------
Total fees and other income.. $ 79 $ 148 $ (69) (46.6)%
===== ===== =========
Total non-interest income.. $ 178 $ 233 $ (55) (23.6)
===== ===== =========
Non-interest income as a
percentage of AFE............... 2.0% 2.7%
</TABLE>
--------
(1) Fee income and other consists primarily of loan servicing income, late fees,
prepayment fees, other miscellaneous income and equipment residual gains.
33
<PAGE>
Factoring commissions during 1996 totalled $55 million, increasing 10% from
1995 due to an increase in factoring volume. Income of international joint
ventures increased by 26% during 1996, primarily due to earnings growth from
European joint ventures in the Netherlands and France. Net investment gains
were $3 million for 1996, as compared to $74 million in 1995. Gross investment
gains were $106 million and $133 million, while losses and writedowns were
$103 million and $59 million, in 1996 and 1995, respectively. Losses and
writedowns on equity investments were higher in 1996 primarily due to
writedowns during the year totalling $53 million on one pre-1990 Corporate
Finance investment.
OPERATING EXPENSES. The following table summarizes the Company's operating
expenses for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER
31, INCREASE/(DECREASE)
------------ ----------------------
1996 1995 AMOUNT PERCENT
----- ----- --------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Salaries and other
compensation.................. $ 154 $ 135 $ 19 14.1%
General and administrative
expenses...................... 93 81 12 14.8
----- ----- ---------
Total........................ $ 247 $ 216 $ 31 14.4
===== ===== =========
Operating expenses as a
percentage of AFE............. 2.8% 2.6%
</TABLE>
During 1996, operating expenses grew 14% versus 1995 primarily due to the
Company's continued investments in developing the products and services of its
Asset Based Finance businesses.
ALLOWANCE FOR LOSSES. The following table summarizes the changes in the
Company's allowance for losses of receivables, including the Company's
provision for losses of receivables and repossessed assets, for the years
ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER
31, INCREASE/(DECREASE)
------------ ----------------------
1996 1995 AMOUNT PERCENT
----- ----- --------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Balance at the beginning of the
year............................ $ 231 $ 237 $ (6) (2.5)%
Provision for losses........... 103 223 (120) (53.8)
Writedowns..................... (163) (259) (96) N/M
Recoveries..................... 55 28 27 96.4%
Transfers and other............ (1) 2 (3) N/M
----- ----- ---------
Balance at end of the year....... $ 225 $ 231 $ (6) (2.6)%
===== ===== =========
</TABLE>
The provision for losses decreased dramatically from 1995 to 1996 as a
result of the lower writedowns and increased recoveries, primarily from the
pre-1990 portfolio. Gross writedowns were $163 million and $259 million, while
recoveries totalled $55 million and $28 million, for 1996 and 1995,
respectively. The credit quality of the current portfolio was demonstrated by
net writedowns on the current portfolio totalling $41 million, or 0.50% of
total average lending assets, in 1996 versus $45 million, or 0.60% of total
average lending assets, in 1995.
INCOME TAXES. The Company's effective income tax rate was 23% for 1996 and
27% for 1995, in each case below the statutory rate due to the effect of
earnings from international joint ventures, the use of foreign tax credits and
favorable tax issue resolutions.
34
<PAGE>
LENDING ASSETS AND INVESTMENTS
Total lending assets and investments increased $581 million, or 6%, during
1996, as the Company continued to grow its lower risk Asset Based Finance
businesses and reduce its pre-1990 portfolio. As of December 31, 1996, the
domestic Asset Based Finance portfolio continued to be the largest business
category, representing 44% of lending assets and investments. The following
tables present lending assets and investments by business category and asset
type as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
-------------- --------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
BY BUSINESS CATEGORY:
Asset Based Finance.......................... $4,258 44% $3,147 35%
Corporate Finance............................ 2,016 21 2,328 26
Real Estate Finance.......................... 1,514 16 1,234 14
International Group(1)....................... 609 6 506 5
Project Finance.............................. 160 2 186 2
Pre-1990 portfolio........................... 979 10 1,526 17
Other........................................ 84 1 112 1
------ --- ------ ---
Total lending assets and investments....... $9,620 100% $9,039 100%
====== === ====== ===
</TABLE>
--------
(1) Includes $272 million in investments in international joint ventures,
representing 3% of total lending assets and investments, in 1996, and
$233 million in investments in international joint ventures,
representing 2% of total lending assets and investments, in 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
-------------- --------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
BY ASSET TYPE:
Receivables.................................. $8,529 89% $8,085 89%
Repossessed assets........................... 14 -- 28 1
------ --- ------ ---
Total lending assets....................... 8,543 89 8,113 90
Equity and real estate investments........... 419 4 428 5
Debt securities.............................. 251 3 152 2
Operating leases............................. 135 1 113 1
International joint ventures................. 272 3 233 2
------ --- ------ ---
Total lending assets and investments....... $9,620 100% $9,039 100%
====== === ====== ===
Total managed assets....................... $9,574 $9,137
Funds employed............................. $9,030 $8,542
</TABLE>
The Company continued to develop a more balanced, lower risk asset based
portfolio in 1996 while maintaining the strong market positions of Corporate
Finance and Real Estate Finance. Asset diversification was improved with asset
growth of over $1 billion in the Asset Based Finance businesses in 1996, with
all five Asset Based Finance business groups contributing to this growth. None
of the Company's business groups represented more than 21% of the Company's
total portfolio at December 31, 1996. Corporate Finance had fundings of
approximately $900 million in 1996, but its assets and investments decreased
by $312 million in 1996, due primarily to syndications and runoff in the
portfolio.
35
<PAGE>
The Company's investment in international joint ventures increased due to
the impact of undistributed income and an investment made in a factoring
company in Chile.
Concentrations of lending assets of 5% or more at December 31, 1996 and
1995, based on the standard industrial classifications of the borrowers, were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995
-------------- --------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Department and general merchandise retail
stores................................... $987 12% $774 10%
Food, grocery and miscellaneous retail.... 669 8 568 7
General industrial machines............... 500 6 392 5
Business services......................... 435 5 387 5
Textile and apparel manufacturing......... 403 5 529 7
</TABLE>
The department and general merchandise retail stores and the textiles and
apparel manufacturing categories were primarily comprised of factored accounts
receivable which represent short-term trade receivables from numerous
customers. The majority of lending assets in the food, grocery and
miscellaneous retail category were revolving and term facilities with
borrowers primarily in the business of manufacturing and retailing of food
products. The general industrial machines classification is distributed among
machinery used for many different industrial applications. The business
services category was primarily comprised of computer and data processing
services, credit reporting and collection, and miscellaneous business
services.
LIQUIDITY AND CAPITAL RESOURCES
The Company manages liquidity primarily by monitoring the relative
maturities of assets and liabilities and by borrowing funds through the U.S.
and international money and capital markets and bank credit markets to fund
asset growth and to meet debt obligations. The Company's primary sources of
funds are commercial paper borrowings, issuances of medium-term notes and
other debt securities and the securitizations, syndications and sales of
lending assets. During 1997, the Company's major funding requirements included
$6.0 billion of longer-term loans, leases and investments funded, $526 million
of short-term loans funded, the retirement of $1.4 billion of senior notes,
the acquisition of its joint venture partner's interest in Factofrance for
$174 million and common and preferred dividends of $57 million. The Company's
major sources of funding these requirements, other than $406 million of cash
flows from operations, included loan repayments and investment proceeds of
$3.1 billion, the sale, securitization or syndication of $1.7 billion of loans
and investments, and the issuance of $2.6 billion of senior notes and $150
million of Series B Preferred Stock. These sales reflected the Company's
strategy to limit the size of retained positions and to securitize, retaining
minimal to no residual risk, certain asset types, such as commercial mortgages
and equipment leases. These financing activities also enabled the Company to
reduce short-term debt by $279 million, excluding the effect of consolidating
Factofrance, and left the Company with $821 million in cash and short-term
investments at the end of 1997.
While the portfolio demonstrated increasing liquidity in both its longer
term loans and in the increased proportion of factored receivables and
revolving loans, the Company continued to maintain a conservative funding
posture, with commercial paper and short-term borrowings amounting to 36% of
total debt at December 31, 1997 compared to 37% at the end of 1996.
As of December 31, 1997, committed bank credit and asset sale facilities of
the Company totalled $4.0 billion and represented 122% of the Company's
outstanding commercial paper and short-term borrowings. Committed bank credit
and asset sale facilities in the United States also were well in
36
<PAGE>
excess of 100% of U.S. commercial paper borrowings at December 31, 1997. In
April 1997, the Company extended and increased its primary committed bank
credit facility, which provides $3.0 billion of liquidity support under two
equal credit agreements, a 364-day facility, which has been renewed and will
expire April 6, 1999, and a 5-year facility expiring April 8, 2002. In
addition, the consolidated international subsidiaries are funded primarily
through short-term money market and bank borrowings, which are supported by
$625 million of committed foreign bank credit facilities in local currencies.
The Company's factored accounts receivable facility allows the Company to
sell an undivided interest of up to $550 million in a designated pool of its
factored accounts receivable to five bank-supported conduits. As part of its
array of financing options, the Company utilized this facility during the
fourth quarter so that, as of December 31, 1997, the Company had sold
approximately $500 million of factored accounts receivable.
During the fourth quarter of 1997, the Company established a $400 million
committed warehouse line, which expires in June 1998, to finance CMBS. As of
December 31, 1997, the Company had borrowed $200 million under this facility,
which borrowings were paid off in January 1998.
In an effort to maintain a sound capital structure, in June 1997 the Company
privately issued $150 million of its Series B Preferred Stock at a purchase
price of $100 per share. Pursuant to registration rights of the holders of
Series B Preferred Stock, as of January 1998, all of the shares of the Series
B Preferred Stock had been exchanged for an equal number of shares of Series C
Preferred Stock, and the Series B Preferred Stock was subsequently retired as
a class. The Series C Preferred Stock is substantially identical to the Series
B Preferred Stock, except that the issuance of the Series C Preferred Stock
was registered under the Securities Act and therefore the certificates for the
shares of Series C Preferred Stock do not bear restrictive legends.
In addition to these alternate sources of liquidity, the Company has access
to $500 million of additional liquidity support under the Keep Well Agreement
between the Company and Fuji Bank. This agreement, which cannot be terminated
by either party prior to December 31, 2002, also provides that Fuji Bank will
maintain the net worth of the Company at an amount equal to $500 million. Fuji
Bank has never been required to make any capital contribution or advance any
funds to the Company under the Keep Well Agreement. See "Certain Relationships
and Related Transactions--Relationship with Fuji Bank--Keep Well Agreement".
The Company's ratio of debt (net of short-term investments) to total
stockholders' equity remained conservative relative to commercial finance
industry peers at 5.2 times at December 31, 1997 compared to 5.0 times at
December 31, 1996. Leverage and the level of commercial paper and short-term
borrowings continued to remain within ranges targeted by the Company to
maintain a strong financial position.
ACCOUNTING DEVELOPMENTS
The Company adopted Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS 125"), as amended by Statement of
Financial Accounting Standards No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125" ("SFAS 127") on January 1, 1997.
SFAS 125 uses a "financial components" approach that focuses on control to
determine the proper accounting for financial asset transfers and addresses
the accounting for servicing rights on financial assets in addition to
mortgage loans. Securitizations of finance receivables are accounted for as
sales when legal and effective control over the related receivables is
surrendered. Servicing assets or liabilities are recognized when the servicing
rights are retained by the seller, provided that a market rate servicing fee
is received which is above or below the costs of servicing.
37
<PAGE>
In June 1997, the Financial Accounting Standards Board released Statement of
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"),
which the Company has adopted effective January 1, 1998. This statement
establishes standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements.
Statement of Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131") was also released in June
1997 and has also been adopted effective January 1, 1998. SFAS 131 requires
segments to be reported based on the way management organizes segments within
the Company for making operating decisions and assessing performance. SFAS 130
and SFAS 131 address financial statement disclosures and, as a result, will
not have an impact on the financial results of the Company.
YEAR 2000 COMPLIANCE
The Company has made, and will continue to make, certain investments in its
software applications and systems to ensure the Company's systems function
properly through and beyond the year 2000. The Company has three loan
processing systems, a lease processing system, a factoring system, and systems
for general ledger processing, payroll, accounts payable, fixed assets,
treasury and other smaller applications. The Company has established plans to
modify, upgrade or replace each of these systems for compliance with year 2000
and has established an overall plan to bring all of these systems into
compliance by the end of 1999. The Company continues to assess the impact of
the year 2000 issue on its consolidated international subsidiaries, which
includes the performance of risk assessments and the evaluation of the extent
of programming changes required to address the issue. The Company currently
estimates that the total costs of year 2000 compliance for the Company will be
below $25 million. Maintenance or modification costs will be expensed as
incurred, while the costs of new software will be capitalized and amortized
over the software's estimated useful life.
The Company is also in the process of performing a risk assessment of its
joint venture companies' plans for year 2000 compliance and of the resulting
potential impact on the Company's investments in international joint ventures.
This assessment is expected to be completed in 1998.
The Company continues to bear some risk related to the year 2000 issue and
could be adversely affected if other entities (e.g., vendors and borrowers)
not affiliated with the Company do not appropriately address their own year
2000 compliance issues. The Company is working with its mainframe provider to
validate its plans for year 2000 compliance. In addition, the Company is
incorporating a year 2000 risk assessment into its underwriting and portfolio
management activities in order to evaluate its exposure due to any lack of
compliance on the part of its clients.
38
<PAGE>
BUSINESS
The following discussion contains certain "forward-looking statements" (as
defined in Section 27A of the Securities Act), which are generally identified
by the words "anticipates", "believes", "estimates", "expects", "plans",
"intends" and similar expressions. Such statements are subject to certain
risks, uncertainties and contingencies, including, but not limited to, those
set forth under the heading "Risk Factors", which could cause the Company's
actual results, performance or achievements to differ materially from those
expressed in, or implied by, such statements. See "Special Note Regarding
Forward-Looking Statements".
GENERAL
The Company is a leading diversified commercial financial services company
which provides a broad array of financial products and services to mid-sized
and small businesses in the United States and selected international markets.
The Company provides its products and services principally in five business
categories: (i) asset based finance ("Asset Based Finance"), which provides
secured loans and factoring through five business groups, (ii) Heller Real
Estate Financial Services ("Real Estate Finance"), which provides secured real
estate financing, (iii) Heller International Group, Inc. ("International
Group"), which provides international asset based financing and factoring,
(iv) Heller Corporate Finance ("Corporate Finance"), which provides
collateralized cash flow lending, and (v) Heller Project Finance ("Project
Finance"), which provides structured financing for domestic energy-related
projects. The Company's primary clients and customers are entities in the
manufacturing and service sectors having annual sales generally in the range
of $5 million to $250 million and in the real estate sector having property
values generally in the range of $1 million to $40 million.
The Company concentrates primarily on senior secured lending, with 89% of
lending assets and investments at December 31, 1997 being made on such basis.
Also, to a more limited extent, the Company makes subordinated loans and
invests in select debt and equity instruments. The Company believes that, as
of December 31, 1997, it was the fourth largest factoring operation in the
United States in terms of factoring volume (and the largest factoring
operation worldwide), the third largest originator of SBA 7(a) guaranteed
small business loans (including leadership positions in California and Texas)
and among the largest lenders to private equity-sponsored companies in the
U.S. middle market. Additionally, the Company is a recognized leader in real
estate finance, vacation ownership lending and middle-market equipment finance
and leasing in the United States. The Company has built its portfolio through
effective asset origination capabilities, disciplined underwriting and credit
approval processes and effective portfolio management. Most of the Company's
business groups have also developed the ability to manage asset, client and
industry concentrations and enhance profitability by distributing assets
through securitizations, syndications and/or loan sales.
The Company was founded in 1919 and from its inception has targeted its
commercial financing activities at mid-sized and small businesses in the
United States. Since 1964, the Company has also competed in selected
international markets through its consolidated subsidiaries and investments in
international joint ventures. The Company was purchased by Fuji Bank in 1984,
and between the time of such acquisition and 1990, the substantial majority of
the Company's portfolio consisted of Corporate Finance and Real Estate Finance
assets (together representing 76% of the Company's lending assets and
investments at December 31, 1990). Since 1990, the Company has diversified its
portfolio, investing major resources in building its Asset Based Finance
businesses, through start-ups of new business groups and business units, as
well as the acquisition of its small business lending operation and the
expansion of smaller existing operations. During these years, the Company has
also introduced a number of Asset Based Finance businesses, including asset
based working capital and term financing, and commercial equipment finance in
1992; public finance and industrial equipment finance in 1996; and commercial
funding in 1997. As a result, the Company's Asset Based Finance
39
<PAGE>
business, which represented only 14% of the portfolio of lending assets and
investments at December 31, 1990, constituted 40% of the Company's portfolio at
December 31, 1997. In the past several years, the Company has also expanded its
overseas operations, most significantly by completing the acquisition in April
1997 of the interest of its joint venture partner in Factofrance, the leading
factoring company in France. A number of the Company's new or expanded
businesses have only recently begun to contribute meaningfully to the Company's
revenues and portfolio of lending assets and investments. The following chart
shows the breakdown of the Company's portfolio as of December 31, 1997 and
demonstrates the success of the Company's diversification efforts:
[PIE CHART APPEARS HERE]
Total Lending Assets and Investments
Asset Based Finance 40% $4.7 billion
Real Estate Finance 17% 2.1 billion
Corporate Finance 17% 2.0 billion
International Group 20% 2.4 billion
Pre-1990 Portfolio 4% 0.5 billion
Other 2% 0.2 billion
Total Lending Assets and Investments: $11.9 billion
40% of Total Lending Assets and Investments
Asset Based Finance Breakdown
Equipment Finance and Leasing 11% $1.3 billion
Sales Finance 10% 1.2 billion
Business Credit 9% 1.0 billion
Small Business Lending 7% 0.8 billion
Current Asset Management 3% 0.4 billion
Total Asset Based Finance Lending
Assets and Investments: $4.7 billion
The Company's total lending assets and investments were $11.9 billion and
common stockholders' equity was $1.4 billion at December 31, 1997. For the year
ended December 31, 1997, the Company's net income increased 19% to $158
million, from $133 million for the prior year, while new business volume
increased 47% over the prior year, from $4.1 billion to $6.0 billion. Net
income applicable to common stock was $144 million for the year ended December
31, 1997, which represented an increase of 17% from $123 million for the prior
year. The credit quality of the Company's portfolio is reflected in nonearning
assets of $155 million, or 1.4% of total lending assets, at December 31, 1997,
the lowest level of nonearning assets in over 10 years.
40
<PAGE>
Information with respect to the Company's business categories, strategic
business groups, principal product offerings, principal industries and markets
served and locations are provided in the following chart:
-----------------------------------------------------
HELLER FINANCIAL, INC.
-----------------------------------------------------
- -------------------------------------
ASSET BASED FINANCE
- -------------------------------------
Lending Assets And Investments(1)(2)
$4,726
Strategic Business Groups
<TABLE>
<CAPTION>
Equipment Sales Finance Business Credit Current Asset Small Business
Finance & Management Lending
Leasing
<S> <C> <C> <C> <C>
Lending Assets and Investments (1)(2)
$1,316 $1,228 $1,025 $391(4) $766
Revenues(1)(2)
$ 110 $ 106 $ 114 $122 $ 65
</TABLE>
Principal Product Offerings
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
. Term Debt . Customized . Secured . Factoring . SBA guaranteed
. Finance leases sales finance revolving lines . Import and 7(a) loans
. Operating programs to of credit and export financing . SBA 504 loans
leases manufacturers term loans . Letters of credit (senior to
. Off-balance and distributors . Debtor-in- . Revolving lines associated
sheet loans . Customized possession of credit and government
. True leases financing financing term loans debentures)
. Turn-key programs to . Credit protection . Conventional
financing independent . Accounts commercial real
. Lease leasing receivable estate loans
discounting companies and management
. Municipal leases timeshare
. Subordinated developers
debt (aircraft)
</TABLE>
Principal Industries and Markets Served
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
. Manufacturers . Printing . Manufacturers . Apparel . Manufacturers
. Retailers . Machine tools . Retailers . Textiles . Service
. High-tech . Plastics . Wholesalers . Home providers
. Grocery . High tech and and distributors furnishings . Retailers
. Restaurant software . Service firms . Housewares . Wholesalers
franchise . Medical . Agriculture . Golf . Distributors
. Construction . Leasing . Frozen food
. Graphic arts companies . Temporary
. Energy . Resort services
. Municipal, state developments
and federal
governments
. Airline lessors
</TABLE>
<TABLE>
<CAPTION>
- -------- ------------- --------- -------
REAL
ESTATE INTERNATIONAL CORPORATE PROJECT
FINANCE GROUP FINANCE FINANCE
- -------- ------------- --------- -------
<S> <C> <C> <C>
$2,093 $2,361(3) $2,010 $144
Real Estate International Corporate Project Finance
Finance Group Finance
<S> <C> <C> <C>
$2,093 $2,361(3) $2,010 $144
$ 252 $ 187 $ 245 $ 19
</TABLE>
<TABLE>
<CAPTION>
Principal Product Offerings
<S> <C> <C> <C>
. Fixed rate first . Factoring . Senior secured . Pre-construction
mortgages . Import and business value development
. Variable rate export financing lending through loans
participating and . Letters of credit revolving lines . Junior and
non-participating . Revolving lines of credit and senior
first mortgages of credit and term loans construction and
. Letters of credit term loans . Mezzanine term loans
. Junior . Credit protection financing
participating . Accounts . Equity fund
financing receivable investments and
management co-investments
. Leasing
</TABLE>
<TABLE>
<CAPTION>
Principal Industries and Markets Served
<S> <C> <C> <C>
Income- Subsidiaries: Private equity . Energy
generating . Factofrance sponsored . Oil and gas
properties, . Singapore companies in: . Environmental
including: . Mexico . Manufacturing . Coal and
. Multi-family . Australia . Retail minerals mining
housing . Health care . Forest products
. Hotels Joint ventures: . Agriculture
. Industrial . Europe . Food
. Office . Latin America . Service
. Retail . Asia/Pacific . Broadcasting
. Senior housing . Transportation
. Manufactured . Printing
housing . Funeral
communities services
. Self-storage . Electronics
. Tax credit/
affordable
housing
Locations
. 18 . 9 . 9 .5 .24 .10 .19 countries .5 .1
- ---------
</TABLE>
(1) In millions, as of, or for the year ended, December 31, 1997.
(2) Excludes pre-1990 Corporate Finance, Real Estate Finance and other assets
and revenues.
(3) Includes $198 million in investments in international joint ventures.
(4) Reflects the sale of approximately $500 million in factored accounts
receivable. See "--Asset Based Finance--Current Asset Management".
41
<PAGE>
STRATEGY
The Company is dedicated to delivering consistent growth in earnings and
assets, while maintaining the strong credit quality of its asset portfolio.
Over the past five years, the Company has achieved growth in earnings and
assets through its strong client orientation, productive origination network,
disciplined adherence to prudent credit principles and its long-standing
established positions in many of its target markets.
Management believes that the following operating principles have been key to
the Company's success and will continue to guide its business strategy in the
future:
. Maintain "superior client focus" in targeted mid-sized and small
business markets throughout all economic cycles
. Build and maintain a strong financial profile through a sound capital
structure, a diversified and high-quality asset portfolio and
conservative reserve levels
. Adhere to prudent credit standards and actively manage the lending and
investment asset portfolio
. Enhance productivity by leveraging existing operating platforms,
selectively investing in technology and people and practicing
disciplined expense management
. Develop, attract and retain experienced professionals by maintaining a
vibrant culture that promotes delegation, accountability, creativity and
teamwork
Adhering to these operating principles, the Company intends to continue its
earnings and asset growth by employing the following strategies:
MAINTAIN AND BUILD LEADERSHIP POSITIONS IN SELECTED MID-SIZED AND SMALL
BUSINESS MARKETS. The Company's proven ability to develop client relationships
and originate transactions with mid-sized and small businesses throughout
economic cycles has resulted in leadership positions in several of its
businesses. In addition, since 1992, the Company has entered several markets
in which the Company believes it has developed an effective infrastructure to
enable it to establish leadership positions. This strategy has resulted in
compound annual growth in new business volume of 25% over the past five years.
The Company seeks further growth by (i) continuing to develop the well-
established market position of its domestic and international factoring,
Corporate Finance and Small Business Lending businesses, by offering a broad
array of innovative financing products and services, (ii) continuing to expand
the capabilities of Real Estate Finance, including origination of CMBS
receivables, and (iii) further developing the market positions of certain
other asset based lending businesses, such as Equipment Finance and Leasing,
Business Credit and Sales Finance, by building upon its proven competencies
and technical expertise. The lending assets and investments of Asset Based
Finance have grown at a compound annual rate of 34% since 1992 and, as of
December 31, 1997, accounted for approximately 40% of the Company's total
portfolio. The Company believes that the businesses which comprise its Asset
Based Finance portfolio represent an attractive combination of growth
potential, earnings consistency and credit quality.
CONTINUE TO GROW THE COMPANY'S INTERNATIONAL BUSINESSES. The Company has a
significant international presence in factoring and asset based financing, and
has had subsidiaries and joint ventures in many international markets for more
than 25 years. These enterprises provide a solid base for consistent growth in
international earnings and also provide the Company with the opportunity to
meet the international financing needs of its domestic client base.
MAINTAIN PRUDENT CREDIT STANDARDS AND ACTIVE PORTFOLIO MANAGEMENT. The
Company has built a disciplined "credit culture" supported by portfolio and
risk management processes. The Company establishes clearly defined credit
strategies for each of its businesses, permitting them to make quick
42
<PAGE>
credit decisions under disciplined guidelines. Additionally, the Company
believes that it has developed an expertise in structuring sophisticated
transactions that enables it to accommodate unique client needs without
compromising credit quality. The Company has centralized the administration of
credit policy and portfolio management to ensure consistency in credit
strategy, efficiency in credit analysis and processing, and the ability to
monitor credit quality and portfolio composition closely.
The Company's emphasis on disciplined credit standards has resulted in a
more diverse portfolio, smaller positions retained, net credit losses of 1.5%
of average lending assets (0.7% excluding pre-1990 assets) in 1997 and
nonearning assets representing 1.4% of lending assets (0.8% excluding pre-1990
assets) at December 31, 1997. The Company believes that its risk management
systems, portfolio management and servicing capabilities, and client-oriented
structuring capabilities will continue to support long-term profitability.
ENHANCE CAPITAL MARKETS AND DISTRIBUTION EXPERTISE. As a complement to their
strong origination capabilities, most of the Company's business groups have
developed competencies in the syndication and/or securitization of lending
assets. The Company has successfully syndicated and sold $2.4 billion of
assets and securitized $994 million of assets from 1995 through 1997, and
plans to prudently expand these capabilities. The Company believes that these
skills will be increasingly important to the Company's ability to (i) maximize
its origination strength by providing broader market access to higher quality
credits, (ii) manage customer and asset concentrations, (iii) generate income
growth in competitive markets through syndication fees and securitization
gains and (iv) meet a broader array of the financial needs of its current
clients.
INCREASE OPERATING EFFICIENCIES WITHIN THE COMPANY. The Company has
established a framework for its business categories that it believes can
support the profitable addition of a significant level of assets. The Company
believes it is recognizing significant economies of scale in certain of its
established businesses (domestic factoring and Corporate Finance), and expects
to improve economies of scale in its other businesses as they grow and achieve
critical mass. The Company believes that its recent and ongoing investments in
building its Asset Based Finance businesses and its Real Estate Finance CMBS
capability provide effective operating platforms for these businesses, and
that continued strong growth in new business using these existing platforms
will generate productivity improvements in the future. The Company has also
invested in technology and support systems, significantly upgrading its
technology infrastructure in 1997 to streamline the management of portfolio
accounts, increase its efficiency in processing high transaction volumes and
enable Intranet and Internet communications and commerce. In addition, the
Company will selectively pursue strategic acquisition opportunities of
businesses and portfolios of assets that it believes will generate additional
economies of scale and productivity improvements.
ASSET BASED FINANCE
Asset Based Finance is the Company's largest business category with total
lending assets and investments of $4.7 billion, or 40% of the Company's total
lending assets and investments, at December 31, 1997, and revenues of $517
million, or 41% of the Company's total revenues, for 1997. The Asset Based
Finance portfolio is comprised of factored accounts receivable, secured
working capital loans, equipment loans and leases to end users, vendor finance
program loans and leases, small business loans, and loans to leasing companies
and timeshare developers. Asset Based Finance consists of five distinct
business groups: (i) Equipment Finance and Leasing, (ii) Sales Finance, (iii)
Business Credit, (iv) Heller Current Asset Management (principally domestic
factoring) ("Current Asset Management") and (v) Small Business Lending. The
following tables present certain information regarding Asset Based Finance as
of the end of, and for, each of the years in the three-year period ended
December 31, 1997:
43
<PAGE>
<TABLE>
<CAPTION>
AS OF, OR FOR THE
YEAR ENDED, DECEMBER
31,
------------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Lending Assets and Investments:
Equipment Finance and Leasing................. $1,316 $ 981 $ 697
Sales Finance................................. 1,228 1,090 849
Business Credit............................... 1,025 867 638
Small Business Lending........................ 766 403 208
Current Asset Management...................... 391(1) 917 755
------ ------ ------
Total lending assets and investments........ $4,726 $4,258 $3,147
====== ====== ======
Revenues:
Current Asset Management...................... $ 122 $ 113 $ 98
Business Credit............................... 114 86 64
Equipment Finance and Leasing................. 110 73 53
Sales Finance................................. 106 80 72
Small Business Lending........................ 65 47 18
------ ------ ------
Total revenues.............................. $ 517 $ 399 $ 305
====== ====== ======
Revenues as of percentage of total revenues..... 40.7% 40.5% 28.1%
Ratio of net writedowns to average asset
based lending assets........................... 0.2 0.2 0.4
Ratio of nonearning assets to total asset
based lending assets........................... 0.7 0.4 0.6
</TABLE>
--------
(1) Reflects the sale of $500 million of factored accounts receivable
during 1997.
At December 31, 1997, the Asset Based Finance groups were contractually
committed to finance an additional $1.2 billion to new and existing borrowers,
generally contingent upon the maintenance of specific credit standards. Since
many of the commitments are expected to remain unused, the total commitment
amounts do not necessarily represent future cash requirements. No significant
commitments exist to provide additional financing related to nonearning
assets.
EQUIPMENT FINANCE AND LEASING
Equipment Finance and Leasing is comprised of the following four distinct
business units: Heller Commercial Equipment Finance ("Commercial Equipment
Finance"), which as of December 31, 1997 represented 70% of the Equipment
Finance and Leasing portfolio; Heller Aircraft Finance ("Aircraft Finance"),
which as of December 31, 1997 represented 21% of this portfolio; and two newer
businesses, Heller Public Finance ("Public Finance") and Heller Industrial
Equipment Finance ("Industrial Equipment Finance").
Commercial Equipment Finance, which has generated over $1.8 billion
in new business volume since its inception in 1992, represents the
largest unit in Equipment Finance and Leasing, with $913 million in
lending assets and investments at December 31, 1997. Commercial
Equipment Finance generated new business volume of $542 million in
1997. Commercial Equipment Finance provides general equipment term debt
and lease financing directly to a diverse group of middle market
companies, which use such financing to expand, replace or modernize
their equipment or refinance existing equipment obligations. Typically,
the equipment which serves as collateral for the financing is essential
to the operations of the borrower, and the amount financed is generally
not a substantial part of the borrower's capital structure. In 1997,
the average transaction size was approximately $4 million. A typical
borrower/lessee is a U.S. business with annual revenues of at least $35
million seeking
44
<PAGE>
financing of between $1 million and $40 million. The Commercial
Equipment Finance portfolio consisted of 18 industry classifications at
December 31, 1997, of which transportation represented the largest with
18% of lending assets, followed by food/grocery and computer-related,
each of which represented 14% of lending assets, and restaurants which
represented 10% of lending assets. The portfolio's credit quality is
reflected in cumulative net writedowns of $1 million since the business
unit's inception in 1992.
Aircraft Finance is a niche competitor in the commercial aircraft and
aircraft engine finance industry, with total lending assets and
investments of $280 million at December 31, 1997. Aircraft Finance
provides financing through operating leases and senior and junior
secured loans on both new and used equipment. Clients are typically
mid-tier foreign or domestic airlines. Transaction sizes range from $3
million to $40 million, with an average transaction size in 1997 of
approximately $17 million. Aircraft Finance generated new business
volume of $198 million in 1997. Aircraft Finance has developed a
reputation for responsiveness on single investor transactions, which
generally involve one aircraft with lease terms of three to seven
years. In addition, Aircraft Finance's reliability and industry
knowledge has made it a frequently desired participant in larger
financings by other aircraft lessors. Utilizing its industry and
equipment expertise, Aircraft Finance is able to effectively shift its
product offering mix during various phases of the aircraft finance
equipment cycle and effectively remarket and dispose of equipment.
Public Finance and Industrial Equipment Finance, both of which were
started in 1996, together had total lending assets and investments of
$123 million at December 31, 1997. Public Finance and Industrial
Equipment Finance generated new business volume in the aggregate amount
of $144 million in 1997. Public Finance provides equipment and
project/facility financing to state and local governments, with an
average transaction size in 1997 of approximately $2 million. The
interest income earned by Public Finance is generally exempt from
federal income taxes. Industrial Equipment Finance provides collateral
based equipment financing to companies with annual revenues of less
than $35 million in the machine tool, construction and printing
industries. The average transaction size of Industrial Equipment
Finance in 1997 was approximately $600,000.
Equipment Finance and Leasing represents the largest business group within
Asset Based Finance, with total lending assets and investments of $1.3
billion, or 28% of the lending assets and investments of Asset Based Finance,
as of December 31, 1997. Each business unit of Equipment Finance and Leasing
provides structured equipment finance in select markets through transactions
sourced through multiple channels. Equipment Finance and Leasing serves a
broad range of industries, including transportation, supermarket,
manufacturing, computers, energy, restaurant and food processing. Major
product offerings include finance leases, true leases, term loans, off-balance
sheet loans, operating leases and turn-key financing. Through its broad market
access, the group also generates new business referrals for other business
groups of the Company, particularly Business Credit, Small Business Lending
and Sales Finance.
45
<PAGE>
The following table sets forth certain information regarding Equipment
Finance and Leasing as of the end of, and for, each of the years in the three-
year period ended December 31, 1997:
<TABLE>
<CAPTION>
AS OF, OR FOR
THE YEAR ENDED,
DECEMBER 31,
------------------
1997 1996 1995
------ ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Total lending assets and investments.................. $1,316 $981 $697
New business volume................................... 884 534 386
Revenues.............................................. 110 73 53
Revenues as a percentage of total revenues............ 8.7% 7.4% 4.9%
Ratio of net writedowns (recoveries) to
average lending assets............................... 0.1 (0.4) (0.2)
Ratio of nonearning assets to lending assets.......... 0.1 0.0 0.7
</TABLE>
Equipment Finance and Leasing provides the Company broad, national access to
the equipment finance marketplace through its 18 domestic offices. Unlike many
of its competitors, Equipment Finance and Leasing emphasizes direct
origination of its business, which the Company believes provides it with a
competitive advantage and enables it to generate repeat business. In addition
to direct origination, Equipment Finance and Leasing generates business
through traditional broker and intermediary channels. The servicing of the
Equipment Finance and Leasing portfolio is performed on a centralized basis.
Commercial Equipment Finance's and Industrial Equipment Finance's approach
to lending concentrates on the following three critical factors: (i) the cash
flow of the borrower, (ii) the importance/value of the equipment to the
borrower's overall operations and (iii) the relative strength of the
borrower's balance sheet and capital structure. Aircraft Finance focuses on
the strength of the underlying collateral and the credit worthiness of the
underlying lessee. Public Finance generally lends to investment grade
municipalities secured by essential use equipment.
In addition to maintaining underwriting discipline, Equipment Finance and
Leasing manages credit risk through industry and borrower diversification. The
group's portfolio exhibited strong credit quality as of December 31, 1997,
with nonearning assets of less than $1 million on a $1.3 billion portfolio,
and net writedowns of $1 million (0.1% of lending assets) for the year ended
December 31, 1997. Equipment Finance and Leasing is also able to assess
residual value risk and effectively manage off-lease equipment exposures.
Designated individuals establish all equipment residuals used in pricing lease
transactions and continuously research secondary market values to establish
current values, estimate future values and mark industry trends. As of
December 31, 1997, no equipment was off-lease.
Equipment Finance and Leasing distributes a portion of its assets through
securitizations and syndications. In 1997, Equipment Finance and Leasing
contributed $72 million of assets to an equipment securitization and
syndicated an additional $102 million of assets. Through these capital markets
capabilities, Equipment Finance and Leasing is able to provide broader market
penetration, while managing borrower and industry concentrations.
SALES FINANCE
Sales Finance is comprised of two business units: (i) Heller Vendor Finance
("Vendor Finance"), which provides customized financing programs to
manufacturers and distributors of a wide variety of commercial, industrial and
technology products, and (ii) Heller Lender Finance ("Lender Finance"), which
provides customized financing programs to independent leasing companies and
timeshare developers.
Vendor Finance, which comprised 50% of the Sales Finance portfolio at
year end 1997, provides customized sales financing programs to
manufacturers and distributors of a wide
46
<PAGE>
variety of commercial, industrial and technology products. Vendor
Finance offers products and services to two broad client categories:
(i) commercial and industrial, for which Vendor Finance provides sales
financing programs consisting of true leases, loans, conditional sales
contracts and installment sales contracts secured by equipment; and
(ii) healthcare, information and technology, for which Vendor Finance
provides sales financing programs consisting of true leases, loans and
conditional sales contracts, secured by health care and high-technology
products. These sales financing programs enable the vendor to enhance
its marketing and sales capabilities by offering financing and leasing
options to its customers. Transactions under these programs generally
have partial or, in some cases, full recourse to the vendor. Individual
transaction sizes within these programs range from $50,000 to $5
million, with an average transaction size in 1997 of approximately
$400,000. Terms generally range from two to six years. In 1997, Vendor
Finance generated approximately $500 million in new business volume.
Lender Finance, which comprised 50% of the Sales Finance portfolio at
year-end 1997, provides (i) financing for the vacation ownership
industry and (ii) lease portfolio financing. Lender Finance is one of
the largest lenders to the U.S vacation ownership industry, providing
timeshare resort developers with full life-cycle financing, primarily
receivables hypothecation and inventory financing. Lender Finance also
provides a wide range of financing to independent leasing companies,
including term financing, residual financing, private securitization
structures and warehouse financing. Lender Finance generated $254
million in new business volume in 1997. Vacation ownership transaction
sizes range from $3 million to $50 million, with an average transaction
size in 1997 of $14 million, secured by individual, underlying
transactions with an average size in 1997 of approximately $100,000.
Terms generally range from two to ten years. Lease portfolio financing
transaction sizes range from $50,000 to $2 million, with an average
transaction size in 1997 of $1 million. Terms generally range from two
to seven years.
Sales Finance, with $1.2 billion in lending assets and investments
represented 26% of the Asset Based Finance portfolio as of December 31, 1997.
Sales Finance provides financing and related support and servicing
capabilities to assist its clients in selling their products and services by
enabling them to provide financing for the end-customer of these products. The
range of services provided by Sales Finance includes sales financing,
transaction structuring, credit analysis, documentation, billing, collections,
portfolio reporting and marketing support. In 1997, Sales Finance generated
new business volume of $754 million, which represented a 39% increase over
1996.
The following table sets forth certain information regarding Sales Finance
as of the end of, and for, each of the years in the three-year period ended
December 31, 1997:
<TABLE>
<CAPTION>
AS OF, OR FOR THE
YEAR ENDED,
DECEMBER 31,
--------------------
1997 1996 1995
------ ------ ----
(IN MILLIONS)
<S> <C> <C> <C>
Total lending assets and
investments............ $1,228 $1,090 $849
New business volume..... 754 544 589
Revenues................ 106 80 72
Revenues as a percentage
of total revenues...... 8.3% 8.1% 6.6%
Ratio of net writedowns
(recoveries) to
average lending assets. -- (0.1) 0.1
Ratio of total
nonearning assets to
lending assets......... 1.2 0.9 0.4
</TABLE>
The business strategy of Sales Finance is to focus on developing long-term
relationships with clients by understanding its clients' businesses and the
role that financing plays in their sales and
47
<PAGE>
marketing processes. The sales force, which has expertise in originating and
structuring customized programs for companies in its targeted industries,
calls directly on prospective clients, using a database of pre-qualified
prospects.
Sales Finance's credit approach focuses on the structure of the underlying
financing program and stresses a balance among three key factors: (i) credit
strength of the underlying lessee or borrower, (ii) value and quality of the
underlying collateral and (iii) financial support from the client, and Sales
Finance's reliance upon that support, as many of its programs have full or
partial recourse to the manufacturer or vendor. The group uses standard
underwriting formats and documents to ensure strict credit controls, while
still providing the quick response times demanded by clients. Credit quality
of Sales Finance's portfolio is evidenced by nonearning assets constituting
1.2% of total lending assets and investments, and no net writedowns during
1997.
Sales Finance is focusing increasingly on the use of syndications and
securitizations to manage client and industry concentrations, and to generate
fee income and increase returns. During 1997, the Company securitized $195
million of Sales Finance receivables in a single transaction. The Company did
not retain any credit risk on this transaction, as all securities were sold to
third parties on a non-recourse basis. The Company continues to generate
servicing fees from these assets.
BUSINESS CREDIT
Business Credit, with $1.0 billion in total lending assets and investments,
represented 22% of the Asset Based Finance portfolio as of December 31, 1997.
Business Credit provides asset based working capital and term financing to
middle-market companies for growth, refinancings, recapitalizations,
acquisitions, seasonal borrowing, and debtor-in-possession ("DIP") and post-
DIP transactions, through senior loans primarily secured by accounts
receivable, inventory and, to a lesser extent, machinery and equipment and
real estate. Middle-market companies served by Business Credit include
manufacturers, retailers, wholesalers, distributors and service firms. The
group's portfolio is well-diversified, consisting of 20 industries, with
food/grocery and retail representing the largest concentrations at 22% and
13%, respectively, of total lending assets, and no other industry constituting
more than 10% of total lending assets, as of December 31, 1997. Terms of
transactions usually range from one to eight years, with an average commitment
size and funds employed of $25 million and $10 million, respectively.
The following table sets forth certain information regarding Business Credit
as of the end of, and for, each of the years in the three-year period ended
December 31, 1997:
<TABLE>
<CAPTION>
AS OF, OR FOR
THE YEAR ENDED,
DECEMBER 31,
------------------
1997 1996 1995
------ ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Total lending assets and investments.................. $1,025 $867 $638
New business volume................................... 695 639 476
Revenues.............................................. 114 86 64
Revenues as a percentage of total revenues............ 9.0% 8.7% 5.9%
Ratio of net writedowns to
average total lending assets......................... -- 0.1 --
Ratio of nonearning assets to lending assets.......... -- -- --
</TABLE>
Through its nine regional sales offices, Business Credit provides the
Company with broad national coverage with a focus on regional market
opportunities. Financing is typically provided as agent (lead lender), but
also may be provided as a co-lender or a participant in senior secured
transactions agented by other traditional asset-based lenders. Business Credit
generates the majority of its new business through intermediaries such as
investment and commercial banks, and private equity investors. The group is
also expanding its direct marketing efforts through its use of proprietary
databases of prospective borrowers. In 1997, Business Credit generated new
business commitments
48
<PAGE>
and related fundings of $1.7 billion and $695 million, respectively, up 26%
and 9% over the prior year period.
Business Credit underwrites transactions based on balancing collateral
values, cash flow and capital structure. Business Credit protects its position
against deterioration of a borrower's performance by using established advance
rates against eligible collateral and cross-collateralizing revolving credit
facilities and term loans. Credit risk is also actively managed through
portfolio diversification by industry and individual client exposure. Business
Credit manages its portfolio centrally, ensuring more consistent control over
all of its accounts and efficient documentation and approval of transactions.
The credit quality is reflected in cumulative net writedowns of $2 million
since the group's inception in 1992, and no nonearning assets as of December
31, 1997.
Business Credit has established a syndication capability, enabling it to
commit to larger transactions while still managing the size of ultimate
retained positions and to generate additional income. Although Business Credit
can provide commitments of up to $200 million, the business generally
syndicates its ultimate retained funds employed position to $35 million or
less. Total syndication activity in 1997 amounted to $132 million in fundings.
CURRENT ASSET MANAGEMENT
Current Asset Management has been a leading provider of factoring services
in the United States for over 50 years. For 1997, the Company believes Current
Asset Management was the fourth largest factor in terms of volume in the
United States, with factoring volume of over $7.3 billion, a 6% increase from
the prior year. This group provides factoring, working capital and term loans,
receivables management, import and export financing and credit protection to
middle-market companies which have targeted annual sales in the range of $10
million to $100 million. Working capital and term loans consist of advances
against inventory and equipment on a formula basis, as well as seasonal over-
advances. In addition, during 1997, the group's commercial funding unit began
making asset based loans in the $1 million to $10 million range secured by
receivables and inventory. Current Asset Management serves a wide variety of
markets, with specific expertise in apparel, textiles and home furnishings. As
of December 31, 1997, the majority of Current Asset Management's lending
assets consisted of short-term trade receivables from department and general
merchandise retail stores. The group has also begun to service a broad range
of additional markets such as golf, temporary staffing services, seafood and
housewares. Clients use Current Asset Management's factoring products and
services to address a broad range of needs, including improving cash flow,
mitigating the risk of bad debt charge-offs, increasing sales, improving
management information and converting the high fixed cost of operating a
credit and collection department into a lower, variable expense.
The following table sets forth certain information regarding Current Asset
Management as of the end of, and for, each of the years in the three-year
period ended December 31, 1997:
<TABLE>
<CAPTION>
AS OF, OR FOR THE
YEAR ENDED,
DECEMBER 31,
---------------------
1997 1996 1995
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Total lending assets and investments.............. $ 391(1) $ 917 $ 755
Factoring volume(2)............................... 7,347 6,933 6,084
Revenues.......................................... 122 113 98
Revenues as a percentage of total revenues........ 9.6% 11.5% 9.0%
Ratio of net writedowns to average lending assets. 1.0 1.0 1.3
Ratio of nonearning assets to total lending
assets........................................... 0.5 0.4 1.1
</TABLE>
--------
(1) Reflects the sale of $500 million of factored accounts receivable
during 1997.
(2) Due to the short-term nature of these purchased receivables,
factoring volume is not included in new business volume.
49
<PAGE>
Current Asset Management maintains two full service offices in New York and
Los Angeles and operates sales offices in Atlanta and Dallas. Through its
experienced sales force, Current Asset Management generates business through
direct calling on manufacturers, and develops and maintains relationships with
financial intermediaries that provide financing advice to prospective clients.
In addition to its direct sales efforts, Current Asset Management generates
business through its programmatic use of direct mail and advertising and
through referrals from other business groups of the Company. The Company
believes that its focused sales efforts, market research program, and
advertising and marketing efforts have played a key role in the growth of its
domestic factoring operation. Current Asset Management has developed
sophisticated proprietary information storage and retrieval systems, such as
electronic transmission of invoices and remittances, scanning technology and
electronic linkage with clients, that streamline the management and processing
of accounts receivable and enable the Company to efficiently process the high
transaction volumes related to factoring invoices. Current Asset Management
believes that the investments in technology associated with factoring
represent a significant entry barrier to new competitors.
Current Asset Management generally purchases the accounts receivable owed to
clients by their customers, usually on a nonrecourse basis, and may provide
funding to clients as an advance against those receivables. Customer credit
coverage is extended based on an analysis of operating performance and sources
of short-term liquidity, such as borrowing facilities and trade relationships.
The Company also utilizes technology to electronically perform basic credit
surveillance routines. The Current Asset Management portfolio's strong credit
quality is evidenced by nonearning assets of only 0.5% of lending assets at
December 31, 1997 and net writedowns of 1.0% of lending assets for 1997.
The Company has a factored accounts receivable facility, which allows it to
sell an undivided interest of up to $550 million in a designated pool of its
factored accounts receivable to five bank-supported conduits. The Company
utilized this facility during the fourth quarter of 1997. At December 31,
1997, the Company had sold approximately $500 million of factored accounts
receivables through this facility, resulting in a decrease of Current Asset
Management lending assets from the end of the prior year.
SMALL BUSINESS LENDING
Small Business Lending, with $766 million in lending assets and investments,
represented 16% of the Asset Based Finance portfolio as of December 31, 1997.
Small Business Lending provides long-term financing to the large and growing
small business market, primarily under SBA loan programs. Small Business
Lending's major product offerings are SBA 7(a) loans, which are guaranteed up
to 80% by the SBA, and SBA 504 loans, which are senior to an accompanying SBA
loan and have an average loan to collateral value of 50%. Small Business
Lending is one of only fourteen non-banks licensed by the SBA to make SBA 7(a)
loans and is the third largest originator of such loans. Small Business
Lending provides long-term financing for real estate purchase, construction or
refinance; business or equipment acquisition; working capital; and debt
refinancing, primarily to companies in the manufacturing, retail or service
sectors with annual sales of $500,000 to $3 million. While the portfolio is
somewhat concentrated in California and Texas, it is geographically
diversified within these states. The entire Small Business Lending portfolio
is diversified by industry type, with concentrations of 13% in transportation
services and 10% in miscellaneous consumer services and no other industry
representing more than 10% of the portfolio as of December 31, 1997. The loans
provided by Small Business Lending are generally for amounts up to $3 million,
have an average size of $500,000 and have a contractual maturity ranging from
five to 25 years.
50
<PAGE>
The following table sets forth certain information regarding Small Business
Lending as of the end of, and for, each of the years in the three-year period
ended December 31, 1997:
<TABLE>
<CAPTION>
AS OF, OR FOR
THE YEAR
ENDED,
DECEMBER 31,
----------------
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Total lending assets and investments.................... $766 $403 $208
New business volume..................................... 472 393 165
Revenues................................................ 65 47 18
Revenues as a percentage of total revenues.............. 5.1% 4.8% 1.7%
Ratio of net writedowns to average lending assets....... 0.3 0.3 0.5
Ratio of nonearning assets to lending assets............ 2.0 1.2 0.5
</TABLE>
Small Business Lending operates out of 24 offices in 12 states and the
portfolio is managed on a centralized basis. Small Business Lending focuses
its marketing efforts on developing relationships with third party
intermediaries, such as real estate brokers, mortgage brokers and business
brokers. Additional business originates from referrals from existing
customers, franchisors, targeted direct marketing and cross-referrals from
other of the Company's business groups. Small Business Lending enjoys SBA
Preferred Lender Program "PLP" status, which enables it to approve SBA 7(a)
loans under SBA-delegated approval authority. The Company believes that Small
Business Lending has maintained a position as one of the nation's three
largest originators of SBA 7(a) loans since 1995, and placed first and second
in volume growth in 1996 and 1997, respectively. In California and Texas, the
two largest markets for SBA 7(a) loans, Small Business Lending was the largest
originator of SBA 7(a) loans in 1997. Total new business for all products
exceeded $470 million in 1997.
Small Business Lending's underwriting and procedural guidelines are
standardized to ensure a consistent and efficient process. Credit decisions
are based on analysis of a prospective borrower's cash flow, the use of
independent valuations for collateral and a review of management. Loans are
generally secured by real estate and equipment, with additional collateral in
the form of other business assets, personal residences and, in many instances,
personal guarantees. The portfolio is comprised of approximately 2,800
individual loans, which provides diversified risk. Delinquent accounts are
managed aggressively, beginning at five days past due, through a combination
of collection calls and letters. At 60 days past due, accounts are transferred
to a specialized workout area. Nonearning assets represented 2% of the
portfolio as of December 31, 1997, of which 75% were the guaranteed portions
of net SBA 7(a) loans which are held until a liquidation is complete and the
SBA repurchases the loan. Net writedowns have remained at or below 0.5%
annually for the past three years.
The Company has developed the ability to sell the guaranteed portions of SBA
7(a) loans in the secondary market. The guaranteed portions of SBA 7(a) loans,
which represented 45% of the lending assets of this group at December 31,
1997, can generally be sold and settled, at amounts in excess of book value,
in less than 45 days. Small Business Lending has sold over $150 million in
guaranteed 7(a) loans over the past two years.
REAL ESTATE FINANCE
Real Estate Finance had total lending assets and investments of $2.1
billion, or 17% of the Company's total lending assets and investments, as of
December 31, 1997, and total revenues of $252 million, or 20% of the Company's
total revenues, for 1997. Real Estate Finance provides financing to owners,
investors and developers for the acquisition, refinancing and renovation of
commercial income producing properties in a wide range of property types and
geographic areas. The group serves these markets by offering structured
financings using tailored senior secured debt and junior participating
financings, as well as through its CMBS unit, which originates CMBS loans.
Transactions are secured by a variety of property types including office,
multi-family, retail, industrial, manufactured housing communities, self
storage facilities and hotels. Typical transactions range in size from $1
million to $35 million, with an average transaction size in 1997 of
approximately $4 million.
51
<PAGE>
The following table sets forth certain information regarding Real Estate
Finance as of the end of, and for, each of the years in the three-year period
ended December 31, 1997:
<TABLE>
<CAPTION>
AS OF, OR FOR THE
YEAR ENDED, DECEMBER
31,
----------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Lending assets and investments:
CMBS lending assets and investments............ $1,092 $ 459 $ 99
Other lending assets and investments........... 1,001 1,055 1,135
------ ------ ------
Total lending assets and investments......... $2,093 $1,514 $1,234
====== ====== ======
New business volume:
CMBS new business volume....................... $1,163 $ 549 $ 196
Other new business volume...................... 504 402 550
------ ------ ------
Total new business volume.................... $1,667 $ 951 $ 746
====== ====== ======
Revenues......................................... $ 252 $ 192 $ 185
Revenues as a percentage of total revenues....... 19.8% 19.5% 17.1%
Ratio of net writedowns to average lending
assets.......................................... 0.1 0.1 --
Ratio of nonearning assets to lending assets..... 0.2 0.3 1.0
</TABLE>
Real Estate Finance has ten offices throughout the United States which
generate new business by using a combination of direct calling on prospective
borrowers and calling on intermediaries and brokers who have relationships
with potential clients. Real Estate Finance also markets its products through
the use of trade advertising, direct marketing, newsletters, and trade show
attendance and sponsorship. In 1997, Real Estate Finance generated new
fundings of approximately $1.7 billion, the majority of which were related to
CMBS originations. The Company has made and expects to continue to make
significant investments in CMBS originations and securitization capabilities
to remain a leader in this business. In 1997, the Company terminated its
agreement with Belgravia, whereby Belgravia provided CMBS loans to the Company
for approval and financing and shared in CMBS loan and securitization profits.
In 1997, Belgravia originated approximately 35% of the Company's total CMBS
volume. The Company expects that the termination of this agreement will not
have a material impact on the Company's origination of new CMBS loans, due to
the Company's investment in loan origination capabilities.
Real Estate Finance has a credit philosophy that emphasizes selecting
properties that generate stable or increasing income cash flow streams and
that have strong asset quality and proven sponsorship with defined business
plans. Real Estate Finance's lending and investment philosophy emphasizes
portfolio liquidity, relatively small individual transaction sizes, and
maintenance of a diverse portfolio in terms of geographic location and
property type. The CMBS product is underwritten to rating agency guidelines
with the intent to sell through all credit risk at the time of securitization.
This strategy has resulted in low levels of nonearning assets at December 31,
1997 and 1996. There were minimal net writedowns of Real Estate Finance assets
during 1997, 1996 and 1995. The Real Estate Finance portfolio is diversified
across a wide range of property types and geographic areas. At December 31,
1997 and 1996, Real Estate Finance lending assets and investments were
distributed as follows:
<TABLE>
<CAPTION>
PROPERTY TYPES
--------------
1997 1996
---- ----
<S> <C> <C>
Apartments.............. 20% 11%
Manufactured housing.... 16 21
Retail.................. 14 7
Self storage............ 12 13
General purpose office
buildings.............. 8 6
Industrial.............. 8 10
Hotels.................. 6 14
Loan Portfolios......... 4 9
Other................... 12 9
--- ---
100% 100%
=== ===
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHIC AREAS
----------------
1997 1996
---- ----
<S> <C> <C>
California.............. 29% 28%
Southwest............... 19 13
Midwest................. 12 10
Florida................. 7 12
Mid-Atlantic States..... 6 8
New England............. 5 4
New York................ 4 8
West.................... 4 3
Other................... 14 14
--- ---
100% 100%
=== ===
</TABLE>
52
<PAGE>
During 1997, the Company securitized over $500 million of CMBS loans and did
not retain any residual interest in this transaction, as all of the receivable
backed securities were sold to third parties on a non-recourse basis. Real
Estate Finance also originated approximately $1.1 billion of CMBS loans which
were originated to be held for securitization at December 31, 1997, a 138%
increase over the prior year. The Company also securitized approximately $1.1
billion of these loans in March 1998 and did not retain any residual risk in
this transaction. Real Estate Finance syndicates 50% to 75% of junior
participation originations through a syndication arrangement with a real
estate fund sponsored by a nationally known investment banking firm. The use
of syndications has enabled the Company to reduce its average individual
retained position in this portfolio to approximately $1 million.
At December 31, 1997, Real Estate Finance was contractually committed to
finance an additional $102 million to new and existing borrowers, generally
contingent upon the maintenance of specific credit standards. Since many of
the commitments are expected to remain unused, the total commitment amounts do
not necessarily represent future cash requirements. No significant commitments
exist to provide additional financing related to nonearning assets.
INTERNATIONAL GROUP
International Group has a significant international presence in factoring
and asset based financing, and has had subsidiaries and joint ventures in many
international markets for more than 25 years. International Group currently
consists of four majority owned subsidiaries and joint ventures with
operations in 15 countries in Europe, Asia/Pacific and Latin America.
International Group had total lending assets and investments of $2.4 billion,
or 20% of the Company's total lending assets and investments, at December 31,
1997, and total revenues (including the Company's share of income from
international joint ventures) of $187 million, or 15% of the Company's total
revenues, for 1997. International Group provides factoring and receivables
management services, asset based financing, acquisition financing, leasing and
vendor finance and/or trade finance programs. The largest of the Company's
consolidated subsidiaries is Factofrance, which is the leading factoring
company in France and the third largest factor in the world, with factoring
volume of approximately $8 billion in 1997. The largest of the Company's joint
ventures is NMB-Heller Holding N.V., which has operations primarily in the
United Kingdom, Holland and Germany and accounted for 54% of the year-end 1997
investments in international joint ventures balance. The Company believes that
International Group's subsidiaries and joint ventures provide a solid base for
consistent growth in international earnings and also provide the Company with
the opportunity to meet the international financing needs of its domestic
client base.
53
<PAGE>
The following is a list of the Company's consolidated subsidiaries and joint
ventures, organized by geographic region, with information regarding country
of existence and the Company's ownership interest as of December 31, 1997:
<TABLE>
<CAPTION>
COMPANY YEAR OF
OWNERSHIP INITIAL
COUNTRY PERCENTAGE INVESTMENT
------- ---------- ----------
<S> <C> <C> <C>
CONSOLIDATED SUBSIDIARIES:
Europe
------
Factofrance France 98%(1) 1966
Asia/Pacific
------------
Heller Asia Capital Singapore 100% 1974
Heller Financial Services Australia 100 1969
Latin America
-------------
Heller Financial Mexico Mexico 92% 1993
JOINT VENTURES:
Europe
------
Belgo-Factors Belgium 50% 1987
Nordisk Factors Denmark 50 1965
NMB Heller Holland 50(2) 1967
Heller Bank A.G. Germany 50(2) 1964
NMB Heller Limited United Kingdom 50(2) 1964
O.B. Heller a.s. Czech Republic 25(2) 1995
O.B. Heller Factoring a.s. Slovakia 25(2) 1997
Handlowy-Heller S.A. Poland 25(2) 1994
Heller Portuguesa Portugal 40 1972
Heller Espanola Spain 50 1965
Asia/Pacific
------------
East Asia Heller Hong Kong 50% 1972
Heller Factoring (M) Sdn Malaysia 49 1992
Thai Farmers Heller Thailand 49 1990
Latin America
-------------
Heller-Sud Servicios Financieros Argentina 50% 1994
HellerNet-Sud Chile 50 1996
</TABLE>
--------
(1) International Group increased its ownership of Factofrance from
48.8% to 97.6% in April 1997 by acquiring the interests of its
joint venture partner of over 30 years.
(2) Represents the Company's effective ownership through its 50%
interest in NMB-Heller Holding N.V.
54
<PAGE>
The following table sets forth certain information regarding International
Group as of the end of, and for, each of the years in the three-year period
ended December 31, 1997:
<TABLE>
<CAPTION>
AS OF, OR FOR THE YEAR ENDED,
DECEMBER 31,
-----------------------------------
1997 1996 1995
----------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Lending assets and investments of
consolidated subsidiaries:
Europe............................ $ 1,860(1) $ -- $ --
Asia/Pacific...................... 223 257 212
Latin America..................... 80 80 61
----------- --------- ---------
2,163 337 273
Investments in international joint
ventures:
Europe............................ 160 238 216
Asia/Pacific...................... 16 14 12
Latin America..................... 22 20 5
----------- --------- ---------
198 272 233
----------- --------- ---------
Total lending assets and
investments.................... $ 2,361 $ 609 $ 506
=========== ========= =========
Revenues of consolidated
subsidiaries:
Europe............................ $ 121(1) $ -- $ --
Asia/Pacific...................... 25 26 23
Latin America..................... 5 12 6
----------- --------- ---------
151 38 29
Income of international joint
ventures:
Europe............................ 32 42 35
Asia/Pacific...................... 1 2 1
Latin America..................... 3 -- (1)
----------- --------- ---------
36 44 35
----------- --------- ---------
Total international revenues.... $ 187 $ 82 $ 64
=========== ========= =========
Total international revenues as a
percentage of total revenues....... 14.7% 8.3% 5.9%
Ratio of net writedowns to average
lending assets..................... 1.8 -- --
Ratio of nonearning assets to
lending assets..................... 0.9 8.2 3.7
</TABLE>
--------
(1) Reflects the consolidation of Factofrance in April 1997.
International Group has broad, worldwide access to mid-sized and small
businesses with operations in 19 countries. Each subsidiary and joint venture
of International Group operates independently, with its own well-developed
methods of originating business, and the majority of the international joint
ventures are self-financed. International Group manages its investments
through offices located in London, Singapore and Chicago. Each subsidiary and
joint venture has its own well-developed credit philosophy, risk management
policies and procedures and portfolio management processes, which are
monitored by the Company through participation on their boards of directors,
credit committees and other executive and administrative bodies. Net
writedowns in consolidated subsidiaries totalled $23 million in 1997 and
related primarily to the Company's Mexican subsidiary and the consolidation of
Factofrance.
CORPORATE FINANCE
Corporate Finance is a leading provider of middle market financing to
private equity-sponsored companies. Corporate Finance had total lending assets
and investments of $2.0 billion, or 17% of the
55
<PAGE>
Company's total lending assets and investments, as of December 31, 1997 and
total revenues of $245 million, or 19% of the Company's total revenues, for
1997. Corporate Finance primarily provides secured financing for leveraged
buyouts, acquisitions, recapitalizations, refinancings, expansion and growth
of publicly and privately held entities in a wide variety of industries. In
almost all cases, these transactions involve professional or private equity
investors ("equity sponsors"), who acquire businesses for financial or
strategic purposes. Corporate Finance provides secured term and revolving
credit facilities, with durations of up to ten years, and to a lesser extent
provides unsecured or subordinated financings and invests in private equity
buy-out funds. Corporate Finance also from time to time makes modest non-
voting equity investments in conjunction with senior debt facilities, receives
warrants or equity interests as a result of providing financing, and makes
stand-alone equity co-investments, primarily with known equity sponsors.
Corporate Finance also serves as co-lender or participant in larger senior
secured cash flow transactions originated by other lenders. The Corporate
Finance portfolio has loans outstanding in a wide range of industries,
including manufacturing, services, metals, plastics, consumer products, health
care and defense. The portfolio is diversified among 26 industries with
concentrations of 12% in both chemicals/plastics and general industrial
machinery at December 31, 1997. No other industry represented more than 10% of
the total portfolio.
The following table sets forth certain information regarding Corporate
Finance as of the end of, and for, each of the years in the three-year period
ended December 31, 1997:
<TABLE>
<CAPTION>
AS OF, OR FOR THE YEAR
ENDED, DECEMBER 31,
-----------------------
1997 1996 1995
------ ------ -------
(IN MILLIONS)
<S> <C> <C> <C>
Total lending assets and investments......... $2,010 $2,016 $2,328
New business volume.......................... 1,378 858 1,412
Revenues..................................... 245 257 310
Revenues as a percentage of total revenues... 19.3% 26.1% 28.6%
Ratio of net writedowns to average lending
assets...................................... 1.3 1.0 0.7
Ratio of nonearning assets to lending assets. 0.3 2.1 0.8
</TABLE>
Corporate Finance serves its clients with teams of senior level originators
located in five regional offices. Corporate Finance has developed and
maintains close relationships with approximately 200 equity sponsors, many of
whom have been clients of the Company for ten or more years and who have
financed several transactions with this business group.
The commitment to finance by this business group is predicated on the
Company's assessment of the borrower's ability to generate cash flow to repay
the loan based on the borrower's equity sponsor, market position,
relationships with clients and suppliers and ability to withstand competitive
challenges. Corporate Finance assets are generally cross-collateralized and
secured by liens on the borrower's current and fixed assets and capital stock.
Corporate Finance manages its portfolio centrally to ensure consistent
application of credit policy and efficient documentation and approval of
transaction modifications. Portfolio quality was demonstrated at December 31,
1997 by nonearning assets of $7 million, or 0.3% of lending assets. The
portfolio had net writedowns of $25 million in 1997 versus $21 million in
1996.
In 1997, Corporate Finance functioned as agent for 29 syndicated
transactions. The Company believes its level of agented transactions makes it
the fourth largest syndicator of private equity-sponsored deals in the United
States. Total syndication activity in 1997 amounted to $602 million in funds.
Although Corporate Finance can provide commitments of up to $150 million per
transaction, the group generally syndicates its ultimate retained position to
less than $20 million. As of December 31, 1997, the average retained
transaction size was approximately $14 million in commitments and
approximately $8 million of fundings, which reflects the group's significant
use of the syndication market.
56
<PAGE>
As of December 31, 1997, Corporate Finance was contractually committed to
finance an additional $950 million to new and existing borrowers, generally
contingent upon the maintenance of specific credit standards. Since many of
the commitments are expected to remain unused, the total commitment amounts do
not necessarily represent future cash requirements. No significant commitments
exist to provide additional financing related to nonearning assets.
PROJECT FINANCE
Project Finance is a specialized financing business, which provides
structured financing for individual projects to domestic independent oil and
gas, coal, mining and power companies. Financing is provided in the form of
senior and junior secured loans and equity investments. Project Finance had
total lending assets and investments of $144 million, or 1.2% of the Company's
total lending assets and investments, as of December 31, 1997 and revenues of
$19 million, or 1.5% of the Company's revenues, for 1997. Transaction sizes
generally range from $2 million to $20 million, and terms range from six to 17
years. Project Finance originates its financing opportunities primarily
through intermediaries with which it has established long-standing
relationships in its targeted industries. In 1997, Project Finance generated
$36 million in new business volume, with an average transaction size of $5
million. The credit approval process involves a detailed financial and legal
review of the contract and underlying project economic projections, together
with a review of all industry relevant data. Portfolio management procedures
involve the regular receipt of project status reports together with related
financial and operating information, as well as periodic site visits. The
Company expects Project Finance to remain a small percentage of its assets,
relative to its other business units.
The following table sets forth certain information concerning Project
Finance as of the end of, and for, each of the years in the three-year period
ended December 31, 1997:
<TABLE>
<CAPTION>
AS OF, OR FOR THE
YEAR ENDED,
DECEMBER 31,
----------------------
1997 1996 1995
---- ----- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Total lending assets and
investments............ $144 $ 160 $186
New business volume..... 36 23 52
Revenues................ 19 9 27
Revenues as a percentage
of total revenues...... 1.5% 0.9% 2.5%
Ratio of net writedowns
to average lending
assets................. -- 4.8 --
Ratio of nonearning
assets to lending
assets................. 14.2 11.5 4.5
</TABLE>
The nonearning assets in Project Finance at December 31, 1997 and 1996
consisted of one transaction which the Company expects to liquidate in 1998
with little or no net writedown.
At December 31, 1997, Project Finance was contractually committed to finance
an additional $54 million to new and existing borrowers, generally contingent
upon the maintenance of specific credit standards. Since many of the
commitments are expected to remain unused, the total commitment amounts do not
necessarily represent future cash requirements. No significant commitments
exist to provide additional financing related to nonearning assets.
PRE-1990 PORTFOLIO
The lending philosophy of Corporate Finance and Real Estate Finance prior to
1990 emphasized larger, less liquid transactions and transactions with lower
levels of cash flow and collateral coverage. Subsequent to 1990, the Company
has developed a credit strategy which focuses on transactions with lower
lending multiples, smaller retained positions and greater liquidity. As a
result, the Company has separately managed the pre-1990 portfolio over the
last several years in its effort to closely monitor
57
<PAGE>
credit quality and effectively reduce this exposure. During this period, the
Company has substantially reduced its pre-1990 portfolio from $2.5 billion, or
33% of lending assets and investments, at December 31, 1993 to $492 million,
or 4% of lending assets and investments, at December 31, 1997. Approximately
70% of the remaining pre-1990 portfolio consists of real estate assets which
have been independently appraised and written down to the appraised value. The
net writedowns related to working out of the pre-1990 assets have been
significant, with $1.1 billion of writedowns on pre-1990 accounts since 1991.
The Company believes it has dealt with the negative effect of this portfolio
and expects the impact of the pre-1990 portfolio to be insignificant beginning
in 1998. See "Risk Management--Portfolio Quality--Pre-1990 Portfolio".
The following table sets forth certain information concerning the pre-1990
Corporate Finance and Real Estate Finance portfolio as of the end of, and for,
each of the years in the three-year period ended December 31, 1997:
<TABLE>
<CAPTION>
AS OF, OR FOR THE YEAR
ENDED, DECEMBER 31,
----------------------
1997 1996 1995
----- ----- --------
(IN MILLIONS)
<S> <C> <C> <C>
Total lending assets and investments........... $ 492 $ 979 $1,526
Revenues....................................... 40 30 148
Revenues as a percentage of total revenues..... 3.1% 3.0% 13.7%
Ratio of net writedowns to average lending
assets........................................ 11.5 5.9 11.3
Ratio of nonearning assets to lending assets... 15.5 17.8 14.2
</TABLE>
Net writedowns as a percentage of average lending assets were higher in 1997
than 1996 due to a lower level of recoveries in 1997 than the prior year.
SALES AND MARKETING
The Company originates transactions in the United States through a dedicated
sales force of over 260 employees in over 40 locations and through its network
of wholly-owned and joint venture commercial finance companies with operations
in 19 other countries around the world. These sales people have industry-
specific experience that enables them to effectively structure commercial
finance transactions to companies in the industries and market segments served
by the Company.
The Company's sales force originates business through a combination of (i)
direct calling on prospective borrowers, (ii) relationships with
manufacturers, dealers, and distributors, (iii) relationships with a wide
variety of private equity investors, business brokers, investment bankers, and
other intermediaries and referral sources, and (iv) relationships with
financial institutions. The Company has invested in expanding and broadening
its market coverage in several of its businesses, particularly Small Business
Lending and CMBS, and expects these investments to enhance the Company's
ability to generate new transactions and income.
Sales force compensation encourages active, profitable new business
development, client retention, credit quality, pricing margins and cross-
referral of business opportunities to other business groups.
The Company also markets its products and services through the use of
general market advertising, trade advertising, direct mail, a web site, public
relations, newsletters, trade show attendance and sponsorship, educational
seminars, and a variety of other market- and industry-specific events. The
Company maintains several proprietary databases for the purpose of generating
targeted, customized direct marketing campaigns and for the purpose of
tracking relationship history with certain of its clients and prospects. The
Company regularly conducts client satisfaction surveys and other market
research studies designed to assess its competitive position and to identify
unfulfilled needs of its clients and prospects.
58
<PAGE>
SECURITIZATION, SYNDICATION AND LOAN SALE ACTIVITIES
The Company has developed strong capabilities in the areas of
securitization, syndication and loan sales. These capital markets activities
provide the Company with the ability to (i) maximize its origination strength
by providing broader market access to higher quality credits, (ii) manage
customer and asset concentrations, (iii) generate income growth in competitive
markets through syndication fees and securitization gains and (iv) meet a
broader array of the financial needs of its current clients. The Company also
uses securitizations and syndications to provide attractive financial returns
on high-quality, lower yielding assets. The Company believes that additional
benefits are realized by its credit, operations and underwriting processes
being subjected to capital markets disciplines. The following table sets forth
certain information with respect to the Company's capital market activities in
1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
New business volume.............................. $5,970 $4,052 $3,854
Securitizations.................................. 774 -- 220
Syndications and loan sales...................... 964 757 708
</TABLE>
SECURITIZATIONS
The Company securitizes assets to generate fee income and to manage client
and industry concentrations and leverage its origination capabilities. In
1997, the Company securitized $774 million of assets through the completion of
a CMBS and an equipment based securitization. The Company did not retain any
credit risk in either of these transactions, as all of the receivable backed
notes were sold to third parties on a non-recourse basis.
SYNDICATIONS AND LOAN SALES
The Company syndicates assets and sells loans to manage client
concentrations and generate fees, and has established syndication and loan
sale capabilities in nearly all of its business categories. To facilitate its
syndication activity, the Company has established and maintains relationships
with a wide variety of financial institutions throughout the United States. In
1997, the Company completed syndications and sales of $964 million in
receivables, investments and loans.
COMPETITION
The Company's markets are highly fragmented and extremely competitive and
are characterized by competitive factors that vary by product and geographic
region. The Company's competitors include other commercial finance companies,
national and regional banks and thrift institutions, investment banks, leasing
companies, investment companies, manufacturers and vendors. Competition from
both traditional competitors and new market entrants has been intensified in
recent years by an improving economy, growing marketplace liquidity and
increasing recognition of the attractiveness of the commercial finance
markets. In addition, the rapid expansion of the securitization markets is
dramatically reducing the difficulty in obtaining access to capital, which is
the principal barrier to entry into these markets. This is further
intensifying competition in certain market segments, including competition
from specialized securitization lenders that offer aggressive pricing terms.
The Company competes primarily on the basis of pricing, terms, structure and
service in many of its markets. Competitors of the Company often seek to
compete aggressively on the basis of these factors and the Company may lose
market share to the extent it is unwilling to match its competitors' pricing,
terms and structure in order to maintain its spreads or to maintain its credit
discipline. To the extent that the Company matches competitors' pricing, terms
or structure, it may experience decreased spreads and/or increased risk of
credit losses. Many of the Company's competitors are large
59
<PAGE>
companies that have substantial capital, technological and marketing
resources, and some of these competitors are larger than the Company and may
have access to capital at a lower cost than the Company. Further, the size and
access to capital of certain of the Company's competitors are being enhanced
by the recent surge in consolidation activity in the commercial and investment
banking industries. Also, the Company's competitors include businesses that
are not affiliated with bank holding companies and therefore are not subject
to the same extensive federal regulations that govern bank holding companies.
As a result, such non-banking competitors may engage in certain activities
which currently are prohibited to the Company. See "--Regulation".
REGULATION
Fuji Bank is a bank holding company within the meaning of the Bank Holding
Company Act, and is registered as such with the Federal Reserve. As a result,
the Company is subject to the Bank Holding Company Act and is subject to
examination by the Federal Reserve. In general, the Bank Holding Company Act
limits the activities in which the Company may engage to those which the
Federal Reserve has generally determined to be "so closely related to banking
. . . as to be a proper incident thereto" and generally requires the approval
of the Federal Reserve before the Company may engage directly or through a
subsidiary in such activities. To obtain the Federal Reserve's approval, Fuji
Bank must submit a notice that provides information both about the proposed
activity or acquisition and about the financial condition and operations of
Fuji Bank and the Company. The Bank Holding Company Act will continue to apply
to the Company for as long as Fuji Bank holds 25% or more of any class of the
Company's voting stock or otherwise is deemed to control the management or
operations of the Company under the Bank Holding Company Act and the Federal
Reserve's regulations and interpretations thereunder. The Company's current
business activities constitute permitted activities or have been authorized by
the Federal Reserve.
SBA loans made by the Company are governed by the Small Business Act and the
Small Business Investment Act of 1958, as amended, and may be subject to the
same regulations by certain states as are other commercial finance operations.
The federal statutes and regulations specify the types of loans and loan
amounts which are eligible for the SBA's guaranty as well as the servicing
requirements imposed on the lender to maintain SBA guarantees.
The operations of the Company are subject, in certain instances, to
supervision and regulation by state and federal governmental authorities and
may be subject to various laws and judicial and administrative decisions
imposing various requirements and restrictions, which, among other things, (i)
regulate credit granting activities, (ii) establish maximum interest rates,
finance charges and other charges, (iii) require disclosures to customers,
(iv) govern secured transactions and (v) set collection, foreclosure,
repossession and claims handling procedures and other trade practices.
Although most states do not regulate commercial finance, certain states impose
limitations on interest rates and other charges and on certain collection
practices and creditor remedies and require licensing of lenders and
financiers and adequate disclosure of certain contract terms. The Company is
also required to comply with certain provisions of the Equal Credit
Opportunity Act that are applicable to commercial loans. Additionally, the
Company is subject to regulation in those countries in which the Company has
operations and in most cases has been required to obtain central governmental
approval before commencing business.
In the judgment of management, existing statutes and regulations have not
had a material adverse effect on the business conducted by the Company.
However, it is not possible to forecast the nature of future legislation,
regulations, judicial decisions, orders or interpretations, nor their impact
upon the future business, financial condition or results of operations or
prospects of the Company.
EMPLOYEES
As of March 31, 1998, the Company had 2,362 employees. The Company is not
subject to any collective bargaining agreements and believes that its employee
relations are good.
60
<PAGE>
PROPERTIES
The Company leases office space for its corporate headquarters in Chicago,
Illinois and leases other offices throughout the United States, Europe,
Asia/Pacific and Latin America. The Company does not own any material real
property.
LEGAL PROCEEDINGS
The Company is a party to a number of legal proceedings as plaintiff and
defendant, all arising in the ordinary course of its business. The Company
believes that the amounts, if any, which may be ultimately funded or paid with
respect to these matters will not have a material adverse effect on the
Company's business, financial condition or results of operations, but there
can be no assurance that an adverse decision in any such legal proceeding
would not have such a material adverse effect.
RISK MANAGEMENT
The Company's business activities contain elements of risk. The Company
considers the principal types of risk to be credit risk and asset/liability
risk (including interest rate and liquidity risk). The Company considers the
management of risk essential to conducting its businesses and to maintaining
profitability. Accordingly, the Company's risk management systems and
procedures are designed to identify and analyze the Company's risks, to set
appropriate policies and limits and to continually monitor these risks and
limits by means of reliable administrative and information systems and other
policies and programs.
CREDIT RISK MANAGEMENT
The Company manages credit risk through its underwriting procedures,
centralized approval of individual transactions and active portfolio and
account management. Underwriting procedures have been developed for each
business line, enabling the Company to assess a prospective borrower's ability
to perform in accordance with established loan terms. These procedures may
include analyzing business or property cash flows and collateral values,
performing financial sensitivity analyses and assessing potential exit
strategies. For transactions originated with the intent of reducing the
Company's ultimate retained asset size, the Company's syndication units assign
a risk rating prior to approval of the underlying transaction, reflecting its
confidence level, prior to funding, in syndicating the proposed transaction.
Financing and restructuring transactions exceeding designated amounts are
reviewed and approved by an independent corporate credit function, and larger
transactions require approval by a centralized credit committee. During 1997,
the Company further strengthened its credit risk management function through
the appointment of a Chief Credit Officer, who reports to the Company's
Chairman. Each business group is subject to a quarterly portfolio review of
its significant assets with the Chief Credit Officer and, in some cases, the
Chairman.
The Company manages its portfolio by monitoring transaction size and
diversification by industry, geographic area, property type and borrower.
Through these methods, management identifies and limits exposure to
unfavorable risks and seeks favorable financing opportunities. Loan grading
systems are used to monitor the performance of loans by product category, and
an overall risk classification system is used to monitor the risk
characteristics of the total portfolio. These systems generally consider debt
service coverage, the relationship of the loan to underlying business or
collateral value, industry characteristics, principal and interest risk, and
credit enhancements such as guarantees, irrevocable letters of credit and
recourse provisions. When a problem account is identified, professionals that
specialize in the relevant industry are brought in to more closely monitor the
account and formulate strategies to optimize and accelerate the resolution
process. Since 1994, the Internal Audit Department, independent of operations,
has performed an independent review to evaluate the
61
<PAGE>
risk identification and credit management processes, as well as validate the
loan grading of assets in such portfolios and reports its findings to senior
management and the Audit Committee of the Board of Directors.
ASSET/LIABILITY MANAGEMENT
INTEREST RATE AND FOREIGN CURRENCY RISK MANAGEMENT
The Company uses derivatives as an integral part of its asset/liability
management program to reduce its overall level of financial risk arising from
normal business operations. These derivatives, particularly interest rate swap
agreements, are used to manage liquidity, diversify sources of funding, alter
interest rate exposure arising from mismatches between assets and liabilities
and manage exposures to foreign exchange fluctuations. The Company is not an
interest rate swap dealer nor is it a trader in derivative securities, and it
has not used speculative derivative products for the purpose of generating
earnings from changes in market conditions.
Before entering into a derivative agreement, management determines that an
inverse correlation exists between the value of a hedged item and the value of
the derivative. At the inception of each agreement, management designates the
derivative to specific assets, pools of assets or liabilities. The risk that a
derivative will become an ineffective hedge is generally limited to the
possibility that an asset being hedged will prepay before the related
derivative expires. Accordingly, after inception of a hedge, asset/liability
managers monitor the effectiveness of derivatives through an ongoing review of
the amounts and maturities of assets, liabilities and swap positions. This
information is reported to the Financial Risk Management Committee ("FRMC"),
the members of which include the Company's Chairman, Chief Financial Officer
and Treasurer. The FRMC determines the direction the Company will take with
respect to its financial risk position. This position and the related
activities of the FRMC are reported regularly to the Company's Executive
Committee and Board of Directors.
The Company uses interest rate swaps as an important tool for financial risk
management, which enables it to match more closely the interest rate and
maturity characteristics of its assets and liabilities. As such, interest rate
swaps are used to change the characteristics of fixed rate debt to that of
variable rate liabilities, to alter the characteristics of specific fixed rate
asset pools to more closely match the interest terms of the underlying
financing and to modify the variable rate basis of a liability to more closely
match the variable rate basis used for variable rate receivables. At December
31, 1997, the Company had $6.6 billion in notional amount of swap agreements
with commercial banks and investment banking firms. The average interest rates
paid by the Company on its outstanding indebtedness, before and after the
effect of swap agreements, as of December 31, 1997 and 1996 are summarized
below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1997 1996
--------------------- ---------------------
YEAR-END BEFORE AFTER YEAR-END BEFORE AFTER
BALANCE SWAPS SWAPS BALANCE SWAPS SWAPS
-------- ------ ----- -------- ------ -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Commercial paper--
domestic and foreign........... $2,560 5.71% N/A $2,576 5.63% N/A
Fixed rate debt................. 3,951 6.90 6.67% 2,905 7.02 6.62%
Variable rate debt.............. 2,051 5.44 6.01 1,859 4.85 5.78
------ ------
Total......................... $8,562 6.19 6.44 $7,340 5.98 6.29
====== ======
</TABLE>
The swap agreements had the effect of increasing interest expense by $8
million during 1997. At December 31, 1997, balance sheet assets that mature or
reprice over the next three months exceeded balance sheet liabilities that
mature or reprice over the same period by $1.1 billion. After the effect of
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<PAGE>
off-balance sheet instruments, liabilities that mature or reprice over the
next three months exceeded assets that mature or reprice over the same period
by $158 million. The largest such difference at a month end during 1997 was
$695 million.
The Company's sensitivity to changes in interest rates is regularly
monitored and analyzed by measuring the repricing and amortization
characteristics of assets, liabilities and off-balance sheet derivatives. The
Company utilizes various models to assess interest rate risk in terms of the
potential effect on net interest income, the market value of net assets and
the value at risk of the firm in an effort to ensure that the Company is
insulated from any significant adverse effects from changes in interest rates.
The results of these models are reviewed each month with the FRMC. Based on
the model used for the sensitivity of net interest income, if the balance
sheet, when the month-end difference between the repricing of assets and
liabilities was at its greatest during 1997, were to remain constant and no
actions were taken to alter the existing interest rate sensitivity, a
hypothetical immediate 100 basis point change in interest rates would have
affected net interest income and net income by less than 1% over a six month
horizon. Although management believes that this measure is indicative of the
Company's sensitivity to interest rate changes, it does not adjust for
potential changes in credit quality, size and composition of the balance sheet
and other business developments that could affect net income. Accordingly, no
assurance can be given that actual results would not differ materially from
the potential outcome simulated by this model.
In order to minimize the effect of fluctuations in foreign currency exchange
rates on its financial results, the Company periodically enters into forward
contracts or purchases options. These financial instruments serve as hedges of
its foreign investment in international subsidiaries and joint ventures or
effectively hedge the translation of the related foreign currency income. The
Company held $623 million of forward contracts, $74 million of purchased
options and $106 million of cross currency swap agreements at December 31,
1997. Through these contracts, the Company primarily sells the local currency
and buys U.S. dollars. The Company also periodically enters into forward
contracts to hedge receivables denominated in foreign currencies or may
purchase foreign currencies in the spot market to settle a foreign currency
denominated liability. In addition, the Company held $506 million of cross
currency swap agreements used to hedge debt instruments issued in foreign
currencies at December 31, 1997. The Company invests in and operates
commercial finance companies throughout the world. Over the course of time,
reported results from the operations and investments in foreign countries may
fluctuate in response to exchange rate movements in relation to the U.S.
dollar. While the Western European operations and investments are the largest
areas of the Company's activities, reported results will be influenced to a
lesser extent by the exchange rate movements in the currencies of other
countries in which the Company's subsidiaries and investments are located.
LIQUIDITY RISK MANAGEMENT
The Company manages liquidity risk primarily by monitoring the relative
maturities of assets and liabilities and by borrowing funds through the U.S.
and international money and capital markets and bank credit markets. Such cash
is used to fund asset growth and to meet debt obligations and other
commitments on a timely and cost-effective basis. The Company's primary
sources of funds are commercial paper borrowings, issuances of medium-term
notes and other term debt securities and the syndication, securitization or
sale of certain lending assets. At December 31, 1997, commercial paper
borrowings were $2.6 billion and amounts due on term debt within one year were
$2.0 billion. If the Company is unable to access such markets at acceptable
terms, it could utilize its bank credit and asset sale facilities and cash
flow from operations and portfolio liquidations to satisfy its liquidity
needs. At December 31, 1997, the Company had committed liquidity support
through its bank credit and asset sale facilities totalling $4.0 billion,
including a 364-day facility which has been renewed and will expire April 6,
1999, representing, on a consolidated basis, 122% of outstanding commercial
paper and short-term borrowings. The Company believes that such credit lines
should provide sufficient liquidity to the Company under foreseeable
conditions. See also "Management's Discussion and Analysis of Financial
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<PAGE>
Condition and Results of Operations--Liquidity and Capital Resources" for
further information concerning the liquidity of the Company.
PORTFOLIO QUALITY
The credit quality of the Company's portfolio in 1997 reflected the
effectiveness of the Company's credit strategies, underwriting and portfolio
management and disciplined credit approval process. As of December 31, 1997
nonearning assets were at their lowest level in over 10 years, having been
reduced to $155 million, or 1.4% of lending assets, from $278 million, or 3.3%
of lending assets, at the end of 1996. In addition, the Company's allowance
for losses of receivables represented 185% of nonearning impaired receivables
as of December 31, 1997. The following table presents certain information with
respect to the credit quality of the Company's portfolio:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996 1995
------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
LENDING ASSETS AND INVESTMENTS:
Receivables......................................... $10,722 $8,529 $8,085
Repossessed assets.................................. 14 14 28
------- ------ ------
Total lending assets.............................. 10,736 8,543 8,113
Equity and real estate investments.................. 488 419 428
Debt securities..................................... 311 251 152
Operating leases.................................... 195 135 113
Investments in international joint ventures......... 198 272 233
------- ------ ------
Total lending assets and investments.............. $11,928 $9,620 $9,039
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996 1995
----- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
NONEARNING ASSETS:
Impaired receivables................................... $ 141 $264 $261
Repossessed assets..................................... 14 14 28
----- ---- ----
Total nonearning assets.............................. $155 $278 $289
===== ==== ====
Ratio of nonearning impaired receivables to
receivables........................................... 1.3% 3.1% 3.2%
Ratio of total nonearning assets to total lending
assets................................................ 1.4% 3.3% 3.6%
Nonearning assets in current portfolio................. $ 81 $115 $ 87
Ratio of nonearning assets in current portfolio to
total lending assets.................................. 0.8% 1.3% 1.1%
ALLOWANCES FOR LOSSES:
Allowance for losses of receivables.................... $ 261 $225 $229
Valuation allowance for repossessed assets............. -- -- 2
----- ---- ----
Total allowance for losses........................... $ 261 $225 $231
===== ==== ====
Ratio of allowance for losses of receivables to
receivables........................................... 2.4% 2.6% 2.8%
Ratio of allowances for losses of receivables to net
writedowns............................................ 1.8x 2.1x 1.0x
Ratio of allowance for losses of receivables to
nonearning impaired receivables....................... 185.1% 85.2% 87.7%
DELINQUENCIES:
Earning loans delinquent 60 days or more............... $ 151 $143 $117
Ratio of earning loans delinquent 60 days or more to
receivables........................................... 1.4% 1.7% 1.4%
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
NET WRITEDOWNS OF LENDING ASSETS:
Net writedowns on receivables..................... $ 139 $ 104 $ 215
Net writedowns on repossessed assets.............. 7 4 16
------ ------ ------
Total net writedowns............................ $ 146 $ 108 $ 231
====== ====== ======
Ratio of net writedowns to average lending assets. 1.5% 1.3% 2.9%
Net writedowns on current portfolio lending
assets........................................... $ 62 $ 41 $ 45
Ratio of current portfolio net writedowns to
average total lending assets..................... 0.6% 0.5% 0.6%
</TABLE>
PRE-1990 PORTFOLIO
While building its current portfolio, the Company has substantially
eliminated its Corporate Finance and Real Estate Finance pre-1990 portfolio
and expects such portfolio's impact to be insignificant beginning in 1998. The
pre-1990 portfolio experienced a significant decline of $487 million or 50% in
1997 and now comprises 4% of the Company's total portfolio. Approximately 70%
of the remaining pre-1990 portfolio consists of real estate assets which have
been independently appraised and then written down to the appraised value. The
following table provides a profile of the pre-1990 portfolio in 1997, 1996,
1995, 1994 and 1993:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER
31,
----------------------------------
1997 1996 1995 1994 1993
---- ---- ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Pre-1990 lending assets and investments. $492 $979 $1,526 $2,012 $2,547
Ratio of pre-1990 lending assets and
investments to total lending assets and
investments............................ 4.1% 10.2% 16.9% 23.8% 32.9%
Pre-1990 nonearning assets.............. $ 74 $163 $ 202 $ 274 $ 392
Net writedowns on pre-1990 lending
assets................................. 84 67 186 153 194
Ratio of pre-1990 net writedowns to
average total lending assets........... 0.9% 0.8% 2.3% 2.0% 2.6%
</TABLE>
65
<PAGE>
NONEARNING ASSETS
Receivables are classified as nonearning when there is significant doubt as
to the ability of the debtor to meet current contractual terms, as evidenced
by loan delinquency, reduction of cash flows, deterioration in the loan to
value relationship and other relevant considerations. Nonearning assets
decreased from 3.3% of total lending assets at December 31, 1996 to 1.4% of
total lending assets at December 31, 1997. This decrease reflects the credit
performance of the current portfolio, combined with the continued resolution
of the pre-1990 Corporate Finance and Real Estate Finance accounts. The table
below presents nonearning assets by business line in 1997, 1996 and 1995:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
-------------- -------------- --------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Asset Based Finance............ $ 32 21% $ 18 7% $ 16 5%
International asset based
finance....................... 19 12 25 9 9 3
Project Finance................ 18 12 18 6 8 3
Corporate Finance.............. 7 4 39 14 19 7
Real Estate Finance............ 3 2 3 1 10 3
Other.......................... 2 1 12 4 25 9
Pre-1990 portfolio............. 74 48 163 59 202 70
---- --- ---- --- ---- ---
Nonearning assets.............. $155 100% $278 100% $289 100%
==== === ==== === ==== ===
</TABLE>
The current portfolio had nonearning assets of $81 million, or 0.8% of total
lending assets, in 1997. The low level of nonearning assets in the current
portfolio is the result of the credit quality of the domestic and
international asset based portfolios and the current Corporate Finance and
Real Estate Finance portfolios.
ALLOWANCE FOR LOSSES
The allowance for losses of receivables is a general reserve available to
absorb losses in the entire portfolio. This allowance is established through
direct charges to income, and losses are charged to the allowance when all or
a portion of a receivable is deemed uncollectible. The allowance is reviewed
periodically and adjusted when appropriate given the size and loss experience
of the overall portfolio, the effect of current economic conditions and the
collectibility and workout potential of identified risk and nonearning
accounts. For repossessed assets, if the fair value declines after the time of
repossession, a writedown is recorded to reflect this reduction in value.
The allowance for losses of receivables totalled $261 million, or 2.4% of
receivables, at December 31, 1997 versus $225 million, or 2.6% of receivables,
at December 31, 1996. The decrease as a percentage of receivables was
consistent with the strong credit profile of the Company's portfolio, as
evidenced by the ratio of allowance for losses of receivables to nonearning
impaired receivables of 185% at December 31, 1997, compared to 85% at December
31, 1996.
DELINQUENT EARNING ACCOUNTS AND LOAN MODIFICATIONS
The level of delinquent earning accounts changes between periods based on
the timing of payments and the effects of changes in general economic
conditions on the Company's borrowers. Troubled debt restructurings were $13
million at December 31, 1997, compared to $14 million at December 31, 1996.
The Company had $13 million of receivables at December 31, 1997 that were
restructured at market rates of interest, written down from the original loan
balance and returned to earning status. The recorded investment of these
receivables is expected to be fully recoverable.
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<PAGE>
WRITEDOWNS
Net writedowns, as detailed below for the years ended December 31, 1997,
1996 and 1995, increased in 1997 due to a lower level of recoveries compared
to 1996.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
-------------- -------------- --------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
NET WRITEDOWNS OF LENDING
ASSETS:
Asset Based Finance........ $ 11 8% $ 7 7% $ 11 5%
Corporate Finance.......... 25 17 21 19 16 7
International Group........ 23 16 -- -- -- --
Real Estate Finance........ -- -- -- -- -- --
Project Finance............ -- -- 8 7 -- --
Other...................... 3 1 5 5 18 7
Pre-1990 portfolio......... 84 58 67 62 186 81
---- --- ---- --- ---- ---
Total net writedowns..... $146 100% $108 100% $231 100%
==== === ==== === ==== ===
</TABLE>
Gross writedowns were slightly higher than 1996 at $169 million in 1997
compared to $163 million in the prior year, while gross recoveries totalled
only $23 million in 1997 compared to $55 million in 1996. The increase in net
writedowns for Corporate Finance was the result of lower recoveries in 1997
compared to 1996. The increase in net writedowns for the Company's
international asset based finance business in 1997 was the result of
writedowns in Mexico and the impact of the consolidation of Factofrance. Gross
writedowns of pre-1990 lending assets represented 53% and 69% of total gross
writedowns in 1997 and 1996, respectively.
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<PAGE>
MANAGEMENT
The following table sets forth certain information with respect to the
directors, executive officers and other senior management officers of the
Company. Their biographies appear after the table. All of the directors and
officers of the Company are elected at the annual meeting for a term of one
year or until their successors are duly elected and qualified.
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Richard J. Almeida (1)(2)(4).... 55 Chairman of the Board and Chief Executive
Officer
Yukihiko Chayama (1)(3)......... 50 Director
Nina B. Eidell.................. 45 Executive Vice President and Chief Human
Resources Officer
Tsutomu Hayano.................. 51 Director
Mark Kessel..................... 56 Director
Michael J. Litwin (1)........... 50 Director, Executive Vice President and
Chief Credit Officer
Dennis P. Lockhart (1).......... 51 Director and President of International
Group
Lauralee E. Martin (1).......... 47 Director, Executive Vice President and
Chief Financial Officer
Hideo Nakajima.................. 49 Director
Osamu Ogura (1)(3).............. 41 Director
Masahiro Sawada (1)............. 44 Director and Senior Vice President
Debra H. Snider................. 43 Executive Vice President, General Counsel,
Chief Administrative Officer and Secretary
Takeshi Takahashi............... 49 Director
Atsushi Takano (1)(2)(3)(4)..... 52 Director
Kenichiro Tanaka (1)(2)(4)...... 49 Director and Executive Vice President
Kenichi Tomita.................. 48 Director
Frederick E. Wolfert............ 43 President and Chief Operating Officer
OTHER SENIOR MANAGEMENT OFFICERS (5)
Mark A. Abbott.................. 37 Group President, Corporate Finance
Michel Aussavy.................. 58 Chairman and Chief Executive Officer of
Factofrance
Anthony O'B. Beirne............. 49 Executive Vice President and Treasurer
Michael P. Goldsmith............ 44 Group President, Real Estate Finance and
Project Finance
John L. Guy, Jr................. 45 Group President, Small Business Lending
Jay S. Holmes................... 51 Group President, Equipment Finance and
Leasing
Karen Ann Hrzich................ 51 Executive Vice President and Director of
Internal Audit
Lawrence G. Hund................ 42 Executive Vice President and Controller
James S. Jasionowski............ 39 Senior Vice President and Director of Tax
Scott E. Miller................. 51 Group President, Business Credit
Maureen G. Osborne.............. 41 Senior Vice President and Chief Information
Officer
James L. Prouty................. 50 Managing Director of Heller Europe Limited
Michael J. Roche................ 46 Group President, Current Asset Management
Charles G. Schultz.............. 51 Group President, Sales Finance
</TABLE>
- --------
(1) Member of Executive Committee
(2) Member of Compensation Committee
(3) Member of Audit Committee
(4) Member of Special Financing Committee
(5) Beginning in 1998, these officers are not considered "executive officers"
as defined in the Exchange Act.
68
<PAGE>
Richard J. Almeida has served as the Chairman of the Board and Chief
Executive Officer of the Company, International Group and Heller International
Holdings, Inc. ("Holdings") since November 1995; and as Director of the
Company and International Group since November 1987. He has also served as
Director of FAHI since January 1998. He has served as Director of Holdings
since December 1992. He previously served as the Chairman of the Board and
Chief Executive Officer of HIC from November 1995 to January 1998; Director of
HIC from November 1987 to January 1998; Executive Vice President and Chief
Financial Officer of Holdings from December 1992 to November 1995; and
Executive Vice President and Chief Financial Officer of the Company, HIC and
International Group from November 1987 to November 1995. Prior to joining the
Company in 1987, Mr. Almeida served in a number of operating positions, both
in Corporate Banking and Investment Banking sectors, for Citicorp.
Yukihiko Chayama has served as Director of the Company, International Group
and Holdings since July 1996; Director of FAHI since January 1998; Chief
Representative for the Washington, DC Representative Office of Fuji Bank since
October 1996; and Executive Vice President and General Manager for the
Americas Division of Fuji Bank since July 1996. He previously served as
Director of HIC from July 1996 to January 1998; General Manager at the Oji
Branch of Fuji Bank from May 1994 to 1996; and the Deputy General Manager in
the Head Office Corporate Banking Division of Fuji Bank from April 1991 to
1994.
Nina B. Eidell has served as Executive Vice President and Chief Human
Resources Officer of the Company since joining the Company in March 1998. From
February 1995 to February 1998, she served as Director, Human Resources of the
American Bar Association. Ms. Eidell previously spent eight years with
Citicorp, where she held a variety of human resources management roles. She
has also held human resources leadership positions with Sara Lee Corporation
and R.R. Donnelley & Sons Company.
Tsutomu Hayano has served as Director of the Company since May 1996;
Director of Fuji Bank since June 1997; General Manager at the New York Branch
of Fuji Bank and Chairman of The Fuji Bank and Trust Co. since May 1996. He
previously served as Director of HIC from May 1996 to January 1998; General
Manager at the Hamamatsucho Branch of Fuji Bank from May 1994 to 1996; and
President of Fuji Bank, Nederland N.V. from February 1990 to 1994.
Mark Kessel has served as Director of the Company since July 1992. He
previously served as Director of HIC from July 1992 to January 1998. Mr.
Kessel has been a Partner of Shearman & Sterling since December 1977.
Michael J. Litwin has served as Director of the Company since April 1990;
Executive Vice President and Chief Credit Officer of the Company since January
1997; Executive Vice President of Holdings since December 1992; Director of
International Group and Holdings since January 1997; and Executive Vice
President of International Group since January 1989. He previously served as
Director of HIC from April 1990 to January 1998; Executive Vice President of
HIC from January 1997 to January 1998; and Senior Group President of the
Company from October 1990 to January 1997. Mr. Litwin has served in various
other positions since joining the Company in 1971, including Assistant General
Counsel.
Dennis P. Lockhart has served as Director of the Company and International
Group and President of International Group since January 1988 and Director and
President of Holdings since December 1992. In his current positions, he has
principal responsibility for the Company's international operations. Mr.
Lockhart has also served as a Director of Tri Valley Corporation since April
1981. He previously served as Director and Executive Vice President of HIC
from January 1988 to January 1998. Prior to joining the Company in 1988, Mr.
Lockhart was employed by Citicorp for 16 years, holding a number of positions
in corporate/institutional banking domestically and abroad, including
assignments in
69
<PAGE>
Lebanon, Saudi Arabia, Greece, Iran, New York and Atlanta, with regional
experience encompassing Europe, the Middle East, Africa and Latin America.
Lauralee E. Martin has served as Executive Vice President and Chief
Financial Officer of the Company, International Group and Holdings since May
1996; Director of the Company since May 1991; Director of International Group
and Holdings since May 1996; and Director of Gables Residential Trust since
January 1994. She previously served as Executive Vice President and Chief
Financial Officer of HIC from May 1996 to January 1998; Director of HIC from
May 1991 to January 1998; and Senior Group President of the Company from
October 1990 to May 1996. Prior to joining the Company in 1986, Ms. Martin
held a variety of senior management positions with General Electric Credit
Corporation.
Hideo Nakajima has served as Director of the Company since May 1996; and
Executive Vice President and General Manager of Fuji Bank, Los Angeles Agency
since May 1996. He previously served as Director of HIC from May 1996 to
January 1998; Managing Director of Fuji Bank, Nederland N.V. from July 1993 to
1996; and Deputy General Manager in the Head Office Corporate Banking Division
I of Fuji Bank from February 1990 to 1993.
Osamu Ogura has served as Director of the Company since November 1994;
Director of FAHI since January 1998; Director of International Group and
Holdings since May 1996; and Senior Vice President and Deputy General Manager
of the Americas Division of Fuji Bank since November 1994. He previously
served as Director of HIC from November 1994 to January 1998 and Senior
Manager of Fuji Bank, Americas Division from 1993 to 1994.
Masahiro Sawada has served as Senior Vice President of the Company since
January 1998 and as Director of the Company, International Group and Holdings
since December 1995. He previously served as Director of HIC from December
1995 to January 1998; Senior Vice President of HIC from May 1995 to January
1998; and Joint General Manager of Fuji Bank, Paris Branch from May 1992 to
1995.
Debra H. Snider has served as Chief Administrative Officer of the Company
since February 1997; General Counsel of the Company, International Group and
Holdings since October 1995; Executive Vice President and Secretary of the
Company, International Group and Holdings since April 1995; and Secretary of
FAHI since January 1998. She previously served as General Counsel of HIC from
October 1995 to January 1998; Executive Vice President and Secretary of HIC
from April 1995 to January 1998; and Acting General Counsel for the Company,
HIC, International Group and Holdings from April 1995 to October 1995. Ms.
Snider was a Partner at Katten Muchin & Zavis from February 1991 to March 1995
and previously served as First Vice President and Associate General Counsel at
the Balcor Company.
Takeshi Takahashi has served as Director of the Company, and as Executive
Vice President and General Manager of Fuji Bank, Chicago Branch since June
1997. He previously served as Director of HIC from June 1997 to January 1998;
Executive Vice President and General Manager of Fuji Bank, Houston Agency from
May 1995 to June 1997; General Manager of HIC Project Finance II, Fuji Bank,
Tokyo from May 1994 to May 1995; and Joint General Manager of Fuji Bank,
London Branch from February 1990 to May 1994.
Atsushi Takano has served as Director of the Company, International Group
and Holdings since August 1997; Director and Chairman of FAHI since January
1998; Managing Director of Fuji Bank since June 1997; and Director of Fuji
Bank since June 1995. He previously served as Director of HIC from August 1997
to January 1998; General Manager, Corporate Banking Division II, Fuji Bank,
Tokyo from June 1996 to June 1997; General Manager of Fuji Bank, New York
Branch from June 1994 to June 1996; and General Manager of Fuji Bank, Los
Angeles Agency from June 1992 to June 1994.
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Kenichiro Tanaka has served as Executive Vice President of the Company since
January 1998; Director of the Company, International Group and Holdings since
February 1997; and Director, President and Chief Executive Officer of FAHI
since January 1998. Mr. Tanaka previously served as Director and Executive
Vice President of HIC from February 1997 to January 1998; President and Chief
Executive Officer of Fuji Bank, Canada from November 1994 to January 1997; and
Deputy General Manager of Fuji Bank, Head Office Credit Division from May 1991
to November 1994.
Kenichi Tomita has served as a Director of the Company since May 1996; and
as Executive Vice President and General Manager in the Credit Division for the
Americas of Fuji Bank since April 1996. He previously served as Director of
HIC from May 1996 to January 1998, and as Deputy General Manager of the Credit
Division for the Americas of Fuji Bank from March 1992 to 1996.
Frederick E. Wolfert has served as President and Chief Operating Officer of
the Company since January 1998. In this capacity, he has principal
responsibility for all the Company's domestic businesses. He served as
Chairman of Key Global Finance Ltd. from April 1996 to December 1997;
Chairman, President and Chief Executive Officer of KeyCorp Leasing, Ltd. from
June 1993 to December 1997; Chairman, President and Chief Executive Officer of
KeyBank USA N.A. from June 1993 to December 1996; President and Chief
Operating Officer of KeyCorp Leasing, Ltd. from December 1991 to June 1993;
and Executive Vice President of KeyBank USA N.A. from December 1991 to June
1993. Mr. Wolfert also served for nine years in management positions with U.S.
Leasing Corporation in its San Francisco headquarters.
Mark A. Abbott has served as Group President of Corporate Finance since
April 1997. He previously served as Executive Vice President of Corporate
Finance from November 1992 to April 1997. Prior to joining the Company in
1989, Mr. Abbott held various positions with Continental Bank, most recently
as a member of the bank's venture capital unit, which focused on investing in
leveraged transactions.
Michel Aussavy joined Factofrance in 1980 and has served as its Chairman and
Executive Officer since 1988. He previously served as General Manager of
Factofrance from 1982 to 1988 and Director of Factofrance from 1980 to 1982.
Prior to joining Factofrance, Mr. Aussavy was employed by Credit du Nord from
1973 to 1980, holding various management positions, and by Delmas Vielgeux as
Director from 1968 to 1973.
Anthony O'B. Beirne has served as Executive Vice President of the Company
since March 1998; Treasurer of the Company since May 1995 and Treasurer of
FAHI since January 1998. He previously served as Senior Vice President of the
Company from May 1995 to March 1998; Senior Vice President and Treasurer of
HIC from May 1995 to January 1998; Senior Vice President and Controller of
Holdings from December 1992 to May 1995; and Senior Vice President and
Controller of the Company, HIC and International Group from March 1988 to May
1995. Before joining the Company in 1988, Mr. Beirne was Vice President and
Corporate Controller of Kenner Parker Toys, Inc. and previously worked for
General Mills, Inc., Arthur Andersen and Co. and Chemical Bank.
Michael P. Goldsmith has served as Group President of Real Estate Finance
and Project Finance since April 1994. He previously served as Executive Vice
President and Division Manager for the Project Management Organization from
May 1990 to April 1994. Prior to joining the Company in 1988, Mr. Goldsmith
was a Vice President and Division Manager at Continental Bank, managing many
of Continental's troubled loans. He has also held a variety of corporate
finance positions involving buyouts and recapitalizations.
John L. Guy, Jr. has served as Group President for Small Business Lending
since April 1997; President of Heller First Capital Corp. since May 1996; and
Director of Monetta Trust since November 1994. He previously served as
Executive Vice President for the Heller First Capital Division of the Company
from May 1996 to April 1997; Senior Vice President for the Heller First
Capital Division of
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<PAGE>
the Company from May 1995 to May 1996; and Senior Vice President and Treasurer
of the Company and HIC from July 1992 to May 1995. Before joining the Company
in 1987, Mr. Guy was Assistant Treasurer for Borg Warner Financial Services.
Jay S. Holmes has served as Group President of Equipment Finance and Leasing
since December 1995 and as President of Heller Financial Leasing, Inc. since
May 1996. He previously served as Executive Vice President for Commercial
Equipment Finance from September 1992 to December 1995. Mr. Holmes, who joined
the Company in 1992, has 26 years of equipment leasing industry experience and
currently is a member of the Middle Market Business Council of the Equipment
Leasing Association.
Karen Ann Hrzich has served as Executive Vice President of the Company since
March 1998 and as Director of Internal Audit of the Company since November
1995. Ms. Hrzich was also a Senior Vice President of the Company prior to
March 1998. Before November 1995, she was Senior Vice President and Senior
Manager of Credit and Portfolio Review within the Internal Audit Department.
Prior to joining the Internal Audit Department in January 1995, Ms. Hrzich
held the position of Senior Vice President and Portfolio Manager of Corporate
Finance. Before joining the Company in 1989, Ms. Hrzich spent 15 years with
Chemical Bank of New York, holding a number of lending and managerial
positions in corporate banking, middle market lending and capital markets.
Lawrence G. Hund has served as Executive Vice President of the Company,
International Group and Holdings since March 1998 and as Controller of the
Company, International Group and Holdings since March 1995. He previously
served as Senior Vice President of the Company, International Group and
Holdings from May 1995 to March 1998; Senior Vice President and Controller of
HIC from May 1995 to January 1998; Senior Vice President, Liability Management
and Assistant Treasurer of the Company and HIC from January 1995 to May 1995;
and Senior Vice President for Accounting and Operations of the Company and HIC
from January 1993 to December 1994. Prior to joining the Company in 1985, Mr.
Hund was an Audit Manager with the accounting firm of Arthur Young & Company.
James S. Jasionowski has served as Senior Vice President and Director of Tax
of the Company and International Group since September 1997. He served as
Senior Vice President and Tax Counsel of HIC from September 1997 to January
1998. From May 1993 to August 1997, Mr. Jasionowski was Vice President and Tax
Counsel of the Company and HIC. Before joining the Company in 1993, Mr.
Jasionowski was a Tax Senior Manager with the accounting firm of KPMG Peat
Marwick, where he was employed for eight years in a variety of positions.
Scott E. Miller has served as Group President of Business Credit since
joining the Company in February 1998. From September 1993 to January 1998, he
served as Senior Vice President and General Manager in Asset Based Lending for
Bank of America NT&SA. Mr. Miller previously spent 17 years with Citicorp,
holding a variety of management and lending roles.
Maureen G. Osborne, has served as Senior Vice President and Chief
Information Officer of the Company since joining the Company in April 1998.
From 1992 through March 1998, Ms. Osborne was employed by IBM Global Services,
where she most recently served as Senior Project Executive, Bank of America
contact. From 1978 to 1991, Ms. Osborne held various management positions at
Continental Bank Corporation.
James L. Prouty has served as Managing Director of Heller Europe Limited
("Heller Europe") since November 1997. Prior to joining Heller Europe, Mr.
Prouty spent 21 years with Bank of America, where he was most recently Senior
Vice President and Regional Manager of Continental Europe, headquartered in
Paris. Mr. Prouty also held a number of country management and regional
responsibilities in Brussels, London and Frankfurt. Mr. Prouty headed Bank of
America's Financial Institutions business in Europe and has held corporate
banking positions in New York, Los Angeles
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<PAGE>
and Mexico City. He is currently Chairman of the U.S. Trade and Investment
Center in Brussels and was previously the Chairman of the European Council for
American Chambers of Commerce and the President of the American Chamber of
Commerce in Belgium.
Michael J. Roche has served as Group President of Current Asset Management
since November 1994. He previously served as Senior Vice President and Chief
Information Officer for Information Technology of the Company from October
1990 to November 1994; and as Senior Vice President and Chief Information
Officer for Information Technology of HIC from May 1991 to October 1994. Prior
to joining the Company in 1990, Mr. Roche was employed by Continental Bank for
17 years in a variety of information technology positions, including as Senior
Vice President, Managing Director of Application Services.
Charles G. Schultz has served as Group President of Sales Finance since
February 1997. He previously served as Executive Vice President and Manager of
Vendor Finance from September 1995, when he joined the Company, to April 1997.
Prior to joining the Company in September 1995, Mr. Schultz was President of
Financial Alliance Corporation, a company specializing in structuring,
managing and funding manufacturer vendor finance programs, from January 1994
to September 1995. Prior to that, he was Executive Vice President of Sanwa
Business Credit Corporation ("Sanwa"), where for 13 years he had primary
responsibility for Sanwa's equipment financing and leasing businesses. Prior
to joining Sanwa, Mr. Schultz spent 10 years with Ford Motor Credit Company in
various treasury, marketing and credit positions.
BOARD OF DIRECTORS
The Company intends to appoint two additional persons who are not officers
or employees of the Company, Fuji Bank or FAHI to the Board of Directors. The
Company will be required to have at least two independent directors to
maintain the listing of the Class A Common Stock on the NYSE.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has appointed an Audit Committee, a Compensation
Committee, an Executive Committee and a Special Financing Committee. The
current members of the Audit Committee are Messrs. Takano (Chairman), Chayama
and Ogura. Following the consummation of the Offerings, the Audit Committee
will consist solely of independent directors. The Audit Committee makes
recommendations concerning the Company's engagement of independent public
accountants, reviews the Company's annual audit, and reviews with the
Company's independent public accountants the Company's internal controls and
financial management policies. The current members of the Compensation
Committee are Messrs. Takano (Chairman), Almeida and Tanaka. The Compensation
Committee establishes the Company's general compensation and benefits policy
and recommends to the Board of Directors compensation for the Company's
officers and key employees. The current members of the Executive Committee are
Messrs. Takano (Chairman), Almeida, Chayama, Litwin, Lockhart, Ogura, Sawada
and Tanaka and Ms. Martin. With certain limited exceptions, the Executive
Committee has the authority to exercise all powers of the Board of Directors
in managing the business and affairs of the Company, including the declaration
of dividends and issuance of securities. The members of the Special Financing
Committee are Messrs. Takano (Chairman), Almeida and Tanaka. The Special
Financing Committee sets the terms of securities issued by the Company.
COMPENSATION OF DIRECTORS
The Company anticipates that, following the consummation of the Offerings,
the Company's directors will receive compensation for serving as directors at
levels customary for publicly-held companies similar to the Company, except
that no director of the Company who is also an employee of the Company or Fuji
Bank will receive remuneration for serving as a director. Directors of the
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<PAGE>
Company who are not employees of the Company or Fuji Bank ("Non-Employee
Directors") will receive an award of non-qualified stock options under the
Heller Financial, Inc. 1998 Stock Incentive Plan. See "--Executive
Compensation--The 1998 Stock Incentive Plan".
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Richard J. Almeida served as a member of the Compensation Committee
throughout 1997. Atsushi Takano was appointed to the Compensation Committee on
August 21, 1997 and Kenichiro Tanaka was appointed to the Compensation
Committee on February 25, 1997. Messrs. Almeida, Takano and Tanaka also served
concurrently as members of the Compensation Committees of HIC, International
Group and Holdings.
During 1997, Mr. Almeida also served as Chairman and Chief Executive Officer
of the Company, International Group and Holdings. In addition, Mr. Almeida
served as the Chairman of the Board, Chief Executive Officer and President of
HIC and as a member of the compensation committees of HIC, International Group
and Holdings. Mr. Tanaka also served as an executive officer of HIC and FAHI
during his tenure as a member of the compensation committees.
Mr. Lockhart, Mr. Litwin and Ms. Martin also served as executive officers of
HIC, International Group and Holdings, for which companies Mr. Almeida served
as a member of the Compensation Committee of the Board of Directors.
No other relationships existed in 1997 or currently exist between the
members of the Compensation Committee of the Company, FAHI, HIC, International
Group or Holdings and the directors and executive officers of those companies.
OWNERSHIP GUIDELINES
The Company has adopted ownership guidelines that specify an expected level
of Class A Common Stock ownership for executive and other senior management
officers of the Company. The guidelines for ownership are expressed as a
multiple of such person's base salary. The multiple varies according to the
officer's position, with the Chairman and Chief Executive Officer expected to
acquire ownership of Class A Common Stock having a value equal to three times
his base salary within a specified time period. Shares of restricted stock
count toward the ownership guidelines to the extent such shares of restricted
stock are fully vested. If an officer fails to meet the ownership guidelines
applicable to his or her position, the Company may, in its sole discretion,
limit future awards under the Heller Financial, Inc. 1998 Stock Incentive
Plan.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to all compensation
received by the Chief Executive Officer of the Company and the four next most
highly compensated executive officers of the Company (as determined at
December 31, 1997 based on combined salary and bonus) (collectively, the
"Named Officers") for services rendered in all capacities to the Company
during the years ended December 31, 1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE (1)(2)
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
LTIP PAYOUTS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(3) COMPENSATION($)(4)
- --------------------------- ---- --------- -------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Richard J. Almeida 1997 637,500 450,000 548,871 4,000
(Chairman of the 1996 475,000 313,500 -- 4,750
Board and Chief 1995 318,375 225,000 310,905 4,620
Executive Officer)
Michael P. Goldsmith 1997 247,682 450,000 222,742 4,000
(Group President, 1996 191,579 200,000 -- 4,050
Real Estate Finance 1995 184,500 90,732 67,838 4,128
and Project
Finance)
David J. Kantes(5) 1997 245,583 350,000 240,146 4,000
(Group President, 1996 237,128 225,000 -- 4,479
Business Credit) 1995 208,488 175,000 -- 4,620
Mark A. Abbott 1997 207,125 350,000 174,787 114,476(6)
(Group President, 1996 192,833 276,000 -- 4,478
Corporate Finance) 1995 175,334 175,000 88,984 4,321
Lauralee E. Martin 1997 286,354 225,000 313,448 4,000
(Chief Financial 1996 270,000 160,000 -- 4,318
Officer) 1995 254,004 175,000 256,774 4,620
</TABLE>
- --------
(1) The Company has an Executive Deferred Compensation Plan, a non-qualified
deferred compensation plan in which certain employees of the Company may
elect to defer a portion of their annual compensation on a pre-tax basis.
The amount of deferred compensation remains an asset of the Company and
may be invested in any of certain mutual funds at the participant's
discretion. The Company has amended the Plan to permit the investment of
deferred compensation in the Class A Common Stock.
(2) Certain executive officers of the Company whose compensation is included
above were employed and paid by HIC during 1997. Pursuant to a management
agreement between the Company and HIC, the Company reimbursed HIC for
their services.
(3) Under the terms of each of the Company's Long Term Incentive Plans
("LTIPs"), payouts of all accruals are made after the termination of the
LTIP to officers who are active employees of the Company and participants
in the LTIP through its termination date (subject to exceptions in the
case of disability, death or retirement). In 1997, cash payouts were made
to the Named Officers under an LTIP for the performance and award period
that began January 1, 1994 and ended December 31, 1996. In March, 1995,
cash payouts were made to the Named Officers under an LTIP for the
performance and award period that began January 1, 1992 and ended December
31, 1994. In prior years, the Company reported annual accruals under its
LTIPs as other annual compensation. The Company revised the terms of its
LTIPs commencing with the LTIP for the performance and award period
beginning January 1, 1996 and ending December 31, 1998 (the
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<PAGE>
"1996-1998 LTIP"), as discussed below in greater detail. Perquisites and
other personal benefit amounts for each of the Named Officers fall below
the minimum level for disclosure and therefore have been excluded.
(4) Amounts reported reflect the Company's contribution made in the form of a
match on amounts deferred by the Named Officer in the Company's Savings
and Profit Sharing Plan, which is qualified under Section 401(a) of the
1986 Internal Revenue Code, as amended (the "Code"). This Plan is
available to all employees who work at least 900 hours per year. The
Company makes matching contributions equal to 50% of the employee's
contribution, except that the Company's contribution will not exceed 2.5%
of the employee's base salary or $4,000, whichever is less. The Company
has amended the Plan to permit the investment of contributions in the
Class A Common Stock and intends to further amend the Plan such that the
Company's matching contributions starting on July 1, 1998 will be in the
form of Class A Common Stock.
(5) Mr. Kantes resigned from the Company effective April 3, 1998.
(6) Also includes an aggregate of $110,476 that was paid in respect of
relocation expenses incurred on Mr. Abbott's behalf.
LONG TERM INCENTIVE PLANS
The Company currently maintains two different LTIPs covering the Named
Officers and other employees of the Company. Under each of the LTIPs,
performance shares have been granted for a three year performance and award
period. The performance shares are earned out over the three-year performance
and award period based on a targeted average return on equity goal. The
Company has made grants under the 1996-1998 LTIP and under an LTIP for the
performance and award period beginning January 1, 1997 and ending December 31,
1999 (the "1997-1999 LTIP"). The performance and award periods for the 1996-
1998 LTIP grants and the 1997-1999 LTIP grants will continue after the
consummation of the Offerings, subject to the terms and conditions of the
LTIPs. For each of the 1996-1998 LTIP and the 1997-1999 LTIP, a total of
46,000 units was allocated. If the Company achieves its return on equity
target, this would create a pool of $4,600,000 for each LTIP. In the event an
employee ceases to be an active employee prior to the end of the performance
period, no incentive compensation will be deemed to be earned under the LTIPs.
See "--The 1998 Stock Incentive Plan--Offering Awards". Following the
Offerings, the Compensation Committee will administer the LTIPs.
The following tables set forth certain information with respect to awards
that were granted during 1996 to the Named Officers under the 1996-1998 LTIP
and are currently outstanding:
LONG TERM INCENTIVE PLANS--AWARDS IN 1996
1996-1998 LTIP
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
PERFORMANCE OR UNDER NON-STOCK PRICE-BASED
NUMBER OF OTHER PERIOD PLANS
SHARES, UNITS UNTIL ---------------------------
OR OTHER MATURATION OR THRESHOLD TARGET MAXIMUM
NAME RIGHTS PAYOUT ($) ($) ($)
---- ------------- -------------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Richard J. Almeida.... 4,060 3 Years $304,500 $406,000 $690,200
Michael P. Goldsmith.. 1,130 3 Years 84,750 113,000 192,100
David J. Kantes(1).... N/A N/A N/A N/A N/A
Mark A. Abbott........ 800 3 Years 60,000 80,000 136,000
Lauralee E. Martin.... 1,580 3 Years 118,500 158,000 268,600
</TABLE>
- --------
(1) Mr. Kantes resigned from the Company effective April 3, 1998 and is
therefore ineligible to receive any payouts under this plan.
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<PAGE>
The following table sets forth certain information with respect to awards
that were granted during 1997 to the Named Officers under the 1997-1999 LTIP
and are currently outstanding:
LONG TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
1997-1999 LTIP
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
PERFORMANCE OR UNDER NON-STOCK PRICE-BASED
NUMBER OF OTHER PERIOD PLANS
SHARES, UNITS UNTIL ---------------------------
OR OTHER MATURATION OR THRESHOLD TARGET MAXIMUM
NAME RIGHTS PAYOUT ($) ($) ($)
- ---- ------------- -------------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Richard J. Almeida.... 4,375 3 Years $328,125 $437,500 $743,750
Michael P. Goldsmith.. 500 3 Years 37,500 50,000 85,000
David J. Kantes(1).... N/A N/A N/A N/A N/A
Mark A. Abbott........ 1,000 3 Years 75,000 100,000 170,000
Lauralee E. Martin.... 1,500 3 Years 112,500 150,000 255,000
</TABLE>
- --------
(1) Mr. Kantes resigned from the Company effective April 3, 1998 and is
therefore ineligible to receive any payouts under this plan.
RETIREMENT AND OTHER DEFINED BENEFIT PLANS
The Company has a defined benefit retirement income plan (the "Retirement
Plan") for the benefit of its employees that is a qualified plan under Section
401 of the Code. Substantially all domestic employees of the Company who have
one year of service, including executive officers and directors of the
Company, certain employees of FAHI, and certain employees of International
Group who are not employees of the Company participate in the Retirement Plan.
Non-Employee Directors are not eligible for retirement benefits. Under a
defined benefit plan, such as the Retirement Plan, contributions are not
specifically allocated to individual participants.
The Company adopted a Supplemental Executive Retirement Plan ("SERP"),
effective October 28, 1987 and amended and restated effective January 1, 1996,
which provides a benefit to all employees whose full benefit under the
Retirement Plan is reduced by participation in the Company's Executive
Deferred Compensation Plan and by limitations imposed by Sections 401(a)(17)
and 415 of the Code.
The following table shows estimated annual retirement benefits for
executives in specified remuneration and service classifications:
ESTIMATED ANNUAL RETIREMENT BENEFITS
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
----------------------------------------------
FINAL AVERAGE PAY 5 10 15 20 25 AND OVER
- ----------------- ------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
$200,000......................... $26,000 $ 52,000 $ 78,000 $104,000 $130,000
225,000......................... 29,250 58,500 87,750 117,000 146,250
250,000......................... 32,500 65,000 97,500 130,000 162,500
275,000......................... 35,750 71,500 107,250 143,000 178,750
300,000......................... 39,000 78,000 117,000 156,000 195,000
400,000......................... 52,000 104,000 156,000 208,000 260,000
450,000......................... 58,500 117,000 175,500 234,000 292,500
500,000......................... 65,000 130,000 195,000 260,000 325,000
600,000......................... 78,000 156,000 234,000 312,000 390,000
</TABLE>
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<PAGE>
In general, remuneration covered by the Retirement Plan consists of the
annual base salary determined before any salary reduction contributions to the
Company's Savings and Profit Sharing Plan. The monthly accrued benefit under
the Retirement Plan is calculated as a percentage of average monthly
compensation over the sixty consecutive months during the employee's last 120
months of employment that yield the highest average, plus a certain percentage
of the employee's monthly compensation above the Social Security wage base for
the past 35 years. The figures shown in the table above include benefits
payable under the Retirement Plan and SERP, as described above. However, the
figures shown are prior to offsets for Social Security and Company matching
benefits under its Savings and Profit Sharing Plan. The estimates assume that
benefits commence at age 65 under a straight life annuity form.
As of December 31, 1997, the number of years of credited service for the
Named Officers and the actual average remuneration for their respective years
of credited service with the Company were as follows: Richard J. Almeida, 10
years, 5 months, $400,058; Michael P. Goldsmith, 9 years, 1 month, $189,741;
David J. Kantes, 4 years, 6 months, $196,642; Mark A. Abbott, 8 years, 5
months, $165,558; and Lauralee E. Martin, 11 years, 5 months, $256,308.
THE 1998 STOCK INCENTIVE PLAN
The Company's Board of Directors has adopted a stock-based incentive plan,
the Heller Financial, Inc. 1998 Stock Incentive Plan (the "Stock Incentive
Plan"), covering Non-Employee Directors and employees of the Company and its
subsidiaries (collectively, "Participants"). The Compensation Committee of the
Company's Board of Directors will administer the Stock Incentive Plan.
The Stock Incentive Plan provides for the grant of incentive and non-
qualified stock options, restricted stock, stock appreciation rights,
performance shares and performance units ("Awards"). The terms of the Awards
will be set forth in award agreements ("Award Agreements"). The Compensation
Committee, in its sole discretion, will select the employees to whom Awards
will be granted and will determine the type, size and terms and conditions
applicable to each Award. The Compensation Committee also will have the
authority to interpret, construe and implement the provisions of the Stock
Incentive Plan. Awards to Non-Employee Directors will be made by members of
the Company's Board of Directors who are not otherwise entitled to participate
in the Stock Incentive Plan, or will be based on a formula developed by the
Board of Directors or the Compensation Committee.
The total number of shares of Class A Common Stock that may be subject to
Awards under the Stock Incentive Plan will equal 7.5% of the shares of Common
Stock outstanding upon consummation of the Offerings (6,341,250 shares, plus
up to 376,875 additional shares if the Underwriters' over-allotment options
are exercised). In connection with the Offerings, the Company has awarded
505,912 shares of Restricted Stock (as defined below) and non-qualified
Options (as defined below) to purchase 1,242,250 shares of Class A Common
Stock under the Stock Incentive Plan. The maximum number of shares of Class A
Common Stock that may be subject to Awards to any Participant in any calendar
year is 500,000 shares. Set forth below is a brief description of the Awards
that may be granted under the Stock Incentive Plan.
STOCK OPTIONS. The Compensation Committee may grant options (each an
"Option") to purchase shares of Class A Common Stock, which may be incentive
or non-qualified stock options. The Compensation Committee will determine the
exercise price (the "Exercise Price") of the Options in its sole discretion,
provided that the Exercise Price may not be less than the average of the high
and the low trading prices of the Class A Common Stock on the NYSE on the date
of grant. Notwithstanding the foregoing, the initial grants of Offering Awards
(as defined below) will be granted with an Exercise Price equal to the initial
public offering price set forth on the cover page of this Prospectus. Each
Option represents the right to purchase one share of Class A Common Stock at
the specified Exercise Price. Options will expire no later than ten years
after the date on which they were granted and will become vested and
exercisable at such times and in such installments as determined by the
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<PAGE>
Compensation Committee and specified in the applicable Award Agreement. In the
first three years following the Offerings, additional grants of Options will
be subject to achievement of certain annual financial performance hurdles.
RESTRICTED STOCK. The Compensation Committee may award shares of Class A
Common Stock that are subject to such restrictions as it deems appropriate,
including forfeiture conditions and restrictions against transfer for a period
the Compensation Committee specifies ("Restricted Stock"). The Compensation
Committee may award Restricted Stock under the Stock Incentive Plan for
services and/or payment of cash. Restrictions on Restricted Stock may lapse in
installments based on factors selected by the Compensation Committee. Prior to
the expiration of the restricted period, a Participant who has received a
Restricted Stock Award generally has the rights of a stockholder of the
Company, including the right to vote and to receive cash dividends on the
shares subject to the Award. Stock dividends issued with respect to a
Restricted Stock Award may be treated as additional shares under such Award
with respect to which such dividends are issued.
STOCK APPRECIATION RIGHTS. The Compensation Committee may award a stock
appreciation right ("SAR") under the Stock Incentive Plan with respect to
shares of Class A Common Stock. Generally, one SAR is granted with respect to
one share of Class A Common Stock. A SAR entitles the Participant, upon the
exercise of the SAR, to receive an amount equal to the appreciation in the
underlying share of Class A Common Stock. The appreciation is equal to the
difference between (i) the "base value" of the SAR (which is determined with
reference to the average of the high and the low trading prices of the Class A
Common Stock on the NYSE on the date the SAR is granted) and (ii) the average
of the high and the low trading prices of the Class A Common stock on the NYSE
on the date the SAR is exercised. Upon the exercise of a vested SAR, the
exercising Participant will be entitled to receive the appreciation in the
value of one share of Class A Common Stock as so determined, payable, at the
discretion of the Participant, in cash, shares of Class A Common Stock, or
some combination thereof, subject to availability of shares of Class A Common
Stock to the Company. SARs will expire no later than ten years after the date
on which they are granted. SARs become vested and exercisable at such times
and in such installments as determined by the Compensation Committee and
specified in the applicable Award Agreement.
TANDEM OPTIONS/SARS. The Compensation Committee may grant an Option and a
SAR "in tandem" with each other (a "Tandem Option/SAR"). An Option and a SAR
would be considered in tandem with each other when the exercise of the Option
aspect of the tandem unit automatically cancels the right to exercise the SAR
of the tandem unit, and vice versa. The Option may be an incentive SAR in any
proportionate relationship selected by the Compensation Committee.
PERFORMANCE SHARES AND PERFORMANCE UNITS. The Compensation Committee may
grant a performance share Award ("Performance Share") and/or a performance
unit Award (a "Performance Unit") under the Stock Incentive Plan. Each
Performance Unit will have an initial value that is established by the
Compensation Committee at the time of grant. Each Performance Share will have
an initial value equal to the average of the high and the low trading prices
of one share of Class A Common Stock on the NYSE on the date of grant. Such
Awards may be earned based upon satisfaction of certain performance criteria
within a performance period specified in the applicable Award Agreement, and
subject to such other terms and conditions as the Compensation Committee deems
appropriate. Prior to the end of a performance period, the Compensation
Committee, in its discretion, may adjust the performance conditions for a
significant acquisition or disposition of assets or other property by the
Company. The extent to which a grantee is entitled to payment in settlement of
such an Award at the end of a performance period will be determined by the
Compensation Committee, based on whether the performance criteria have been
met. The Company will make payment in cash or in shares of Class A Common
Stock, or some combination thereof, subject to availability of shares of Class
A Common Stock to the Company, in accordance with the terms of the applicable
Award Agreement.
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OFFERING AWARDS. Effective upon consummation of the Offerings, the Company
will grant Awards (the "Offering Awards") to the Named Officers and other
selected Participants, as summarized in the following table:
STOCK INCENTIVE PLAN OFFERING AWARDS (1)
<TABLE>
<CAPTION>
SHARES
UNDERLYING
NON-
SHARES OF QUALIFIED
RESTRICTED STOCK
NAME STOCK (2) OPTIONS (3)
- ---- ---------- -----------
<S> <C> <C>
Richard J. Almeida...................................... 87,385 280,000
Michael P. Goldsmith.................................... 13,311 40,000
David J. Kantes(4)...................................... -- --
Mark A. Abbott.......................................... 13,311 40,000
Lauralee E. Martin...................................... 22,451 50,000
All executive officers as a group (seven persons)....... 211,983 626,000
All other employees as a group (including senior
management officers)................................... 293,929 616,250
Non-Employee Directors.................................. -- --
</TABLE>
- --------
(1) The Offering Awards to the executive officers and to 12 other senior
management officers are the only Awards such officers will be eligible to
receive until 2001. All other recipients will be eligible to receive
annual Option grants subject to the terms of the Stock Incentive Plan.
(2) Upon consummation of the Offerings, the Company will award shares of
Restricted Stock to each of the Named Officers, other than Mr. Kantes, and
to certain other senior management officers and employees. The Restricted
Stock will vest on January 1, 2001 if the Company achieves net income
goals specified in the Restricted Stock Award Agreements. If the Company
does not achieve such goals by January 1, 2001, the Restricted Stock will
vest on January 1, 2004.
(3) Upon consummation of the Offerings, the Company will award non-qualified
Options to each of the Named Officers, other than Mr. Kantes, and to
certain other senior management officers and employees. The Options will
vest 100% on January 1, 2001. The Exercise Price of the Options will be
the initial public offering price set forth on the cover page of this
Prospectus.
(4) Mr. Kantes resigned from the Company effective April 3, 1998.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
Richard J. Almeida, Chairman and Chief Executive Officer of the Company, is
party to an employment contract with the Company, which became effective as of
December 31, 1997 and expires on December 31, 1999. The contract will be
automatically extended to December 31, 2000, unless either Mr. Almeida or the
Company gives the other written notice to the contrary on or before June 30,
1999. The contract provides for the payment to Mr. Almeida of an annual base
salary of not less than the amount Mr. Almeida receives during 1998. Mr.
Almeida's base salary and performance bonus are to be reviewed by the Company
during the term of the contract pursuant to the Company's normal practices.
The contract provides for Mr. Almeida's participation in all executive bonus
and incentive compensation plans of the Company. The contract further provides
that if Mr. Almeida's employment is terminated by the Company without cause
(as defined in the contract), or if he resigns with cause (as defined in the
contract), he will be entitled to receive full salary through the date 24
months from the date of termination. In the event of a termination under
either of the situations described above, Mr. Almeida is also entitled to
receive his incentive plan bonus payment at the applicable target bonus
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level for the full year in which such termination occurs, as well as certain
minimum payments under each LTIP in which he was previously granted awards,
and he will continue to be covered under certain benefit plans through the
date 24 months from the date of termination.
Frederick E. Wolfert is party to an employment contract with the Company,
which became effective as of December 31, 1997, the date on which he was
elected President and Chief Operating Officer, and expires on December 31,
1999. The contract provides for the payment to Mr. Wolfert of an annual base
salary of not less than the amount Mr. Wolfert receives during 1998. Mr.
Wolfert's base salary and performance bonus are to be reviewed by the Company
during the term of the contract pursuant to the Company's normal practices.
The contract provides for Mr. Wolfert's participation in all executive bonus
and incentive compensation plans of the Company. The contract further provides
that if Mr. Wolfert's employment is terminated by the Company without cause
(as defined in the contract), or if he resigns with cause (as defined in the
contract), he will be entitled to receive full salary through the later of
December 31, 2000 or the date 18 months from the date of termination. In the
event of a termination, Mr. Wolfert is also entitled to receive his incentive
plan bonus payment at the applicable target bonus level for the full year in
which such termination occurs, as well as payments under each LTIP in which he
was previously granted awards through the year in which the termination
occurs, and he will continue to be covered under certain benefit plans through
the later of December 31, 2000 or the date 18 months from the date of
termination.
Seventeen other executive and other senior management officers of the
Company (including the Named Officers other than Messrs. Almeida, Wolfert and
Kantes) will become, effective upon consummation of the Offerings, party to
termination of employment and change in control agreements (the "Change in
Control Agreements"). Each such Change in Control Agreement will provide
protection to the officer in the event of certain "changes in control" of the
Company (as defined in the Change in Control Agreements) within three years of
consummation of the Offerings. If the officer's employment is either actually
or "constructively" terminated on or after such a change in control other than
for "cause" (as defined in the Change in Control Agreements), the Company will
pay to the officer the present value of the additional benefits the officer
would have accrued under the Company's qualified and non-qualified retirement
plans from the date of termination through the last day of the 24-month period
following such employment termination and the officer will: (i) become fully
vested in all Options and Restricted Stock granted under the Stock Incentive
Plan, and any benefits under the Company's non-qualified retirement plans;
(ii) be entitled to receive all payments under each LTIP in which he or she
was previously granted awards through the year in which the termination
occurs; (iii) become fully vested in the Cash Incentive Program (as
hereinafter defined) at not less than the target bonus level for the year in
which the change in control occurred; (iv) be entitled to continuation of base
salary and certain benefits and perquisites for 24 months; and (v) be credited
with 24 months of age and years of service for purposes of the Company's
retiree medical benefit plan. Messrs. Almeida's and Wolfert's employment
agreements will also be amended to provide comparable change in control
protections.
EMPLOYEE STOCK PURCHASE PLAN
The Company has adopted the Heller Financial, Inc. Employee Stock Purchase
Plan (the "ESPP") which offers the Company's employees the opportunity to
purchase Class A Common Stock at a discount through payroll deductions. The
ESPP is intended to meet the requirements of Section 423 of the Code. All
regular full-time and part-time employees of the Company are eligible to
participate in the ESPP after six months of employment. Employees desiring to
purchase stock through the ESPP may elect to reduce their pay by up to 10% in
any payroll period. These payroll deductions accumulate during the three-month
"purchase period". At the end of each purchase period, the payroll deductions
are used to purchase Class A Common Stock at a price equal to 85% of the fair
market value of the Class A Common Stock on the last day of the purchase
period. An employee will recognize no taxable income or gain until he or she
sells the Class A Common Stock and, if the employee meets certain holding
period requirements, he or she will also be entitled to favorable tax
treatment upon such sale.
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The Company will purchase shares of Class A Common Stock in the open market to
satisfy purchases under the ESPP.
ANNUAL CASH INCENTIVE PROGRAM
The Company has adopted the Heller Financial, Inc. Annual Cash Incentive
Program (the "Cash Incentive Program") pursuant to which certain executive and
other senior management officers and employees will be eligible to receive
annual incentive bonuses based on individual performance and the Company's
results of operations. The Cash Incentive Program specifies a minimum, maximum
and target award level based on achievement of the Company's financial
performance goals. The Cash Incentive Program will be administered by the
Compensation Committee of the Board of Directors. The Compensation Committee
and the President and Chief Executive Officer will annually approve incentive
awards and schedules under the Cash Incentive Program. Cash bonuses, if any,
will be paid annually in the first quarter of the Company's next fiscal year.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH FUJI BANK
Fuji Bank, headquartered in Tokyo, Japan, is currently the beneficial owner
of all of the common stock of the Company through its wholly-owned U.S.
subsidiary, FAHI. Fuji Bank is one of the largest banks in the world, with
total deposits of $301 billion at September 30, 1997. See "--Keep Well
Agreement". Upon consummation of the Offerings, Fuji Bank will beneficially
own 100% of the outstanding Class B Common Stock, which will, due to the
limitation on the voting power of the Class B Common Stock while held by Fuji
Bank, represent, in the aggregate, 79.0% of the combined voting power of all
of the outstanding Common Stock (regardless of whether the Underwriters' over-
allotment options are exercised) and 60.4% of the economic interest (or rights
of holders of common equity to participate in distributions in respect of the
common equity) in the Company (57.0% if the Underwriters' over-allotment
options are exercised in full). For as long as Fuji Bank continues to
beneficially own shares of Common Stock representing more than 50% of the
combined voting power of the Class A Common Stock and Class B Common Stock,
Fuji Bank will be able to direct the election of all of the members of the
Board of Directors and thereby exercise a controlling influence over the
business and affairs of the Company, including any determinations with respect
to (i) mergers or other business combinations involving the Company, (ii) the
acquisition or disposition of assets by the Company, (iii) the incurrence of
indebtedness by the Company, (iv) the issuance of any additional Common Stock
or other equity securities and (v) the payment of dividends with respect to
the Common Stock. Similarly, Fuji Bank will have the power to (i) determine
matters submitted to a vote of the Company's stockholders without the consent
of the Company's other stockholders, (ii) prevent or cause a change in control
of the Company or (iii) take other actions that might be favorable to Fuji
Bank. In the foregoing situations or otherwise, various conflicts of interest
between the Company and Fuji Bank could arise.
Fuji Bank has advised the Company that its current intent is to continue to
hold all of the Common Stock beneficially owned by it following the Offerings.
Fuji Bank, FAHI and the Company have agreed not to sell or otherwise dispose
of any shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of Goldman, Sachs & Co. See
"Underwriting".
From time to time the Company and Fuji Bank have entered into, and can be
expected to continue to enter into, certain agreements and business
transactions in the ordinary course of their respective businesses. See "Risk
Factors--Control by and Relationship with Fuji Bank", "Risk Factors--Shares
Eligible for Future Sale; Possible Future Sales by Fuji Bank" and "Shares
Available for Future Sales".
For a description of certain provisions of the Company's Amended and
Restated Certificate of Incorporation concerning the allocation of business
opportunities that may be suitable for both the
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Company and Fuji Bank, see "Description of Capital Stock--Certain Certificate
of Incorporation and By-Law Provisions--Corporate Opportunities".
KEEP WELL AGREEMENT
The Company entered into the Keep Well Agreement with Fuji Bank on April 23,
1983. The Keep Well Agreement was amended and supplemented on January 26,
1984, in connection with the consummation of the purchase of the Company by
Fuji Bank and has been amended since that date from time to time. Under the
Keep Well Agreement, as currently in effect, neither Fuji Bank nor any of its
subsidiaries can sell, pledge or otherwise dispose of shares of the Company's
common stock, or permit the Company to issue shares of its common stock,
except to Fuji Bank or a Fuji Bank affiliate. However, prior to the
consummation of the Offerings, the Keep Well Agreement will be amended to
allow the Company or Fuji Bank or any of its affiliates to sell or dispose of
Common Stock to any person or entity, provided that after any such sale or
disposition, Fuji Bank (directly or indirectly, through one or more
subsidiaries) continues to hold greater than 50% of the combined voting power
of the outstanding Common Stock. This provision may be subject to further
revision by the Company and Fuji Bank without the approval of any of the
Company's securityholders.
The Keep Well Agreement may not be terminated prior to the date (the
"Termination Date") which is the earlier of (i) December 31, 2007 and (ii) the
date on which the Company has received written certifications from Moody's and
Standard & Poor's Ratings Services ("S&P") that, upon termination of the Keep
Well Agreement, the ratings on the Company's senior unsecured indebtedness
without the support provided by the Keep Well Agreement will be no lower than
such ratings with the support of the Keep Well Agreement, but in no event may
the Termination Date occur before December 31, 2002. In addition, the Keep
Well Agreement includes certain restrictions on termination relating to the
Company's Series A Preferred Stock and Series C Preferred Stock, which
restrictions are discussed below.
The Keep Well Agreement provides that Fuji Bank will maintain the Company's
stockholders' equity in an amount equal to $500 million. Accordingly, if the
Company should determine, at the close of any month, that its net worth is
less than $500 million, then Fuji Bank will purchase, or cause one of its
subsidiaries to purchase, shares of the Company's NW Preferred Stock, Class B,
no par value (the "NW Preferred Stock"), in an amount necessary to increase
the Company's stockholders' equity to $500 million. The NW Preferred Stock is
a series of Junior Preferred Stock and, accordingly, if and when issued will
rank junior to the Series A Preferred Stock and the Series C Preferred Stock
and senior to the Common Stock as to payment of dividends, and in all other
respects. If and when the NW Preferred Stock is issued, dividends thereon will
be noncumulative and will be payable (if declared) quarterly at a rate per
annum equal to 1% over the three-month LIBOR. Such dividends will not be paid
during a default in the payment of principal or interest on any of the
outstanding indebtedness for money borrowed by the Company. Subject to certain
conditions, the NW Preferred Stock will be redeemable, at the option of the
holder, within a specified period of time after the end of a calendar quarter
in an aggregate amount not greater than the excess of the stockholders' equity
of the Company as of the end of such calendar quarter over $500 million. See
"Description of Capital Stock--Preferred Stock--NW Preferred Stock".
The Keep Well Agreement further provides that if the Company should lack
sufficient cash, other liquid assets or credit facilities to meet its payment
obligations on its commercial paper, then Fuji Bank will lend the Company up
to $500 million, payable on demand, which the Company may use only for the
purpose of meeting such payment obligations. Any such loan by Fuji Bank to the
Company (a "Liquidity Advance") will bear interest at a fluctuating interest
rate per annum equal to the announced prime commercial lending rate of Morgan
Guaranty Trust Company of New York plus 0.25% per annum. Each Liquidity
Advance will be repayable on demand at any time after the business day
following the 29th day after such Liquidity Advance was made. No repayment of
the Liquidity Advance
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will be made during a period of default in the payment of the Company's senior
indebtedness for borrowed money.
No Liquidity Advances or purchases of NW Preferred Stock have been made by
Fuji Bank under the Keep Well Agreement; other infusions of capital in the
Company have been made by Fuji Bank, the last one of which occurred in 1992.
Under the Keep Well Agreement, the Company has covenanted to maintain, and
Fuji Bank has undertaken to assure that the Company will maintain, unused
short-term lines of credit, asset sales facilities and committed credit
facilities in an amount approximately equal to 75% of the amount of its
commercial paper obligations from time to time outstanding.
Neither Fuji Bank nor the Company is permitted to terminate the Keep Well
Agreement for any reason prior to the Termination Date. After the Termination
Date, either Fuji Bank or the Company may terminate the Keep Well Agreement
upon 30 business days' prior written notice, except as set forth below. So
long as the Series A Preferred Stock is outstanding and held by third parties
other than Fuji Bank, the Keep Well Agreement may not be terminated by either
party unless the Company has received written certifications from Moody's and
S&P that upon such termination the Series A Preferred Stock will be rated by
them no lower than "a3" and "A-", respectively. Additionally, so long as the
Series C Preferred Stock is outstanding and held by third parties other than
Fuji Bank, the Keep Well Agreement may not be terminated by either party
unless the Company has received written certifications from Moody's and S&P
that upon such termination the Series C Preferred Stock will be rated no lower
than "baa1" and "BBB" by Moody's and S&P, respectively. For these purposes,
the Series A Preferred Stock and the Series C Preferred Stock will no longer
be deemed outstanding at such time as an effective notice of redemption of all
of the Series A Preferred Stock and the Series C Preferred Stock shall have
been given by the Company and funds sufficient to effectuate such redemption
shall have been deposited with the party designated for such purpose in the
notice. So long as the Series A Preferred Stock is outstanding, if both
Moody's and S&P shall discontinue rating the Series A Preferred Stock, then
Goldman, Sachs & Co., or its successor, shall, within 30 days, select a
nationally recognized substitute rating agency and identify the comparable
ratings from such agency. So long as the Series A Preferred Stock is no longer
outstanding but the Series C Preferred Stock is outstanding, if both Moody's
and S&P shall discontinue rating the Series C Preferred Stock, then Lehman
Brothers Inc., or its successor, shall, within 30 days, select a nationally
recognized substitute rating agency and identify the comparable ratings from
such agency. Any termination of the Keep Well Agreement by the Company must be
consented to by Fuji Bank. Any such termination will not relieve the Company
of its obligations in respect of any NW Preferred Stock outstanding on the
date of termination or the dividends thereon, any amounts owed in respect of
Liquidity Advances on the date of termination or the unpaid principal or
interest on those Liquidity Advances or Fuji Bank's fee relating to the
Liquidity Commitment. Any such termination will not adversely affect the
Company's commercial paper obligations outstanding on the date of termination.
The Keep Well Agreement can be modified or amended by a written agreement of
Fuji Bank and the Company. However, no such modification or amendment may
change the prohibition against termination before the Termination Date or the
other restrictions on termination or adversely affect the Company's then-
outstanding commercial paper obligations.
Under the Keep Well Agreement, the Company's commercial paper obligations
and any other debt instruments are solely the obligations of the Company. The
Keep Well Agreement is not a guarantee by Fuji Bank of the payment of the
Company's commercial paper obligations, indebtedness, liabilities or
obligations of any kind.
REGISTRATION RIGHTS AGREEMENT
The Registration Rights Agreement to be entered into between the Company and
Fuji Bank (the "Registration Rights Agreement") will provide that, upon the
request of any of Fuji Bank, its
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subsidiaries or certain transferees of Common Stock from Fuji Bank or its
subsidiaries (each, a "Qualified Transferee"), the Company will use its
reasonable efforts to effect the registration under the applicable federal and
state securities laws of any of the shares of Class A Common Stock that it may
hold or that are issued or issuable upon conversion of any other security that
it may hold (including the shares of Class B Common Stock) and of any other
securities issued or issuable in respect of the Class A Common Stock, in each
case for sale in accordance with the intended method of disposition of the
holder or holders making such demand for registration, and will take such
other actions as may be necessary to permit the sale thereof in other
jurisdictions, subject to certain specified limitations. Fuji Bank, its
subsidiaries or any Qualified Transferee will also have the right, which it
may exercise at any time and from time to time, subject to certain
limitations, to include any such shares and other securities in other
registrations of equity securities of the Company initiated by the Company on
its own behalf or on behalf of other securityholders of the Company. The
Company will agree to pay all costs and expenses in connection with each such
registration which Fuji Bank, any subsidiary thereof or any Qualified
Transferee initiates or in which any of them participates. The Registration
Rights Agreement will contain indemnification and contribution provisions (i)
by Fuji Bank and its permitted assigns for the benefit of the Company, and
(ii) by the Company for the benefit of Fuji Bank and other persons entitled to
effect registrations of Class A Common Stock pursuant to its terms, and
related persons.
PURCHASE OF INTEREST IN INTERNATIONAL GROUP FROM FUJI BANK
The Company and Fuji Bank have agreed that, upon consummation of the
Offerings, the Company will purchase Fuji Bank's interest in International
Group for total cash consideration of approximately $83 million, $54 million
of which is for the International Group common stock owned by Fuji Bank,
valued at book value, and $29 million of which is for the International Group
preferred stock owned by Fuji Bank, valued at a modest premium over book
value. The shares of common and preferred stock of International Group
currently owned by Fuji Bank represent 21% of the outstanding shares of
capital stock of International Group. The Company intends to finance this
acquisition through the issuance of senior debt, which will bear interest at a
market rate and have such other terms as are determined at the time of
issuance.
CERTAIN OTHER TRANSACTIONS WITH FUJI BANK AND ITS SUBSIDIARIES
Several financial, administrative or other service arrangements exist or
have existed between the Company and Fuji Bank, FAHI, HIC or related
affiliates. In management's opinion, the terms of these arrangements are
similar to those the Company would have been able to obtain in like agreements
with unaffiliated entities in arms-length transactions.
TAX ALLOCATION AGREEMENT
Under the terms of the tax allocation agreement between HIC and the Company,
as amended, which was terminated after 1997, the Company has previously filed,
and will file for 1997, consolidated U.S. federal income tax returns with HIC.
The Company has reported, and will report for 1997, income tax expense as if
it were a separate company and will record future tax benefits as soon as it
is more likely than not that such benefits will be realized. Pursuant to the
tax allocation agreement, each company covered by the agreement calculated its
current and deferred income taxes based on its separate company taxable income
or loss, utilizing separate company net operating losses, tax credits, capital
losses and deferred tax assets or liabilities. In accordance with the
provisions of such tax allocation agreement, net payments of $73 million, $43
million and $70 million were made by the Company to HIC in 1997, 1996 and
1995, respectively, and HIC made income tax payments of $49 million, $23
million and $25 million in 1997, 1996 and 1995, respectively. Under the terms
of other tax allocation agreements with certain of the Company's subsidiaries,
the Company and HIC, in calculating their current income taxes, utilized the
taxable income or loss of the subsidiaries. The Company
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anticipates that it will enter into a similar tax allocation agreement with
FAHI for the period from January 2, 1998 through the date of the consummation
of the Offerings.
SERVICES PROVIDED BY FUJI BANK, HIC AND FAHI FOR THE COMPANY
Certain employees of Fuji Bank and HIC performed managerial, administrative
and other related functions for the Company during 1997. The Company
compensated Fuji Bank and HIC for the use of such individuals' services at a
rate which reflects current costs to Fuji Bank and HIC. The amounts paid to
Fuji Bank and HIC for these services in 1997 were $2 million and $77 million,
respectively. See "Management--Executive Compensation." In conjunction with
the transfer of ownership of the Company to FAHI, the majority of the
employees of HIC who were providing services to the Company were transferred
to the Company. Additionally, certain subsidiaries of Fuji Bank periodically
serve as managers for various offerings of the Company's debt securities and
may act as registrar and paying agent for certain debt issuances by the
Company. These services are provided at market rates. The Company has entered
into similar agreements with FAHI. In the Company's opinion, the amounts to be
paid under such agreements will be significantly less than the amounts paid in
1997.
SERVICES PROVIDED BY THE COMPANY FOR AFFILIATES
The Company performs services for its affiliates, including FAHI, and
charges them for the cost of the work performed. The Company may also
guarantee the obligations of its clients or the clients of certain joint
ventures under letters of credit issued by financial institutions, some of
which are affiliates of the Company. Additionally, the Company guaranteed
payment under a deferred compensation arrangement between HIC and certain of
its employees. The Company had agreements with HIC and certain other
subsidiaries of HIC which provided for the Company to receive an annual
negotiated fee for servicing assets which had been sold by the Company to HIC
and these affiliates. The amount of fees for servicing these assets in 1997
was approximately $200,000.
Heller Capital Markets Group, Inc. ("CMG"), a wholly-owned subsidiary of the
Company, acted as placement agent for the sale of commercial paper issued by
HIC during 1997. CMG received compensation based upon the face amount of the
commercial paper notes sold. For the year ended December 31, 1997, HIC paid
compensation to CMG pursuant to this arrangement of $61,000. The HIC
commercial paper program was terminated during 1997.
INTERCOMPANY RECEIVABLES, PAYABLES, TRANSACTIONS AND FINANCIAL INSTRUMENTS
At December 31, 1997, the net amount due to affiliates was $29 million. This
amount is comprised principally of interest bearing demand notes representing
amounts due to or from the Company arising from an interest rate swap
agreement with HIC, advances, administrative fees and costs charged to other
subsidiaries of HIC. The notes bear interest at rates which approximate the
average rates on the Company's commercial paper obligations or short-term bank
borrowing rates outstanding during the period. During 1997 the Company paid
interest of $3 million to HIC related to these notes.
Fuji Bank and one of its subsidiaries provided uncommitted lines of credit
to international subsidiaries of the Company totalling approximately $29
million at December 31, 1997. Borrowings under these facilities totalled $5
million at December 31, 1997. In addition, Fuji Bank provides lines of credit
to certain international joint ventures of the Company.
The Company is a party to a $200 million notional amount interest rate swap
agreement with FAHI, which expires December 15, 2000. The purpose of this
agreement is to manage the Company's exposure to interest rate fluctuations.
Under this agreement, the Company pays interest to FAHI at a variable rate
based on the commercial paper rate published by the Board of Governors of the
Federal Reserve and FAHI pays interest to the Company at a fixed rate of
5.57%. This agreement, which FAHI assumed from HIC effective January 1998,
increased the Company's interest expense by $295,000 in 1997.
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During 1997, HIC converted all of its shares of Cumulative Convertible
Preferred Stock, Series D (the "Series D Preferred Stock") into common stock
of the Company. Prior to the conversion, the Company paid a dividend to HIC on
the Series D Preferred Stock of approximately $500,000.
Also, during 1997, the Company paid to Fuji Bank a commitment fee of
approximately $317,000, related to the Keep Well Agreement.
The trust department of Fuji Bank may purchase commercial paper of the
Company for its clients. Interest expense paid by the Company related to such
commercial paper borrowings was $235,000 in 1997.
In the ordinary course of its business, the Company participates in joint
financings with Fuji Bank or certain affiliates. During 1997, the Company sold
$10 million of an outstanding $25 million commitment to Fuji Bank at book
value. No gain or loss was recorded on the transaction.
The Company has an accounts receivable sale facility which allows the
Company to sell an undivided interest of up to $550 million in a designated
pool of its factored accounts receivable to five bank-supported conduits. The
Company sold approximately $500 million of receivables under this facility as
of December 31, 1997. The underlying liquidity support for the conduit is
provided by unaffiliated entities. One of the conduits has an operating
agreement with Fuji Bank. The Company paid fees of $346,000 to Fuji Bank
during 1997 for services provided under this agreement.
In conjunction with the formation of FAHI, the Company purchased, at book
value, less than $10 million of assets from HIC on December 31, 1997. These
assets are primarily recorded as real estate receivables at the purchase
price.
On February 15, 1985, the Company issued to HIC 1,000 shares of previously
subscribed Series D Preferred Stock, which had a dividend yield established
quarterly at the rate of 1/2% under the announced prime commercial lending
rate of Morgan Guaranty Trust Company of New York, cumulative from March 30,
1984 and payable quarterly commencing on March 31, 1989. During 1997, HIC
converted all of its shares of Series D Preferred Stock into common stock of
the Company. The conversion was accounted for as a stock dividend and
therefore has been retroactively restated in the Company's consolidated
financial statements. All dividends paid on the Series D Preferred Stock have
been retroactively reclassified to common dividends.
CERTAIN OTHER RELATIONSHIPS
Mr. Kessel, a director of the Company, is a partner of the law firm of
Shearman & Sterling, which from time to time acts as counsel in certain
matters for Fuji Bank, the Company and FAHI.
OWNERSHIP OF COMMON STOCK
FAHI directly owns 100% of the Common Stock outstanding prior to the
Offerings, and as the sole stockholder of FAHI, Fuji Bank is also deemed to
beneficially own 100% of such Common Stock. Upon consummation of the
Offerings, FAHI will directly own 100% of the outstanding Class B Common Stock
and none of the outstanding Class A Common Stock and, by virtue of its
ownership of FAHI, Fuji Bank will also be deemed to beneficially own 100% of
such Class B Common Stock and none of such Class A Common Stock. Accordingly,
upon consummation of the Offerings, FAHI and Fuji Bank will beneficially own
Common Stock representing 60.4% of the economic interest in the Company (57.0%
if the Underwriters' over-allotment options are exercised in full) and, due to
the limitation on the voting power of the Class B Common Stock while held by
Fuji Bank, 79.0% of the combined voting power of all of the outstanding Common
Stock (regardless of whether the Underwriters' over-allotment options are
exercised). See "Certain Relationships and Related Transactions--Relationship
with Fuji Bank".
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The principal executive offices of Fuji Bank are located at 1-5-5 Otemachi,
Chiyoda-ku, Tokyo, Japan. The principal executive offices of FAHI are located
at 500 West Monroe Street, Chicago, Illinois 60661.
As of March 31, 1998, none of the outstanding equity securities of the
Company was held by any of its directors or executive officers.
The following table sets forth, as of March 31, 1998, certain information
with respect to the beneficial ownership of common stock of Fuji Bank, the
Company's ultimate parent, by (i) each director of the Company, (ii) each of
the Named Officers and (iii) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
NAME OF NUMBER OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED
---------------- ------------------
<S> <C>
Richard J. Almeida.......................................... --
Yukihiko Chayama............................................ 701
Tsutomu Hayano.............................................. 11,315
Mark Kessel................................................. --
Michael J. Litwin........................................... --
Dennis P. Lockhart.......................................... --
Lauralee E. Martin.......................................... --
Hideo Nakajima.............................................. 13,428
Osamu Ogura................................................. --
Masahiro Sawada............................................. 2,205
Takeshi Takahashi........................................... 4,000
Atsushi Takano.............................................. 13,714
Kenichiro Tanaka............................................ 4,174
Kenichi Tomita.............................................. 620
Michael P. Goldsmith........................................ --
David J. Kantes (1)......................................... --
Mark A. Abbott.............................................. --
All directors and executive officers as a group (seven
persons)................................................... 50,157
</TABLE>
- --------
(1) Mr. Kantes resigned from the Company effective April 3, 1998.
In addition, Messrs. Chayama, Hayano, Nakajima, Ogura, Sawada, Takahashi,
Takano, Tanaka and Tomita participate in a Fuji Bank employee stock purchase
plan and, as of March 31, 1998, beneficially owned an aggregate of
approximately 34,634 shares of Fuji Bank common stock through this plan.
The number of shares of Fuji Bank common stock that are beneficially owned
by (i) each of the Company's directors, (ii) each of the Named Officers or
(iii) the Company's directors and executive officers as a group, including
those shares held in the Fuji Bank employee stock purchase plan, does not
exceed 1% of the outstanding shares of such stock.
SHARES AVAILABLE FOR FUTURE SALE
Upon consummation of the Offerings, the Company will have 33,500,000 shares
of Class A Common Stock and 51,050,000 shares of Class B Common Stock issued
and outstanding. All of the shares of Class A Common Stock to be sold in the
Offerings will be freely tradeable without restriction under the Securities
Act, except for any shares held by an "affiliate" of the Company (as that term
is defined in Rule 144 adopted under the Securities Act ("Rule 144")), which
will be subject to the resale limitations of Rule 144. Immediately following
the consummation of the Offerings, all of the outstanding shares of Class B
Common Stock will be beneficially owned by Fuji Bank and will not have been
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registered under the Securities Act. Such shares owned by Fuji Bank may be
sold only pursuant to an effective registration statement under the Securities
Act or in accordance with Rule 144 or another exemption from the registration
requirements of the Securities Act. Fuji Bank has certain rights to require
the Company to effect registration of shares of Class A Common Stock, and
certain other securities issued or issuable in respect thereof, owned by Fuji
Bank. See "Certain Relationships and Related Transactions--Relationship with
Fuji Bank--Registration Rights Agreement".
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares
of Common Stock for at least one year, including a person who may be deemed an
"affiliate", is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of (i) one percent (1%) of the total
number of outstanding shares of the class of stock being sold or (ii) the
average weekly reported trading volume of the class of stock being sold during
the four calendar weeks preceding such sale. A person who is not deemed an
"affiliate" of the Company at any time during the three months preceding a
sale and who has beneficially owned shares for at least two years is entitled
to sell such shares under Rule 144 without regard to the volume limitations
described above. As defined in Rule 144, an "affiliate" of an issuer is a
person that directly or indirectly through the use of one or more
intermediaries controls, is controlled by, or is under common control with,
such issuer. Rule 144A under the Securities Act ("Rule 144A") provides a non-
exclusive safe harbor exemption from the registration requirements of the
Securities Act for specified resales of restricted securities to certain
institutional investors. In general, Rule 144A allows unregistered resales of
restricted securities to a "qualified institutional buyer", which generally
includes an entity, acting for its own account or for the account of other
qualified institutional buyers, that in the aggregate owns or invests at least
$100 million in securities of unaffiliated issuers. Rule 144A does not extend
an exemption to the offer or sale of securities that, when issued, were of the
same class as securities listed on a national securities exchange or quoted on
an automated quotation system. The shares of Class B Common Stock outstanding
as of the date of this Prospectus would be eligible for resale under Rule 144A
because such shares, when issued, were not of the same class as any listed or
quoted securities. The foregoing summary of Rule 144 and Rule 144A is not
intended to be a complete description thereof.
Prior to the Offerings, there has been no market for the Class A Common
Stock, and no prediction can be made as to the effect, if any, that market
sales of outstanding shares of Common Stock by Fuji Bank, or the availability
of such shares for sale, will have on the market price of the Class A Common
Stock prevailing from time to time. Nevertheless, sales by Fuji Bank of
substantial amounts of Common Stock in the public market, or the perception
that such sales could occur, could adversely affect prevailing market prices
for the Class A Common Stock offered hereby. See "Risk Factors--Shares
Eligible for Future Sale; Possible Future Sales by Fuji Bank".
Fuji Bank has advised the Company that its current intent is to continue to
hold all of the Common Stock beneficially owned by it following the Offerings.
Fuji Bank, FAHI and the Company have agreed not to sell or otherwise dispose
of any shares of Common Stock for a period of 180 days after the date of this
Prospectus, without the prior written consent of Goldman, Sachs & Co. See
"Underwriting". Prior to the consummation of the Offerings, the Keep Well
Agreement will be amended to allow the Company or Fuji Bank or any of its
affiliates to sell or dispose of Common Stock to any person or entity,
provided that after any such sale or disposition, Fuji Bank (directly or
indirectly, through one or more subsidiaries) continues to hold greater than
50% of the combined voting power of the outstanding Common Stock. This
provision may be subject to further amendment by the Company and Fuji Bank
without the approval of any of the Company's other securityholders. As a
result, there can be no assurance as to the period of time during which Fuji
Bank will continue to maintain the same beneficial ownership of Common Stock
to be beneficially owned by it immediately following the Offerings.
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DESCRIPTION OF CAPITAL STOCK
The following summary of the capital stock of the Company does not purport
to be complete and is subject to, and qualified in its entirety by reference
to, the Company's Amended and Restated Certificate of Incorporation (the
"Restated Certificate") and the Company's Amended and Restated By-Laws (the
"Restated By-Laws"), forms of which have been filed with, and are available
from, the Commission, and to the Delaware General Corporation Law (the
"DGCL").
GENERAL
The Restated Certificate will authorize the Company to issue 852,000,000
shares of capital stock, of which 500,000,000 shares will be designated Class
A Common Stock, $0.25 par value per share, 300,000,000 shares will be
designated Class B Common Stock, par value $0.25 per share, 2,000,000 shares
will be designated preferred stock, no par value per share ("Junior Preferred
Stock"), and 50,000,000 shares will be designated senior preferred stock,
$0.01 par value per share ("Senior Preferred Stock" and, together with the
Junior Preferred Stock, "Preferred Stock") . As of February 24, 1998, there
were no shares of Class A Common Stock and 51,050,000 shares of Class B Common
Stock issued and outstanding. As of March 31, 1998, there were 6,600,000
shares of Preferred Stock authorized and issued or reserved for issuance as
follows: 5,000,000 shares of Series A Preferred Stock, a series of Senior
Preferred Stock, all of which were issued and outstanding; 1,500,000 shares of
Series C Preferred Stock, a series of Senior Preferred Stock, all of which
were issued and outstanding; and 100,000 shares of NW Preferred Stock, a
series of Junior Preferred Stock, none of which were issued and outstanding.
All outstanding shares of Common Stock and Preferred Stock are fully paid and
nonassessable. Of the 500,000,000 authorized shares of Class A Common Stock,
33,500,000 shares are being offered in the Offerings, 51,050,000 shares will
be reserved for issuance upon conversion of shares of Class B Common Stock
into Class A Common Stock, and 4,593,088 shares (plus up to an additional
376,875 shares if the Underwriters' over-allotment options are exercised) will
be reserved for issuance under the Stock Incentive Plan. There will continue
to be 51,050,000 shares of Class B Common Stock outstanding upon consummation
of the Offerings, all of which will be beneficially owned directly by FAHI and
indirectly by Fuji Bank. Upon consummation of the Offerings, all outstanding
shares of Common Stock will be fully paid and nonassessable.
COMMON STOCK
VOTING RIGHTS
The holders of Class A Common Stock and Class B Common Stock generally have
identical rights except that holders of Class A Common Stock are entitled to
one vote per share and holders of Class B Common Stock are entitled to three
votes per share on all matters to be voted on by stockholders, subject to the
right of Fuji Bank or the Class B Transferee (as defined below), as the case
may be, to reduce from time to time the number of votes per share of Class B
Common Stock by written notice to the Company specifying the reduced number of
votes per share. Notwithstanding the foregoing, in the event that at any time
while held by Fuji Bank the shares of Class B Common Stock would represent
greater than 79% of the combined voting power of all outstanding classes of
voting stock of the Company, then for voting purposes the number of votes per
share of Class B Common Stock shall be automatically reduced so that the
shares of Class B Common Stock held by Fuji Bank represent 79% of such
combined voting power. Holders of shares of Class A Common Stock and Class B
Common Stock are not entitled to cumulate their votes for the election of
directors. Generally, all matters to be voted on by stockholders must be
approved by a majority (or, in the case of the election of directors, by a
plurality) of the votes entitled to be cast by all holders of shares of Class
A Common Stock and Class B Common Stock present in person or represented by
proxy, voting together as a single class,
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subject to any voting rights granted to holders of any Preferred Stock. Except
as otherwise provided by law or the Restated Certificate, and subject to any
voting rights granted to holders of any outstanding Preferred Stock,
amendments to the Restated Certificate must be approved by the vote of the
holders of Common Stock having a combined voting power of a majority of all
shares of Class A Common Stock and Class B Common Stock, voting together as a
single class. Amendments to the Restated Certificate that would alter or
change the powers, preferences or special rights of the Class A Common Stock
or the Class B Common Stock so as to affect them adversely also must be
approved by a majority of the votes entitled to be cast by the holders of the
shares adversely affected by the amendment, voting as a separate class.
DIVIDENDS
Holders of Class A Common Stock and Class B Common Stock will share ratably
on a per share basis in any dividends declared by the Board of Directors,
subject to any preferential rights of any outstanding Preferred Stock, except
that holders of Class A Common Stock shall not be entitled to receive the cash
dividend which the Company expects to pay to FAHI, as the sole holder of the
Class B Common Stock, with a portion of the net proceeds of the Offerings. The
Company is prohibited from paying dividends on the Common Stock unless all
declared dividends on all outstanding shares of Series C Preferred Stock and
full cumulative dividends on all outstanding shares of Series A Preferred
Stock have been paid. In the case of dividends or other distributions payable
in Common Stock, including distributions pursuant to stock splits or divisions
of Common Stock, only shares of Class A Common Stock shall be paid or
distributed to holders of shares of Class A Common Stock, and only shares of
Class B Common Stock shall be paid or distributed to holders of Class B Common
Stock. See "Use of Proceeds" and "Dividend Policy".
The Company may not reclassify, subdivide or combine shares of one class of
Common Stock without at the same time proportionally reclassifying,
subdividing or combining shares of the other class of Common Stock.
CONVERSION
Each share of Class B Common Stock is convertible at any time while held by
Fuji Bank and/or any of its subsidiaries or the Class B Transferee (as defined
below) and/or any of its subsidiaries at the option of the holder thereof into
one share of Class A Common Stock.
Except as provided below, any shares of Class B Common Stock transferred to
a person other than Fuji Bank or any of its subsidiaries or the Class B
Transferee or any of its subsidiaries shall automatically convert into shares
of Class A Common Stock upon such disposition. Shares of Class B Common Stock
representing more than a 50% voting interest in the outstanding shares of
Common Stock transferred by Fuji Bank and/or any of its subsidiaries in a
single transaction or series of related transactions to one unaffiliated
person (the "Class B Transferee") and/or any of its subsidiaries shall not
automatically convert into shares of Class A Common Stock upon such
disposition. Any shares of Class B Common Stock retained by Fuji Bank or any
of its subsidiaries following any such disposition of more than a 50% voting
interest in the outstanding shares of Common Stock to the Class B Transferee
and/or any of its subsidiaries shall automatically convert into shares of
Class A Common Stock upon such disposition.
All shares of Class B Common Stock will automatically convert into Class A
Common Stock if the number of outstanding shares of Class B Common Stock
beneficially owned by Fuji Bank and its subsidiaries or the Class B Transferee
and its subsidiaries, as the case may be, falls below 30% of the aggregate
number of outstanding shares of Common Stock. This will prevent Fuji Bank and
its subsidiaries or the Class B Transferee and its subsidiaries, as the case
may be, from decreasing their economic interest in the Company to less than
30% while still retaining control of a majority of the
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Company's voting power. The foregoing automatic conversion is intended to
ensure that Fuji Bank and/or its subsidiaries or the Class B Transferee and/or
its subsidiaries, as the case may be, retain voting control by virtue of their
ownership of Class B Common Stock only if they continue to have a significant
economic interest in the Company. All conversions will be effected on a share-
for-share basis.
OTHER RIGHTS
In the event of any merger, reorganization or consolidation of the Company
with or into another entity in connection with which shares of Common Stock
are converted into or exchangeable for shares of stock, other securities or
property (including cash), all holders of Common Stock, regardless of class,
will be entitled to receive the same kind and amount of shares of stock and
other securities and property (including cash), except that shares of stock or
other securities receivable upon such reorganization, consolidation or merger
by a holder of a share of Class B Common Stock may differ from the shares of
stock or other securities receivable upon such reorganization, consolidation
or merger by a holder of a share of Class A Common Stock to the extent that
the Class B Common Stock and Class A Common Stock differ as provided in the
Restated Certificate.
On liquidation, dissolution or winding up of the Company, after payment in
full of the amounts required to be paid to holders of Preferred Stock, if any,
all holders of Common Stock, regardless of class, are entitled to share
ratably in any assets available for distribution to holders of shares of
Common Stock.
No shares of either class of Common Stock are subject to redemption. Shares
of Class A Common Stock do not have preemptive rights to purchase additional
shares. Holders of shares of Class B Common Stock have preemptive rights to
subscribe for and receive additional securities of the Company upon all
additional issuances by the Company of shares of Class A Common Stock, or any
other securities convertible into shares of Class A Common Stock (other than
in connection with certain issuances pursuant to employee stock or stock
option benefit plans or in connection with any stock split or stock dividend),
such that such holder of Class B Common Stock may, by purchasing such
additional securities, maintain the percentage beneficial ownership interest
(including voting and economic interest) it had immediately prior to such
issuance.
PREFERRED STOCK
Under the Restated Certificate, the Board of Directors of the Company may
provide for the issuance of Senior Preferred Stock or Junior Preferred Stock
in one or more series from time to time, and the rights, preferences,
privileges and restrictions, including dividend rights, voting rights,
conversion rights, terms of redemption and liquidation preferences, of the
Senior Preferred Stock or Junior Preferred Stock of each series will be fixed
or designated by the Board of Directors pursuant to a certificate of
designation without any further vote or action by the Company's stockholders,
except as required pursuant to the terms of the Series A Preferred Stock and
Series C Preferred Stock.
SERIES A PREFERRED STOCK
Dividends on the Series A Preferred Stock are payable at an annual rate of
8.125%. Dividends are cumulative and payable quarterly. The Company is
prohibited from declaring or paying cash dividends on Common Stock, Junior
Preferred Stock or other series of Senior Preferred Stock on parity with the
Series A Preferred Stock, unless full cumulative dividends on all outstanding
shares of Series A Preferred Stock for all past dividend periods have been
paid. The Series A Preferred Stock is not redeemable prior to September 22,
2000. On or after that date, the Series A Preferred Stock will be redeemable
at the option of the Company, in whole or in part, at a redemption price of
$25 per share, plus accrued and unpaid dividends. Except as required by law
and as set forth herein, the holders of
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Series A Preferred Stock have no voting rights. In case the Company shall be
in arrears in the payment of six consecutive quarterly dividends on the
outstanding Series A Preferred Stock, the holders of Series A Preferred Stock,
voting separately as a class and in addition to any voting rights that holders
of the Series A Preferred Stock shall have as required by law, shall have the
exclusive right to elect two additional directors beyond the number to be
elected by the stockholders at the next annual meeting of the stockholders
called for the election of directors, and at every subsequent such meeting at
which the terms of office of the directors so elected by the Series A
Preferred Stock expire, provided such arrearage exists on the date of such
meeting or subsequent meetings, as the case may be. Any such elected directors
shall serve until the dividend default shall cease to exist. In addition,
without the vote of the holders of at least two-thirds of the outstanding
shares of Series A Preferred Stock, the Company shall not (i) issue, from any
class or series of stock now existing or to be created in the future, any
shares of stock ranking senior to the outstanding shares of Series A Preferred
Stock as to the payment of dividends and upon liquidation or (ii) amend the
Restated Certificate or the Restated By-laws, as amended, if such amendment
would increase or decrease the aggregate number of authorized shares of Series
A Preferred Stock, increase or decrease the par value of the shares of Series
A Preferred Stock or alter or change the powers, preferences or special rights
of the Series A Preferred Stock so as to affect the holders of the Series A
Preferred Stock adversely. The Series A Preferred Stock carries a liquidation
preference of $25 per share, plus accrued and unpaid dividends. The Series A
Preferred Stock ranks senior with respect to payment of dividends and
liquidation preferences to the Common Stock and Junior Preferred Stock.
SERIES C PREFERRED STOCK
Dividends on the Series C Preferred Stock are noncumulative and, if declared
by the Board of Directors or a duly authorized committee thereof, will be
payable quarterly at an annual rate of 6.687%. The amount of dividends payable
will be adjusted in the event of certain amendments to the Internal Revenue
Code of 1986, as amended, in respect of the dividends received reduction. The
Company is prohibited from declaring or paying cash dividends on Common Stock,
Junior Preferred Stock or other series of Senior Preferred Stock on parity
with the Series C Preferred Stock, unless all declared dividends on all
outstanding shares of Series C Preferred Stock for all past dividend periods
have been paid. The Series C Preferred Stock is not redeemable prior to August
15, 2007. On or after that date, the Series C Preferred Stock will be
redeemable at the option of the Company, in whole or in part, at a redemption
price of $100 per share, plus accrued and unpaid dividends (whether or not
declared) for the then-current dividend period and, if declared, accrued and
unpaid dividends for prior dividend periods. Except as required by law and as
set forth herein, the holders of Series C Preferred Stock have no voting
rights. If dividends payable on any share or shares of the Series C Preferred
Stock or on any other class or series of Senior Preferred Stock for which
dividends are noncumulative ("Noncumulative Preferred Stock") ranking on a
parity with the Series C Preferred Stock and upon which like voting rights
have been conferred and are exercisable (excluding any class or series of
Noncumulative Preferred Stock entitled to elect additional directors by a
separate vote, "Voting Preferred Stock") have not been paid or declared and
set aside for payment for the equivalent of six full quarterly dividend
periods (whether or not consecutive), the number of directors of the Company
will be increased by two (without duplication of any increase made pursuant to
the terms of any other class or series of Voting Preferred Stock), and the
holders of the Series C Preferred Stock, voting as a single class with the
holders of the Voting Preferred Stock, will be entitled to elect such two
directors to fill such newly-created directorships. Such right of the holders
of the Series C Preferred Stock and the Voting Preferred Stock shall continue
until dividends on the Series C Preferred Stock and the Voting Preferred Stock
have been paid or declared and set apart for payment regularly for at least
one year (i.e., four consecutive full quarterly dividend periods). Any such
elected directors shall serve until the Company's next annual meeting of
stockholders and until their respective successors are elected and qualified
(notwithstanding that prior to the end of such term the dividend default shall
cease to exist). In addition, the affirmative vote or consent of the holders
of at least two-thirds of the outstanding
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shares of the Series C Preferred Stock will be required for any amendment,
alteration or repeal of any provisions of the Restated Certificate or of any
other certificate amendatory of or supplemental to the Restated Certificate
which would adversely affect the powers, preferences, privileges or rights of
the Series C Preferred Stock. The affirmative vote or consent of the holders
of at least two-thirds of the outstanding shares of the Series C Preferred
Stock and any other series of Noncumulative Preferred Stock ranking on a
parity with the Series C Preferred Stock either as to dividends or upon
liquidation, voting as a single class without regard to series, will be
required to issue, authorize or increase the authorized amount of, or issue or
authorize any obligation or security convertible into or evidencing a right to
purchase, any additional class or series of stock ranking prior to the Series
C Preferred Stock as to dividends or upon liquidation, or to reclassify any
authorized stock of the Company into such prior shares, but such vote will not
be required for the Company to take any such actions with respect to any stock
ranking on a parity with or junior to the Series C Preferred Stock. The Series
C Preferred Stock is entitled to a liquidation preference of $100.00 per
share, plus an amount equal to the sum of all accrued and unpaid dividends
(whether or not earned or declared) for the then-current dividend period to
the date of final distribution (without accumulation of accrued and unpaid
dividends for prior dividend periods unless previously declared), that is
senior to payments to holders of the Common Stock, the Junior Preferred Stock
or any other class or series of stock of the Company ranking junior to the
Series C Preferred Stock and pari passu with payments to holders of each other
series of Senior Preferred Stock outstanding on the date of original issue of
the Series C Preferred Stock.
NW PREFERRED STOCK
The Company has authorized the issuance of 100,000 shares of NW Preferred
Stock pursuant to the Keep Well Agreement wherein, among other things, Fuji
Bank has agreed to purchase NW Preferred Stock in an amount required to
maintain the Company's net worth at $500 million. The Company's net worth was
approximately $1.7 billion at December 31, 1997. If and when the NW Preferred
Stock is issued, dividends will be payable thereon at an annual rate equal to
1% per annum above the three-month rate at which deposits in United States
dollars are offered by Fuji Bank in London, England to prime banks in the
London interbank market. Dividends on the NW Preferred Stock will be
noncumulative and payable (if declared) quarterly, and the Company will be
prohibited from paying cash dividends on the Common Stock unless full
dividends for the then-current dividend period (without accumulation of
accrued and unpaid dividends for prior dividend periods unless previously
declared) on all outstanding shares of NW Preferred Stock have been declared
and paid or declared and a sum sufficient set aside for such payment. Subject
to certain conditions, NW Preferred Stock will be redeemable at the option of
the holder, in whole or in part, within a specified period of time after the
end of a calendar quarter in an aggregate amount not greater than the excess
of the net worth of the Company as of the end of such calendar quarter over
$500 million and at a redemption price equal to the price paid to the Company
upon the issuance thereof, plus accrued and unpaid dividends for the then-
current dividend period (without accumulation of accrued and unpaid dividends
for prior dividend periods unless previously declared). Except as required by
law, the holders of NW Preferred Stock will have no voting rights. The NW
Preferred Stock will carry a liquidation preference equal to the price paid
for each share upon issuance thereof, plus accrued and unpaid dividends for
the then-current dividend period (without accumulation of accrued and unpaid
dividends for prior dividend periods unless previously declared). The NW
Preferred Stock will rank senior to the Common Stock and junior to the Senior
Preferred Stock with respect to payment of dividends and liquidation
preference. No purchases of NW Preferred Stock have been made to date by Fuji
Bank under the Keep Well Agreement.
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CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS
CORPORATE OPPORTUNITIES
The Restated Certificate will provide that Fuji Bank shall have no duty to
refrain from engaging in the same or similar activities or lines of business
as the Company, and neither Fuji Bank nor any director, officer or other
employee thereof (except as provided below) will be liable to the Company or
its stockholders for breach of any fiduciary duty by reason of any such
activities of Fuji Bank. In the event that Fuji Bank acquires knowledge of a
potential transaction or matter which may be a corporate opportunity for both
Fuji Bank and the Company, Fuji Bank shall have no duty to communicate or
offer such corporate opportunity to the Company and shall not be liable to the
Company or its stockholders for breach of any fiduciary duty as a stockholder
of the Company by reason of the fact that Fuji Bank pursues or acquires such
corporate opportunity for itself, directs such corporate opportunity to
another person or does not communicate information regarding such corporate
opportunity to the Company.
In the event that a director, officer or other employee of the Company who
is also a director or officer or other employee of Fuji Bank acquires
knowledge of a potential transaction or matter which may be a corporate
opportunity for both the Company and Fuji Bank, such director, officer or
other employee of the Company shall have fully satisfied and fulfilled the
fiduciary duty of such director, officer or other employee of the Company and
its stockholders with respect to such corporate opportunity if such director,
officer or other employee acts in a manner consistent with the following
policy:
(i) a corporate opportunity offered to any person who is an officer or
other employee of the Company, and who is also a director but not an
officer or other employee of Fuji Bank, shall belong to the Company;
(ii) a corporate opportunity offered to any person who is a director but
not an officer or other employee of the Company, and who is also a director
or officer or other employee of Fuji Bank, shall belong to the Company if
such opportunity is expressly offered to such person in writing solely in
his or her capacity as a director of the Company, and otherwise shall
belong to Fuji Bank; and
(iii) a corporate opportunity offered to any person who is an officer or
other employee of both the Company and Fuji Bank, or an officer of one and
a non-officer employee of the other, shall belong to the Company if such
opportunity is expressly offered to such person in writing solely in his or
her capacity as an officer or employee of the Company, and otherwise shall
belong to Fuji Bank.
For purposes of the foregoing:
(i) A director of the Company who is Chairman of the Board of Directors
or of a committee thereof shall not be deemed to be an officer or employee
of the Company by reason of holding such position (without regard to
whether such position is deemed an officer of the Company under the
Restated By-Laws), unless such person is a full-time employee of the
Company; and
(ii)(A) The term "Company" shall mean the Company and all corporations,
partnerships, joint ventures, associations and other entities controlled
directly or indirectly by the Company through the ownership of the
outstanding voting power of such corporation, partnership, joint venture,
association or other entity or otherwise and (B) the term "Fuji Bank" shall
mean Fuji Bank and all corporations, partnerships, joint ventures,
associations and other entities (other than the Company, defined in
accordance with clause (A) of this section (ii)) controlled (directly or
indirectly) by Fuji Bank through the ownership of the outstanding voting
power of such corporation, partnership, joint venture, association or other
entity or otherwise.
The foregoing provisions of the Restated Certificate will expire on the date
that Fuji Bank ceases to own beneficially Common Stock representing at least
30% of the voting power of all classes of outstanding Common Stock and no
person who is a director, officer or employee of the Company is also a
director, officer or employee of Fuji Bank or any of its subsidiaries (other
than the Company).
95
<PAGE>
Any person purchasing or otherwise acquiring Common Stock will be deemed to
have notice of, and to have consented to, the foregoing provisions of the
Restated Certificate.
PROVISIONS THAT MAY HAVE AN ANTI-TAKEOVER EFFECT
Certain provisions to be contained in the Restated Certificate and the
Restated By-Laws summarized below may be deemed to have an anti-takeover
effect and may delay, deter or prevent a tender offer or takeover attempt that
a stockholder might consider to be in its best interest, including an attempt
that might result in a premium being paid over the market price for the shares
held by stockholders.
The Restated By-Laws will provide that subject to any rights of holders of
Preferred Stock to elect additional directors under specified circumstances,
the number of directors will be fixed from time to time exclusively by
resolution of the Board of Directors adopted by the affirmative vote of
directors constituting not less than a majority of the total number of the
directors that the Company would have if there were no vacancies on the
Company's Board of Directors, but shall consist of not more than 16 nor less
than eight directors. In addition, the Restated Certificate and Restated By-
Laws will provide that, subject to any rights of holders of Preferred Stock,
any vacancies, other than vacancies occurring by reason of removal by the
stockholders, may be filled by the affirmative vote of a majority of the
remaining members of the Board of Directors, though less than a quorum, or by
a sole remaining director, and except as otherwise provided by law, any such
vacancy may not be filled by the stockholders.
The Restated By-Laws will provide for an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors as well as for other stockholder
proposals to be considered at annual meetings of stockholders. In general,
notice of intent to nominate a director or raise matters at such meetings will
have to be received in writing by the Company at its principal executive
offices not less than 90 days prior to the first anniversary of the date of
the previous year's annual meeting of stockholders, subject to adjustment in
certain situations, and must contain certain information concerning the person
to be nominated or the matters to be brought before the meeting and concerning
the stockholder submitting the proposal. The Restated Certificate and the
Restated By-Laws will also provide that special meetings of stockholders may
be called only by certain specified officers of the Company or by the
Secretary of the Company at the request of a majority of the total members of
the Board of Directors; special meetings of stockholders cannot be called by
stockholders. In addition, the Restated By-laws will provide that any action
required or permitted to be taken by stockholders may be effected by written
consent; provided, however, that on and after the date on which neither Fuji
Bank and its subsidiaries nor the Class B Transferee and its subsidiaries
continue to beneficially own more than 50% of the total voting power of the
outstanding Common Stock, any action required or permitted to be taken by
stockholders may be effected only at a duly called annual or special meeting
of stockholders and may not be effected by a written consent by stockholders
in lieu of such a meeting.
The Company's Restated Certificate will also provide that, subject to the
rights of holders of Preferred Stock, the affirmative vote of the holders of
at least 66 2/3% of the total voting power of all classes of outstanding
Common Stock, voting together as a single class, is required to amend, repeal
or adopt any provision inconsistent with the foregoing provisions of the
Restated Certificate. The Restated Certificate and the Restated By-Laws will
further provide that, subject to the rights of holders of Preferred Stock, the
Restated By-Laws may be altered, amended or repealed by the affirmative vote
of directors constituting not less than a majority of the entire Board of
Directors (if effected by action of the Board of Directors) or by the
affirmative vote of the holders of at least 66 2/3% of the total voting power
of all outstanding Common Stock, voting together as a single class (if
effected by action of the stockholders).
Upon the consummation of the Offerings, the Company will be subject to the
provisions of Section 203 of the DGCL. In general, this statute prohibits a
publicly held Delaware corporation from engaging, under certain circumstances,
in a "business combination" with an "interested stockholder" for a period
96
<PAGE>
of three years after the date of the transaction in which the person becomes
an interested stockholder,
unless either (i) prior to the date at which the stockholder becomes an
interested stockholder the board of directors approved either the business
combination or the transaction in which the person becomes an interested
stockholder, (ii) the stockholder acquires more than 85% of the outstanding
voting stock of the corporation (excluding shares held by directors who are
officers or held in certain employee stock plans) upon consummation of the
transaction in which the stockholder becomes an interested stockholder or
(iii) the business combination is approved by the board of directors and by
two-thirds of the outstanding voting stock of the corporation (excluding
shares held by the interested stockholder) at a meeting of the stockholders
(and not by written consent) held on or subsequent to the date of the business
combination. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or at any time within the prior three years
did own) 15% or more of the corporation's voting stock. Section 203 defines a
"business combination" to include, without limitation, mergers,
consolidations, stock sales and asset based transactions and other
transactions resulting in a financial benefit to the interested stockholder.
LIMITATIONS ON DIRECTORS' LIABILITY
The Company's Restated Certificate will provide that no director of the
Company shall be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases or (iv)
for any transaction from which the director derived an improper personal
benefit. The effect of these provisions will be to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of
fiduciary duty as a director (including breaches resulting from grossly
negligent behavior), except in the situations described above.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock will be The
Bank of New York.
VALIDITY OF SHARES OF CLASS A COMMON STOCK
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Katten Muchin & Zavis, Chicago, Illinois, and
for the Underwriters by Sullivan & Cromwell, New York, New York. Upon
consummation of the Offerings, certain partners of, and attorneys associated
with, Katten Muchin & Zavis will own less than 1% of the outstanding shares of
Class A Common Stock.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated balance sheets of the Company as of December 31, 1997 and
1996 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997 included in this Prospectus have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
97
<PAGE>
HELLER FINANCIAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996.............. F-3
Consolidated Statements of Income for the Years Ended December 31, 1997,
1996 and
1995..................................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995...................................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Heller Financial, Inc.:
We have audited the accompanying consolidated balance sheets of HELLER
FINANCIAL, INC. (a Delaware corporation) AND SUBSIDIARIES as of December 31,
1997 and 1996, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. 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 financial position of Heller Financial, Inc. and
Subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Chicago, Illinois
January 23, 1998
(Except with respect to the
matters discussed in Notes 20
and 21, as to which the date
is February 24, 1998)
F-2
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
ASSETS 1997 1996
------ ------- ------
(IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents....................................... $ 821 $ 296
Receivables (Note 3)
Commercial loans
Term loans.................................................. 2,597 2,434
Revolving loans............................................. 1,674 1,493
Real estate loans............................................. 2,238 1,994
Factored accounts receivable.................................. 2,223 994
Equipment loans and leases.................................... 1,990 1,614
------- ------
Total receivables........................................... 10,722 8,529
Less: Allowance for losses of receivables (Note 3)............ 261 225
------- ------
Net receivables............................................. 10,461 8,304
Equity and real estate investments (Note 4)..................... 488 419
Debt securities (Note 4)........................................ 311 251
Operating leases (Note 4)....................................... 195 135
Investments in international joint ventures (Note 4)............ 198 272
Other assets (Note 4)........................................... 387 249
------- ------
Total assets................................................ $12,861 $9,926
======= ======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Senior debt (Note 5)
Commercial paper and short-term borrowings.................... $ 3,432 $2,745
Notes and debentures.......................................... 6,004 4,761
------- ------
Total debt.................................................. 9,436 7,506
Credit balances of factoring clients............................ 1,255 590
Other payables and accruals..................................... 405 306
------- ------
Total liabilities........................................... 11,096 8,402
Minority interest............................................... 87 57
Stockholders' equity (Notes 9 and 10)
Cumulative Perpetual Senior Preferred Stock, Series A......... 125 125
Noncumulative Perpetual Senior Preferred Stock, Series B...... 150 --
Class A Common Stock ($.25 par; 500,000,000 shares authorized;
no shares issued or outstanding) (Note 20)................... -- --
Class B Common Stock ($.25 par; 300,000,000 shares authorized;
51,050,000 shares issued and outstanding) (Notes 9 and 20)... 13 13
Additional paid in capital.................................... 672 675
Retained earnings............................................. 718 654
------- ------
Total stockholders' equity.................................. 1,678 1,467
------- ------
Total liabilities and stockholders' equity.................. $12,861 $9,926
======= ======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-3
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER
31,
-----------------
1997 1996 1995
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Interest income.............................................. $ 924 $ 807 $ 851
Interest expense............................................. 516 452 464
----- ----- -----
Net interest income........................................ 408 355 387
Fees and other income (Note 11).............................. 206 79 148
Factoring commissions........................................ 104 55 50
Income of international joint ventures....................... 36 44 35
----- ----- -----
Operating revenues......................................... 754 533 620
Operating expenses (Note 12)................................. 357 247 216
Provision for losses (Note 3)................................ 164 103 223
----- ----- -----
Income before taxes and minority interest.................. 233 183 181
Income tax provision (Note 14)............................... 66 43 49
Minority interest............................................ 9 7 7
----- ----- -----
Net income................................................. $ 158 $ 133 $ 125
===== ===== =====
Dividends on preferred stock............................... $ 14 $ 10 $ 10
===== ===== =====
Net income applicable to common stock...................... $ 144 $ 123 $ 115
===== ===== =====
Basic and diluted net income applicable to common stock per
share
(Note 21) ................................................ $2.82 $2.41 $2.25
===== ===== =====
Pro forma basic and diluted net income applicable to common
stock (Note 22) (unaudited)............................... $1.70
=====
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-4
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
1997 1996 1995
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................................ $ 158 $ 133 $ 125
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for losses............................ 164 103 223
Losses from equity investments.................. 50 103 59
Amortization and depreciation................... 23 14 11
Provision for deferred tax asset (benefit)...... (19) 12 (50)
Increase (decrease) in accounts payable and
accrued liabilities............................ 29 (1) 34
Undistributed income of international joint
ventures....................................... (19) (38) (26)
Increase (decrease) in interest payable......... 11 (11) 12
Other........................................... 9 (36) (4)
------- ------- -------
Net cash provided by operating activities..... 406 279 384
INVESTING ACTIVITIES
Longer-term loans funded.......................... (5,311) (3,372) (3,202)
Collections of principal.......................... 2,904 2,521 2,248
Loan sales, securitizations and syndications...... 2,238 757 708
Net increase in short-term loans and advances to
factoring clients
Due to consolidation of Factofrance............. (1,018) -- --
Other........................................... (526) (427) (510)
Investment in operating leases.................... (119) (33) (14)
Investment in equity interests and other
investments...................................... (369) (272) (172)
Sales of investments and equipment on lease....... 365 168 148
Factofrance goodwill and noncompetition agreement. (96) -- --
Other............................................. 26 3 (17)
------- ------- -------
Net cash used for investing activities........ (1,906) (655) (811)
FINANCING ACTIVITIES
Senior note issues................................ 2,599 976 1,674
Retirement of notes and debentures................ (1,411) (1,358) (459)
Increase (decrease) in commercial paper and other
short-term borrowings
Due to consolidation of Factofrance............. 966 -- --
Other........................................... (279) 522 (228)
Proceeds from preferred stock issuance............ 147 -- --
Net decrease in advances to affiliates............ 49 5 4
Dividends paid on preferred and common stock...... (57) (68) (64)
Other............................................. 11 (4) --
------- ------- -------
Net cash provided by financing activities..... 2,025 73 927
Increase (decrease) in cash and cash equivalents.... 525 (303) 500
Cash and cash equivalents at the beginning of the
year............................................... 296 599 99
------- ------- -------
Cash and cash equivalents at the end of the year.... $ 821 $ 296 $ 599
======= ======= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-5
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NONCUM.
PERP. CLASS CLASS
SR. A B
PERPETUAL PREF. COMMON COMMON
SR. PREF. STOCK STOCK STOCK ADD'L
STOCK SERIES (NOTE (NOTE PAID IN RETAINED
SERIES A B 20) 20) CAPITAL EARNINGS TOTAL
--------- ------- ------ ------ ------- -------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1994................... $125 -- -- $13 $675 $517 $1,330
Net income.............. -- -- -- -- -- 125 125
Preferred stock
dividends (Notes 9 and
10).................... -- -- -- -- -- (10) (10)
Common stock dividends
(Note 10).............. -- -- -- -- -- (54) (54)
Changes in unrealized
gains and losses on
securities available
for sale, net of tax
(Note 4)............... -- -- -- -- -- (10) (10)
Change in deferred
translation adjustment,
net of tax............. -- -- -- -- -- 3 3
---- ---- ---- --- ---- ---- ------
BALANCE AT DECEMBER 31,
1995................... $125 -- -- $13 $675 $571 $1,384
Net income.............. -- -- -- -- -- 133 133
Preferred stock
dividends (Notes 9 and
10).................... -- -- -- -- -- (10) (10)
Common stock dividends
(Note 10).............. -- -- -- -- -- (58) (58)
Changes in unrealized
gains and losses on
securities available
for sale, net of tax
(Note 4)............... -- -- -- -- -- 18 18
Change in deferred
translation adjustment,
net of tax............. -- -- -- -- -- -- --
---- ---- ---- --- ---- ---- ------
BALANCE AT DECEMBER 31,
1996................... $125 -- -- $13 $675 $654 $1,467
Net income.............. -- -- -- -- -- 158 158
Issuance of
Noncumulative Perpetual
Senior Preferred Stock,
Series B (Note 9)...... -- 150 -- -- (3) -- 147
Preferred stock
dividends (Notes 9 and
10).................... -- -- -- -- -- (14) (14)
Common stock dividends
(Note 10).............. -- -- -- -- -- (69) (69)
Changes in unrealized
gains and losses on
securities available
for sale, net of tax
(Note 4)............... -- -- -- -- -- (5) (5)
Change in deferred
translation adjustment,
net of tax............. -- -- -- -- -- (6) (6)
---- ---- ---- --- ---- ---- ------
BALANCE AT DECEMBER 31,
1997................... $125 $150 $-- $13 $672 $718 $1,678
==== ==== ==== === ==== ==== ======
</TABLE>
The retained earnings balance included $8 of unrealized gains, $13 of
unrealized gains and $5 of unrealized losses on securities available for sale
at December 31, 1997, 1996 and 1995, respectively. Retained earnings also
included deferred foreign currency translation adjustments, net of tax, of
$(20), $(14) and $(14) at December 31, 1997, 1996 and 1995, respectively.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-6
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Reporting Entity--
Heller Financial, Inc. and its subsidiaries (the "Company") are engaged
principally in furnishing commercial finance services to businesses in the
United States and investing in and operating commercial finance companies
throughout the world. The Company operates in the middle and emerging middle
market segments of the commercial finance industry, which generally includes
entities in the manufacturing and service sectors with annual sales in the
range of $5 million to $250 million and in the real estate sector with
property values generally in the range of $1 million to $40 million. The
Company currently provides services in five product categories: 1) asset based
finance, 2) corporate finance, 3) real estate finance, 4) international asset
based finance and factoring and 5) project finance.
During 1997, all of the common stock of the Company was owned by Heller
International Corporation ("HIC"), which is a wholly-owned subsidiary of The
Fuji Bank, Limited ("Fuji Bank"), of Tokyo, Japan. Fuji Bank directly owned
21% of the outstanding shares of Heller International Group, Inc.
("International Group"), a consolidated subsidiary, through which the Company
holds its international operations. The remaining 79% of the outstanding
shares of International Group were owned by the Company. See Note 20 for the
potential purchase by the Company of Fuji Bank's 21% interest in International
Group.
Effective January 2, 1998, Fuji Bank formed Fuji America Holdings, Inc.
("FAHI"), to combine Fuji Bank's United States non-bank operations under one
holding company. On that day, Fuji Bank transferred ownership of the Company
from HIC to FAHI. As of January 2, 1998, all of the outstanding Common Stock
of the Company is owned by FAHI.
Basis of Presentation--
The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Investments
in affiliated companies owned 50% or less are accounted for by the equity
method. Certain temporary interests are included in investments and carried at
cost.
Use of Estimates--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents--
Cash and cash equivalents consist of cash deposits maintained in banks and
short-term debt securities with original maturities of less than 60 days.
F-7
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Receivables--
Receivables are presented net of unearned income which generally includes
deferred loan origination and commitment fees, direct loan origination costs
and other amounts attributed to the fair value of equity interests and other
investments received in connection with certain financings. These amounts are
amortized to interest income using the effective interest method over the life
of the related loan or commitment period.
The Company originates certain loans which may be syndicated or portions
sold to participants to manage borrower, industry or product concentrations.
These receivables are also presented net of unearned income. In the event the
Company sells a portion of a loan that it had originated, any deferred fees or
discounts relating to the portion of the loan sold are recognized in interest
income. For loan sales that qualify as participations, income is recognized,
subject to certain yield tests, when the participation is complete.
Income recognition is reviewed on an account by account basis. Collateral is
evaluated regularly, primarily by assessing the related current and future
cash flow streams. Loans are classified as nonearning and all interest and
unearned income amortization is suspended when there is significant doubt as
to the ability of the debtor to meet current contractual terms. Numerous
factors including loan covenant defaults, deteriorating loan-to-value
relationships, delinquencies greater than 90 days, the sale of major income
generating assets or other major operational or organizational changes may
lead to income suspension. An account taken nonearning may be restored to
earning status either when all delinquent principal and interest have been
paid under the original contractual terms or the account has been restructured
and has demonstrated both the capacity to service the amended terms of the
debt and has adequate loan to value coverage.
Allowance for Losses--
The allowance for losses of receivables is established through direct
charges to income. Losses are charged to the allowance when all or a portion
of a receivable is deemed impaired and uncollectible as determined by account
management procedures. These procedures include assessing how the borrower is
affected by economic and market conditions, evaluating operating performance
and reviewing loan-to-value relationships. Impaired receivables are measured
based on the present value of expected future cash flows discounted at the
receivable's effective interest rate, at the observable market price of the
receivable or at the fair value of the collateral if the receivable is
collateral dependent. When the recorded balance of an impaired receivable
exceeds the relevant measure of value, impairment is recorded through an
increase in the provision for losses.
Management evaluates the allowance for losses on a quarterly basis.
Nonearning assets and loans with certain loan grading characteristics are
reviewed to determine if there is a potential risk of loss under varying
scenarios of performance. The estimates of potential loss for these individual
loans are aggregated and added to a general allowance requirement, which is
based on the total of all other loans in the portfolio. This total allowance
requirement is then compared to the existing allowance for losses and
adjustments are made, if necessary.
Securitized Receivables--
Certain commercial mortgage and equipment loans have been securitized and
sold to investors. In the securitization process, loans are originated and
sold to trusts which, in turn, issue asset-backed securities to investors.
Upon the sale of the loans in a securitization, a gain is recognized for the
F-8
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
difference between the carrying value of the receivables and the fair value of
the securities sold, in accordance with Statement of Financial Accounting
Standards 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" ("SFAS 125"). If the Company does not retain
any risk in the transaction and sells all of the securities to third party
investors on a nonrecourse basis, the gain recorded equals the proceeds on the
transaction less the carrying value of the securities sold. If the Company
retains any of the securities, then the gain on sale is reduced by any reserve
established for estimated future losses. Retained securities, if any, are
recorded as debt securities available for sale. The gain recognized is
recorded in fees and other income. In general, the Company does not establish
servicing assets or liabilities because in securitization transactions to date
the servicing fees earned are considered consistent with market rates and the
Company's cost of servicing. Income from the acceleration of discounts and
deferred fees attributed to the loans sold is recorded as interest income.
The Company adopted SFAS 125 as amended by Statement of Financial Accounting
Standards No. 127, "Deferral of the Effective Date of Certain Provisions of
FASB Statement No. 125" on January 1, 1997, collectively referred to as SFAS
125. Under this Statement, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities
it has incurred, derecognizes financial assets when control has been
surrendered and derecognizes liabilities when extinguished. This Statement
provides standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. Securitizations of finance
receivables are accounted for as sales when legal and effective control over
the related receivables is surrendered. Servicing assets or liabilities are
recognized when the servicing rights are retained by the seller. The adoption
of this pronouncement did not have a material impact on the Company's
consolidated financial statements.
Investments in Joint Ventures--
Investments in unconsolidated joint ventures represent investments in
companies with operations in 15 foreign countries. The Company accounts for
its investments in joint ventures under the equity method of accounting. Under
this method, the Company recognizes its share of the earnings or losses of the
joint venture in the period in which they are earned by the joint venture.
These amounts are recorded as income of international joint ventures in the
consolidated statements of income. Dividends received from joint ventures
reduce the carrying amount of the investment.
Investments--
Equity interests and investments--Investments in warrants, certain common
and preferred stocks and certain equity investments, which are not subject to
the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," are
carried at cost. The valuation of all of these investments is periodically
reviewed and the investment balance is written down to reflect declines in
value determined to be other than temporary. Gains or losses recognized upon
sale or write-down of these investments are recorded as a component of fees
and other income. Certain other equity investments in limited partnership
funds are accounted for under the equity method of accounting in accordance
with Accounting Principles Board Opinion No. 18, "The Equity Method of
Accounting for Investments in Common Stock". These investments in limited
partnerships were previously carried at cost. The impact of this change in
accounting method, net of tax, was $4 million in 1997. The Company changed its
policy to be consistent with industry practice.
F-9
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Equipment on lease--Aircraft and equipment under operating lease are
recorded at cost and depreciated over their estimated useful lives using the
straight line method for financial reporting purposes and accelerated methods
for tax purposes. Rental revenue is reported over the lease term as it becomes
receivable according to the provisions of the lease.
Available for sale, trading, and held to maturity securities--Investments
designated as available for sale securities are carried at fair value using
the specific identification method with unrealized gains or losses included in
stockholders' equity, net of related taxes. Trading securities, if any, are
carried at fair value with the related unrealized gains or losses included
currently in fees and other income. Securities that are held to maturity are
recorded at amortized cost. Available for sale and held to maturity securities
may be written down to fair value to reflect declines in value determined to
be other than temporary. The amount of the writedown is included in fees and
other income.
Real Estate Investments--The Company provides financing through certain real
estate loan arrangements that are recorded as acquisition, development and
construction investment transactions by the Company. Income is generally
recognized only to the extent that cash received exceeds the investment
carrying amount.
Other Assets--
Repossessed Assets--Assets which have been legally acquired in satisfaction
of receivables are carried at fair value less selling costs and are included
in other assets. After repossession, operating costs are expensed and cash
receipts are applied to reduce the asset balance.
Goodwill--The excess of the cost of an acquisition of an entity over the
book value of the acquired entity's net assets is recorded as goodwill and
amortized on a straight line basis over the expected beneficial period of the
acquisition not to exceed 25 years.
Income Taxes--
The Company and its wholly-owned domestic subsidiaries are included in the
consolidated United States federal income tax return of HIC. International
Group files a separate United States federal income tax return. The Company
reports income tax expense as if it were a separate taxpayer and records
future tax benefits as soon as it is more likely than not that such benefits
will be realized.
Derivative Financial Instruments--
Derivatives are used as an integral part of asset/liability management to
reduce the overall level of financial risk arising from normal business
operations. These derivatives, particularly interest rate swap agreements, are
used to lower funding costs, diversify sources of funding or alter interest
rate exposure arising from mismatches between assets and liabilities. The swap
agreements are generally held to maturity and the differential paid or
received under these agreements is recognized over the life of the related
agreement. Gains or losses on terminated interest rate swaps that were hedges
of underlying obligations are amortized to interest income or interest expense
over the remaining life of the related underlying obligation. If the
underlying asset or obligation is sold, the gain or loss related to closing
the swap is recognized currently in income. The Company is not an interest
rate swap dealer nor is it a trader in derivative securities, and it has not
used speculative derivative products for the purpose of generating earnings
from changes in market conditions. Unrealized gains and receivables and
unrealized losses and payables on derivative financial instruments are
immaterial and are reported as other payables in the consolidated balance
sheet.
F-10
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company periodically enters into forward currency exchange contracts
which are designated as hedges of its exposure to foreign currency
fluctuations from the translation of its foreign currency denominated
investments in certain European, Asian and Latin American joint ventures and
subsidiaries. Through these contracts, the Company primarily sells the local
currency and buys U.S. dollars. Gains or losses resulting from translation of
foreign currency financial statements and the related effects of the hedges of
net investments in joint ventures and subsidiaries outside the United States
are accumulated in stockholders' equity, net of related taxes, until the
international investment is sold or substantially liquidated. Gains or losses
on terminated foreign currency exchange contracts which were hedges of net
investments in a foreign subsidiary or joint venture continue to be deferred
and are recognized when the international investment is sold or is
substantially liquidated. Unrealized gains and receivables and unrealized
losses and payables on derivative financial instruments are immaterial and are
reported as other payables in the consolidated balance sheet.
The Company also periodically enters into forward contracts or purchases
options. These financial instruments serve as hedges of its foreign investment
in international subsidiaries and joint ventures or effectively hedge the
translation of the related foreign currency income. The contracts which serve
as hedges of investments in international subsidiaries and joint ventures are
carried at fair value with gains or losses deferred and included in the
stockholders' equity section of the consolidated balance sheets. The change in
fair value of contracts which serve to effectively hedge the translation of
foreign currency income is included in the determination of net income.
Reclassifications--
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
2. ACQUISITION OF FACTOFRANCE
On April 2, 1997, International Group purchased the interest of its joint
venture partner in Factofrance Heller, S.A. ("Factofrance") for $174 million.
As a result, International Group increased its ownership interest in
Factofrance from 48.8% to 97.6%. International Group has held an interest in
Factofrance for over 30 years, using the equity method of accounting for its
previous ownership position. Factofrance, founded in 1965, is the leading
factoring company in the French marketplace. Factofrance is headquartered in
Paris and has seven regional sales offices covering local markets.
The Factofrance acquisition was accounted for using the purchase method of
accounting in accordance with Accounting Principles Board Opinion (APB) No.
16, "Business Combinations." Under this method of accounting, the purchase
price was allocated to assets acquired and liabilities assumed based on their
estimated fair values at the date of purchase. Goodwill related to the
acquisition was $78 million and is being amortized over 25 years. The
acquisition price included $18 million for a noncompetition agreement which is
being amortized over the five year life of the agreement.
The following table presents unaudited pro forma combined income statements
of the Company and Factofrance and its subsidiaries for the years ended
December 31, 1997 and 1996. The pro forma combined income statements are
presented as if the acquisition had been effective January 1, 1996. The
combined historical results of operations of the Company and Factofrance for
1997 and 1996 have been adjusted to reflect the amortization of goodwill, the
amortization of the noncompetition agreement and the costs of financing for
the transaction.
F-11
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
This information is intended for informational purposes only and is not
necessarily indicative of the future results of operations of the Company or
of the results of operations of the Company that would have occurred had the
acquisition been effective in the periods presented.
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER
31,
-----------
1997 1996
----- -----
(IN
MILLIONS)
(UNAUDITED)
<S> <C> <C>
Interest income.............................................. $ 940 $ 889
Interest expense............................................. 526 497
----- -----
Net interest income........................................ 414 392
Fees and other income........................................ 215 108
Factoring commissions........................................ 118 128
Income of international joint ventures....................... 33 28
----- -----
Operating revenues......................................... 780 656
Operating expenses........................................... 377 338
Provision for losses......................................... 167 114
----- -----
Income before income taxes and minority interest........... 236 204
Income tax provision......................................... 67 55
Minority interest............................................ 10 12
----- -----
Net income................................................. $ 159 $ 137
===== =====
</TABLE>
3. LENDING ASSETS
Lending assets include receivables and repossessed assets.
Total receivables at December 31, 1997 consist of $8.6 billion of domestic
receivables and $2.1 billion of foreign receivables. Of the foreign
receivables, $2.0 billion represent factored accounts receivable of which $1.8
billion relate to Factofrance and $0.2 billion are from the other foreign
consolidated subsidiaries. Total receivables at December 31, 1996 consist of
$8.2 billion of domestic receivables and $301 million of foreign receivables.
Diversification of Credit Risk--
Concentrations of lending assets of 5% or more at December 31, 1997 and
1996, based on the standard industrial classification of the borrower, are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
-------------- --------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
General industrial machines................ $637 6% $500 6%
Food, grocery and other miscellaneous
retail.................................... 603 6 669 8
Business services.......................... 556 5 435 5
Department and general merchandise retail
stores.................................... 511 5 987 12
</TABLE>
F-12
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The general industrial machines classification is distributed among
machinery used for many different industrial applications. The majority of
lending assets in the food, grocery and miscellaneous retail category are
revolving and term facilities with borrowers primarily in the business of
manufacturing and retailing of food products. Business services is primarily
comprised of computer and data processing services, credit reporting and
collection, and miscellaneous business services. The department and general
merchandise retail stores category is primarily comprised of factored accounts
receivable which represent short-term trade receivables from numerous
customers.
Contractual Maturity of Loan Receivables--
The contractual maturities of the Company's receivables at December 31,
1997, which are presented in the table below, should not be regarded as a
forecast of cash flows (in millions):
<TABLE>
<CAPTION>
AFTER
1998 1999 2000 2001 2002 2002 TOTAL
------ ------ ------ ---- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial loans............... $ 677 $ 650 $ 571 $494 $621 $1,258 $ 4,271
Real estate loans.............. 375 179 158 205 100 1,221 2,238
Factored accounts receivable... 2,223 -- -- -- -- -- 2,223
Equipment loans and leases..... 504 398 321 266 171 330 1,990
------ ------ ------ ---- ---- ------ -------
Total........................ $3,779 $1,227 $1,050 $965 $892 $2,809 $10,722
====== ====== ====== ==== ==== ====== =======
</TABLE>
Commercial loans consist principally of asset based and corporate finance
receivables. Asset based receivables are collateralized by receivables,
inventory, or property, plant and equipment owned by the borrowers. Real
estate loans are principally collateralized by first mortgages on commercial
and residential real estate. Corporate finance receivables are predominantly
collateralized by senior liens on the borrower's assets. Factored accounts
receivable are purchased from clients and the Company provides credit and
collection services in return for a commission. Equipment loans and leases are
secured by the underlying equipment and the Company may have at least partial
recourse to the equipment vendor. Of the loans maturing after 1998, $2.7
billion have fixed interest rates and $4.2 billion have floating interest
rates.
Impaired Receivables, Repossessed Assets, and Troubled Debt Restructurings--
The Company does not recognize interest and fee income on impaired
receivables classified as nonearning and on repossessed assets, which are set
forth in the following table:
<TABLE>
<CAPTION>
DECEMBER
31,
----------
1997 1996
---- ----
(IN
MILLIONS)
<S> <C> <C>
Impaired receivables.......................................... $141 $264
Repossessed assets............................................ 14 14
---- ----
Total nonearning assets..................................... $155 $278
==== ====
Ratio of total nonearning assets to total lending assets...... 1.4% 3.3%
Ratio of allowance for losses to nonearning assets............ 168 81
</TABLE>
Nonearning assets include $19 million and $25 million in 1997 and 1996,
respectively, for consolidated international subsidiaries.
F-13
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The average investment in impaired receivables was $236 million and $283
million for the years ended December 31, 1997 and 1996 respectively.
The Company had $13 million and $14 million of loans that are considered
troubled debt restructurings at December 31, 1997 and December 31, 1996,
respectively. The following table indicates the effect on income if interest
on nonearning impaired receivables and troubled debt restructurings
outstanding at year-end had been recognized at original contractual rates
during the year:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, DECEMBER 31,
---------------------- ----------------------
1997 1996 1995 1997 1996 1995
------ ------ ------ ------ ------ ------
DOMESTIC FOREIGN
---------------------- ----------------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Interest income which
would have been recorded. $ 16 $ 40 $ 40 $ 12 $ 6 $ 3
Interest income recorded.. 3 13 20 1 1 1
------ ------ ------ ------ ------ ------
Effect on interest income. $ 13 $ 27 $ 20 $ 11 $ 5 $ 2
====== ====== ====== ====== ====== ======
</TABLE>
Loan Modifications--
The Company had $13 million of receivables at December 31, 1997 that were
restructured at a market rate of interest and written down from the original
loan balance. The recorded investment of these receivables is expected to be
fully recoverable. Interest income of approximately $1 million has been
recorded on these receivables under modified terms, along with approximately
$1 million of cash interest collections during 1997. At December 31, 1997, the
Company was not committed to lend significant additional funds under the
restructured agreements.
Allowance for Losses--
The changes in the allowance for losses of receivables and repossessed
assets were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER
31,
----------------
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Balance at the beginning of the year.................... $225 $231 $237
Provision for losses.................................. 164 103 223
Writedowns............................................ (169) (163) (259)
Recoveries............................................ 23 55 28
Factofrance consolidation............................. 18 -- --
Transfers and other................................... -- (1) 2
---- ---- ----
Balance at the end of the year.......................... $261 $225 $231
==== ==== ====
</TABLE>
A valuation allowance for repossessed assets of $2 million at December 31,
1995 is included in other assets on the balance sheet. Writedowns occurring at
the time of repossession are considered writedowns of receivables.
F-14
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Impaired receivables with identified reserve requirements were $62 million
and $176 million at December 31, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
DECEMBER
31,
----------
1997 1996
---- ----
(IN
MILLIONS)
<S> <C> <C>
Identified reserve requirements for impaired receivables..... $ 27 $ 57
Additional allowance for losses of receivables............... 234 168
---- ----
Total allowance for losses of receivables.................. $261 $225
==== ====
Ratio of total allowance for losses of receivables to
nonearning impaired receivables............................. 185% 85%
==== ====
</TABLE>
The Company maintains an allowance for losses of receivables based upon
management's estimate of future possible losses in the portfolio of
receivables. Management's estimate is based upon current and forecasted
economic conditions, previous loss history and knowledge of clients' financial
positions and values of underlying collateral. Changes in these estimates
could result in an increase or decrease in the reserve maintained.
4. INVESTMENTS AND OTHER ASSETS
Investments in International Joint Ventures--
The following table sets forth a summary of the financial results of the
international joint ventures on a combined basis:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
------- -------
(IN MILLIONS)
<S> <C> <C>
Total receivables......................................... $ 3,356 $ 5,161
Factoring volume.......................................... 18,154 29,501
Net income................................................ 55 90
</TABLE>
The following table shows the investment in international joint ventures by
geographic region:
<TABLE>
<CAPTION>
DECEMBER
31,
---------
1997 1996
---- ----
(IN
MILLIONS)
<S> <C> <C>
Europe.......................................................... $160 $238
Latin America................................................... 22 20
Asia-Pacific.................................................... 16 14
---- ----
Total......................................................... $198 $272
==== ====
</TABLE>
The decrease in total receivables, factoring volume, net income and
investment in European joint ventures is due to the consolidation of
Factofrance.
The Company owns interests of from 40% to 50% of these joint ventures. The
Company's largest investment in international joint ventures is NMB-Heller
Holding N.V., which accounts for 54% of the total investments in international
joint ventures. NMB-Heller Holding N.V. operates finance companies primarily
located in the Netherlands, Germany and the United Kingdom. NMB-Heller Holding
N.V. had total assets of $2.3 billion and $1.8 billion, total liabilities of
$2.1 billion and $1.6 billion and
F-15
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
total stockholders' equity of $0.2 billion at December 31, 1997 and 1996. NMB-
Heller Holding N.V. had revenues of $151 million and $157 million, operating
expenses of $42 million and $43 million and net income of $35 million and $36
million, for the years ended December 31, 1997 and 1996, respectively.
Other Investments--
The following table sets forth a summary of the major components of
investments (in millions):
<TABLE>
<CAPTION>
DECEMBER
31,
---------
1997 1996
---- ----
<S> <C> <C>
Investments:
Real estate investments...................................... $268 $205
Equity interests and investments............................. 205 171
Available for sale equity securities......................... 15 43
---- ----
Equity and real estate investments......................... $488 $419
==== ====
Available for sale debt securities........................... $311 $223
Trading securities........................................... -- 28
---- ----
Debt securities............................................ $311 $251
==== ====
Equipment on lease........................................... $195 $135
==== ====
</TABLE>
Real estate investments are acquisition, development and construction
investment transactions. At December 31, 1997, the Company held investments in
176 projects with balances ranging up to $10 million.
Equity interests and investments principally include common and preferred
stock and investments in limited partnerships and warrants.
The available for sale equity securities are principally comprised of shares
of common stock. Net unrealized holding gains on these securities were $7
million at December 31, 1997, net unrealized holding gains were $28 million at
December 31, 1996 and net unrealized holding losses were $2 million at
December 31, 1995. These amounts are recorded in stockholders' equity on a net
of tax basis.
The available for sale debt securities consist of purchased investments in
debt securities which mature on various dates through 2015 as well as $79
million of subordinated securities retained in connection with the 1994 and
1995 securitizations of certain receivables on mobile home parks, self storage
facilities and limited service hotels. The subordinated securities mature on
various dates through 2005 based on the related stated maturity dates of the
underlying receivables. The Company has established a reserve of $2 million
for possible losses related to the subordinated securities, which is included
in other payables and accruals on the consolidated balance sheet. No losses
have been realized on these securities to date. Net unrealized holding gains
on total available for sale debt securities were $6 million at December 31,
1997 and net unrealized holding losses were $7 million at December 31, 1996
and 1995. These amounts are recorded in stockholder's equity on a net of tax
basis. Cash and cash equivalents includes $3 million of short-term debt
securities at December 31, 1997, which are available for sale.
The Company had realized gains from sales of total investment securities of
$119 million, $106 million and $133 million during the year ended December 31,
1997, 1996 and 1995, respectively, and
F-16
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
had realized losses and writedowns totaling $50 million, $103 million and $59
million for 1997, 1996 and 1995, respectively. Proceeds from the sale of
equity investments may be subject to normal post-closing adjustments, the
impact of which is estimated at the time of closing.
Included in cash and cash equivalents at December 31, 1997 and 1996,
respectively, are $664 million and $198 million of short-term debt securities
that are held to maturity.
In 1996, the Company held certain dollar denominated investments in debt and
equity securities in Brazil which were classified as trading securities. Net
gains of $3 million, $3 million and $4 million related to these investments
were recorded in income for the years ended December 31, 1997, 1996 and 1995,
respectively. These investments were liquidated during 1997.
Equipment on lease is comprised of aircraft and related equipment.
Noncancellable future minimum rental receipts under the leases are $24
million, $21 million, $21 million, $16 million and $9 million for 1998 through
2002. All equipment was under lease as of December 31, 1997.
Other Assets--
The following table sets forth a summary of the major components of other
assets:
<TABLE>
<CAPTION>
DECEMBER
31,
---------
1997 1996
---- ----
(IN
MILLIONS)
<S> <C> <C>
Other Assets:
Repossessed assets........................................... $ 14 $ 14
Deferred income tax benefits, net of allowance of $8 and $16
in 1997 and 1996, respectively.............................. 163 127
Goodwill..................................................... 82 13
Non-Compete Agreement........................................ 15 --
Prepaid expenses and other assets............................ 76 56
Net advances to affiliates................................... -- 20
Furniture, fixtures and equipment............................ 37 19
---- ----
Total other assets......................................... $387 $249
==== ====
</TABLE>
Noncash investing activities which occurred during the period ended December
31, 1997 include $17 million of receivables which were classified as
repossessed assets. During 1996, $15 million of receivables were classified as
repossessed assets. See Note 14 for additional information on deferred income
tax benefits.
5. SENIOR DEBT
Commercial paper and short-term borrowings--The Company uses commercial
paper to finance its domestic operations and short-term borrowings are used by
the consolidated international subsidiaries to finance international
operations. Total commercial paper borrowings represent 27% of total debt at
December 31, 1997. Combined commercial paper and short-term borrowings
represent 36% of total debt at December 31, 1997.
F-17
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table is a summary of the Company's commercial paper and
short-term borrowings as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1997 1996
------ ------
(IN MILLIONS)
<S> <C> <C>
Domestic commercial paper................................... $2,279 $2,576
Factofrance commercial paper................................ 281 --
Factofrance short-term borrowings........................... 685 --
Other consolidated subsidiaries short-term borrowings....... 187 169
------ ------
Commercial paper and short-term borrowings................ $3,432 $2,745
====== ======
</TABLE>
The table below sets forth information concerning the Company's domestic
commercial paper borrowings. The average interest rates and average borrowings
are computed based on the average daily balances during the year. The Company
issues commercial paper with maturities ranging up to 270 days.
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Commercial Paper--domestic:
Average interest rate--
During the year................................. 5.67% 5.50% 5.96%
During the year, including the effect of
commitment fees................................ 5.78 5.65 6.10
At year-end, including the effect of commitment
fees........................................... 5.99 5.63 5.96
Average borrowings................................ $2,917 $2,367 $2,483
Maximum month-end borrowings...................... 3,264 2,613 2,860
End of period borrowings.......................... 2,279 2,576 2,067
</TABLE>
Factofrance commercial paper issued as of December 31, 1997 had an average
interest rate of 3.46% and its short-term borrowings at December 31, 1997 had
an average interest rate of 3.72%. Factofrance uses primarily short-term debt
and commercial paper to fund its assets which are short-term in nature.
Available credit and asset sale facilities--At December 31, 1997, the
Company had total committed credit and asset sale facilities of $4.0 billion,
and available credit and asset sale facilities of $3.5 billion. This includes
$267 million of additional alternative liquidity which is available by
discounting eligible French receivables with the French Central Bank since
Factofrance is a registered financial institution in France. In addition, the
Company has $36 million available credit under two foreign currency revolving
credit agreements.
The Company has a bank credit facility which provides $3.0 billion of
liquidity support. This bank credit facility is comprised of two equal
facilities, a 364-day facility which has been renewed and will expire on April
6, 1999 and a 5-year facility expiring April 8, 2002. The one-year credit
facility includes a term loan option which expires one year after the option
exercise date. The terms of the revised bank credit facilities require the
Company to maintain stockholders' equity of $900 million until March 31, 1998
and $1 billion thereafter. Under the terms of the debt covenants of the
agreement, the Company could have borrowed an additional $6.1 billion of debt
at December 31, 1997.
F-18
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has a factored accounts receivable sale facility which allows
the Company to sell an undivided interest of up to $550 million in a
designated pool of its factored accounts receivable to five bank-sponsored
conduits. The Company had sold approximately $500 million of receivables under
this facility as of December 31, 1997. The underlying liquidity support for
the conduits is provided by unaffiliated entities. One of the conduits has an
operating agreement with Fuji Bank.
During December 1997, the Company established a $400 million secured
committed warehouse line, available to finance fixed rate commercial mortgage
loans which expires in June 1998. The Company drew down $200 million under
this facility which is included as part of the Company's domestic commercial
paper borrowings above. This amount was repaid during January, 1998.
Notes and debentures--The scheduled maturities of debt outstanding at
December 31, 1997, other than commercial paper and short-term borrowings and
excluding the unamortized premium of $2 million, are as follows:
<TABLE>
<CAPTION>
SCHEDULED MATURITIES AT DECEMBER 31,
---------------------------------------------
AFTER
1998 1999 2000 2001 2002 2002 TOTAL
------ ------ ------ ----- ----- ----- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Various fixed rate notes and
debentures................... $1,050 $1,052 $ 920 $ 213 $ 516 $ 200 $3,951
Fixed weighted average rate. 8.17% 7.28% 5.22% 6.54% 6.62% 6.98% 6.90%
Various floating rate notes
and debentures............... $ 952 $ 860 $ 152 $ 25 $ 45 $ 17 $2,051
Floating weighted average
rate....................... 4.84% 5.98% 6.08% 6.11% 6.11% 3.86% 5.44%
Total notes and debentures.... $2,002 $1,912 $1,072 $ 238 $ 561 $ 217 $6,002
</TABLE>
Notes redeemable solely at the option of the Company prior to the final
maturity date are reflected in the table above as maturing on their
contractual maturity date. During the year, the Company issued $200 million of
fixed rate notes due August 15, 2009, which are callable or putable on August
15, 1999. These notes are reflected in the table above as maturing after 2002.
The Company's various fixed and floating rate notes and debentures are
denominated in U.S. dollars, Japanese yen and French francs. In order to fix
the exchange rate of Japanese yen to U.S. dollars on the yen denominated debt,
the Company has entered into cross currency interest rate swap agreements. In
order to convert certain of the Company's fixed rate debt to floating rate
debt and vice-versa, the Company has entered into interest rate swap
agreements. The following table provides the year-end weighted average
interest rate of the U.S. dollar and Japanese yen denominated debt before and
after the effect of the swap agreements. The Company has $31 million of French
franc denominated fixed rate debt and $17 million of French franc denominated
variable rate debt which support French franc denominated assets.
F-19
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED AVERAGE INTEREST RATE
---------------------------------------------------------------
BEFORE AFTER BEFORE AFTER
EFFECT EFFECT VARIABLE EFFECT EFFECT
FIXED DEBT OF OF DEBT OF OF TOTAL DEBT
OUTSTANDING SWAP SWAP OUTSTANDING SWAP SWAP OUTSTANDING
----------- ------ ------ ----------- ------ ------ -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
1997:
United States dollar.... $3,614 7.22% 6.72% $1,834 5.94% 5.95% $5,448
Japanese yen............ 306 3.26 6.10 200 1.07 6.59 506
------ ------ ------
Total................. $3,920 6.91% 6.67% $2,034 5.46% 6.01% $5,954
====== ====== ======
1996:
United States dollar.... $2,453 7.68% 6.76% $1,531 5.70% 5.71% $3,984
Japanese yen............ 452 3.43 5.87 328 0.87 6.12 780
------ ------ ------
Total................. $2,905 7.02% 6.62% $1,859 4.85% 5.78% $4,764
====== ====== ======
</TABLE>
The contractual interest rates for the U.S. dollar denominated fixed rate
debt range between 5.63% and 9.63% at December 31, 1997 and 1996. The
contractual rates on the U.S. dollar denominated floating rate debt are based
primarily on indices such as the Constant Maturity Treasury Index less a range
of .12% to .40%, the Federal Funds rate plus .40%, the three-month Treasury
Bill rate plus .46%, the one-month London Inter-Bank Offered Rate ("LIBOR")
plus .07% to .14%, three-month LIBOR plus .02% to .75%, six-month LIBOR plus
.25% or the Prime rate less 2.59% to 2.80%.
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to several types of agreements involving financial
instruments with off-balance sheet risk. These instruments are used to meet
the financing needs of borrowers and to manage the Company's own exposure to
interest rate and currency exchange rate fluctuations. These instruments
principally include interest rate swap agreements, forward currency exchange
contracts, purchased options, loan commitments, letters of credit and
guarantees.
Derivative financial instruments used for risk management purposes--The
Company utilizes derivatives as an integral part of its asset/liability
management program to reduce its overall level of financial risk. These
derivatives, particularly interest rate swap agreements, are used to lower
funding costs, diversify sources of funding or alter interest rate exposure
arising from mismatches between assets and liabilities. The Company's
derivative instruments are entirely related to accomplishing these risk
management objectives, which arise from normal business operations. The
Company is not an interest rate swap dealer nor is it a trader in derivative
securities, and it has not used speculative derivative products for the
purpose of generating earnings from changes in market conditions.
Before entering into a derivative agreement, management determines that an
inverse correlation exists between the value of the hedged item and the value
of the derivative. At the inception of each agreement, management designates
the derivative to specific assets, pools of assets or liabilities. The risk
that a derivative will become an ineffective hedge is generally limited to the
possibility that an asset or liability being hedged will prepay before the
related derivative expires. Accordingly, after inception of a hedge,
asset/liability managers monitor its effectiveness through an ongoing review
of the amounts and maturities of assets, liabilities and swap positions. This
information is reported to the Company's Financial Risk Management Committee
("FRMC") whose members include the Company's Chairman, Chief Financial Officer
and Treasurer. The FRMC determines the direction the Company will take with
respect to its asset/liability position. The asset/liability position of the
Company and the related activities of the FRMC are reported regularly to the
Executive Committee of the Board of Directors and to the Board of Directors.
F-20
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the notional amounts of the Company's
interest rate swap agreements, foreign exchange contracts, purchased options
and interest rate cap agreements as of December 31, 1997 and 1996. The credit
risk associated with these instruments is limited to amounts earned but not
collected and to any additional amounts which may be incurred to replace the
instrument under then current market conditions. These amounts will increase
or decrease during the life of the instruments as interest rates and foreign
exchange rates fluctuate, and are substantially less than the notional amounts
of these agreements. The Company manages this risk by establishing minimum
credit ratings for each counterparty and by limiting the exposure to
individual counterparties as measured by the total notional amount and the
current replacement cost of existing agreements. The Company has not
experienced nonperformance by any counterparty related to its derivative
financial instruments.
<TABLE>
<CAPTION>
CONTRACT OR
NOTIONAL
AMOUNT
-------------
1997 1996
------ ------
(IN MILLIONS)
<S> <C> <C>
Interest rate swap agreements.............................. $4,553 $2,634
Cross currency interest rate swap agreements............... 612 780
Basis swap agreements...................................... 1,470 1,255
Spot and forward currency exchange contracts............... 623 262
Purchased options.......................................... 74 42
Interest rate cap agreements............................... -- 2
</TABLE>
Interest rate swaps are primarily used to convert fixed rate financings to
variable rate debt. Less frequently, when the issuance of debt denominated in
a foreign currency is deemed more cost effective, cross currency interest rate
swaps are employed to convert foreign currency denominated debt to U.S. dollar
denominated debt and U.S. based indices. The Company also uses swap agreements
to alter the characteristics of specific asset pools to more closely match the
interest terms of the underlying financing. These agreements enhance the
correlation of the interest rate and currency characteristics of the Company's
assets and liabilities and thereby mitigate its exposure to interest rate
volatility. Basis swap agreements involve the exchange of two different
floating rate interest payment obligations and are used to manage the risk
between different floating rate indices. The Company has entered into $160
million of interest rate swaps effective during 1998 which have the effect of
converting fixed rate obligations to a variable rate. The amount of these
interest rate swaps is not included in the table above.
Forwards are contracts for the delivery of an item in which the buyer agrees
to take delivery of an instrument or currency at a specified price and future
date. To minimize the effect of exchange rate movements in the currencies of
foreign countries, in which certain of its subsidiaries and investments are
located, the Company will periodically enter into forward currency exchange
contracts or purchase options. These financial instruments serve as hedges of
its foreign investment in international subsidiaries and joint ventures or
effectively hedge the translation of the related foreign currency income. The
Company also periodically enters into forward contracts to hedge receivables
denominated in foreign currencies or may purchase foreign currencies in the
spot market to settle a foreign currency denominated liability.
Commitments, letters of credit and guarantees--The Company generally enters
into various commitments, letters of credit and guarantees in response to the
financing needs of its customers. As many of the agreements are expected to
expire unused, the total commitment amount does not necessarily represent
future cash requirements. The credit risk involved in issuing these
instruments is
F-21
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
essentially the same as that involved in extending loans to borrowers and the
credit quality and collateral policies for controlling this risk are similar
to those involved in the Company's normal lending transactions. The
contractual amount of the Company's commitments, letters of credit and
guarantees are shown below:
<TABLE>
<CAPTION>
CONTRACT
AMOUNT
-------------
1997 1996
------ ------
(IN MILLIONS)
<S> <C> <C>
Loan commitments........................................... $2,154 $1,959
Letters of credit and financial guarantees................. 754 561
Factoring credit guarantees................................ 285 286
Investment commitments..................................... 130 106
</TABLE>
Commitments to fund new and existing borrowers generally have fixed
expiration dates and termination clauses and typically require payment of a
fee. Letters of credit and financial guarantees are conditional commitments
issued by the Company to guarantee the performance of a borrower or an
affiliate to a third party. At December 31, 1997, the contractual amount of
guarantees includes $7 million related to affiliates. For factoring credit
guarantees, the Company receives a fee for guaranteeing the collectibility of
certain factoring clients' accounts receivable. Under this arrangement,
clients generally retain the responsibility for collection and bookkeeping.
Losses related to these services historically have not been significant.
7. LEGAL PROCEEDINGS
The Company is party to a number of legal proceedings as plaintiff and
defendant, all arising in the ordinary course of its business. Although the
ultimate amount for which the Company may be held liable, if any, is not
ascertainable, the Company believes that the amounts, if any, which may
ultimately be funded or paid with respect to these matters will not have a
material adverse effect on the financial condition or results of operations of
the Company.
8. RENTAL COMMITMENTS
The Company and its consolidated subsidiaries have minimum rental
commitments under noncancellable operating leases at December 31, 1997, as
follows (in millions):
<TABLE>
<S> <C>
1998................................. $17
1999................................. 15
2000................................. 14
2001................................. 13
2002................................. 12
Thereafter........................... 20
---
$91
===
</TABLE>
The total rent expense, net of rental income from subleases, was $30
million, $23 million and $18 million for the years ended December 31, 1997,
1996 and 1995, respectively.
9. PREFERRED STOCK
Cumulative Perpetual Senior Preferred Stock ($.01 Par Value; stated value,
$25; 8.125%; 5,000,000 shares authorized and outstanding)--The Company's
Cumulative Perpetual Senior
F-22
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Preferred Stock, Series A ("Series A Preferred Stock") is not redeemable prior
to September 22, 2000. On or after that date, the Perpetual Preferred Stock
will be redeemable at the option of the Company, in whole or in part, at a
redemption price of $25 per share, plus accrued and unpaid dividends. The
Series A Preferred Stock has an annual dividend rate of 8.125%. Dividends are
cumulative and payable quarterly. The Series A Preferred Stock ranks senior
with respect to payment of dividends and liquidation to other preferred stock
of the Company that is not designated as Cumulative Senior Perpetual Preferred
Stock.
Noncumulative Perpetual Senior Preferred Stock ($.01 Par Value; stated
value, $100; 6.687%; 1,500,000 shares authorized and outstanding)--In June,
1997, the Company issued 1,500,000 shares of 6.687% Noncumulative Perpetual
Senior Preferred Stock, Series B ("Series B Preferred Stock"), at $100 per
share and received proceeds of $150 million less underwriting costs of two
percent. The shares were initially sold to Lehman Brothers, Inc., Chase
Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, each
of whom agreed to offer or sell such shares only to qualified institutional
buyers in reliance on Rule 144A under the Securities Act of 1933 and to a
limited number of institutional accredited investors pursuant to Regulation D
under the Securities Act. Effective January 1998, the Company exchanged 6.687%
Fixed Rate Noncumulative Perpetual Senior Preferred Stock, Series C ("Series C
Preferred Stock") for all formerly outstanding Series B Preferred Stock.
Series C Preferred Stock remains outstanding and is registered with the
Securities and Exchange Commission. The Series C Preferred Stock is not
redeemable prior to August 15, 2007. On or after such date, the Series C
Preferred Stock will be redeemable at the option of the Company, in whole or
in part, at a redemption price of $100 per share, plus any accrued and unpaid
dividends.
Conversion of Convertible Preferred Stock--In May 1997, HIC converted all of
its shares of Cumulative Convertible Preferred Stock, Series D ("Series D
Preferred Stock"), no par value, 1/2% under prime, into common stock of the
Company. No shares of the Series D Preferred Stock remain outstanding. The
conversion was accounted for as a stock dividend and therefore has been
retroactively reflected in the consolidated financial statements. Also all
dividends paid on the Series D Preferred Stock have been retroactively
reclassified to common dividends.
Redeemable Preferred Stock--The Company has authorized the issuance of
100,000 shares of a series of preferred stock designated NW Preferred Stock,
Class B (No Par Value) ("NW Preferred Stock"), pursuant to the Keep Well
Agreement between the Company and Fuji Bank, dated as of April 23, 1983 and as
subsequently amended ("Keep Well Agreement"), wherein, among other things,
Fuji Bank has agreed to purchase NW Preferred Stock in an amount required to
maintain the Company's stockholders' equity at $500 million. The Company's
stockholders' equity was $1,678 million at December 31, 1997. If and when
issued, dividends will be paid quarterly on NW Preferred Stock at a rate per
annum equal to 1% over the three-month LIBOR. Subject to certain conditions,
NW Preferred Stock will be redeemable at the option of the holder within a
specified period of time after the end of a calendar quarter in an aggregate
amount not greater than the excess of the stockholders' equity of the Company
as of the end of such calendar quarter over $500 million and at a redemption
price equal to the price paid for such stock plus accumulated dividends. No
purchases of NW Preferred Stock have been made by Fuji Bank under the Keep
Well Agreement.
10. DIVIDEND RESTRICTIONS AND PAYMENTS
Dividends may legally be paid only out of the Company's surplus, as
determined under the provisions of the Delaware General Corporation Law, or
net profits for either the current or preceding fiscal year, or both. In
addition, the Company is prohibited from paying dividends on Common Stock
F-23
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
unless all current and full cumulative dividends on the Series A Preferred
Stock and the current dividends on the Series C Preferred Stock have been
paid. In addition, the Company is prohibited from paying dividends on any
other preferred stock that ranks, with respect to the payment of dividends,
equal or junior to the Series A Preferred Stock or the Series C Preferred
Stock, unless all current and full cumulative dividends on the Series A
Preferred Stock and Series C Preferred Stock have been paid.
The Company declared and paid dividends on the Series A Preferred Stock of
$10 million in 1997 and 1996 and declared and paid dividends of $4 million on
the Series B Preferred Stock during 1997. Common Stock dividends paid in 1997
consisted of $43 million paid in cash and $26 million paid in the form of
International Group Preferred Stock. The Company paid cash dividends of $58
million in 1996.
11. FEES AND OTHER INCOME
The following table summarizes the Company's fees and other income for the
years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Fee income and other...................................... $ 84 $52 $ 49
Net investment gains...................................... 69 3 74
Participation income...................................... 27 24 24
Gains on securitization of receivables.................... 26 -- 1
---- --- ----
Total................................................... $206 $79 $148
==== === ====
</TABLE>
Fee income and other includes servicing income, late fees, prepayment fees,
other miscellaneous fees and equipment residual gains.
12. OPERATING EXPENSES
The following table sets forth a summary of the major components of
operating expenses:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Salaries and other compensation........................... $214 $154 $135
Space costs............................................... 30 23 18
Legal and consulting costs................................ 26 12 9
Equipment costs........................................... 17 12 13
Travel and entertainment.................................. 15 12 10
Business acquisition costs................................ 15 9 6
Goodwill and noncompete agreement amortization............ 6 1 1
Other..................................................... 34 24 24
---- ---- ----
Total................................................... $357 $247 $216
==== ==== ====
</TABLE>
Of the increase in operating expenses in 1997, $59 million related to the
consolidation of Factofrance in April, 1997.
F-24
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. BENEFIT PLANS AND OTHER POST RETIREMENT BENEFITS
The Company has various incentive compensation plans and a savings and
profit-sharing plan which provide for annual contributions to eligible
employees based on the Company's achievement of certain financial objectives
and employee achievement of certain objectives.
The Company has a noncontributory defined benefit pension plan covering
substantially all of its domestic employees and a supplemental retirement plan
in which certain employees participate. The Company's policy is to fund, at a
minimum, pension contributions as required by the Employee Retirement Income
Security Act of 1974. Benefits under the defined benefit and supplemental
retirement plans are based on an employee's years of service and average
earnings for the five highest consecutive years of compensation occurring
during the last ten years before retirement. The assets of the defined benefit
plan are held in a collective investment fund of the Multiple Fund Investment
Trust for Employee Benefit Plans. The assets are managed by American National
Bank Investment Management and Trust Company.
The following table summarizes the funding status of the defined benefit and
supplemental retirement plans at the end of each year and identifies the
assumptions used to determine the projected benefit obligation.
<TABLE>
<CAPTION>
SUPPLEMENTAL
RETIREMENT
DEFINED BENEFIT PLAN PLAN
---------------------- ----------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
---------------------- ----------------
1997 1996 1995 1997 1996 1995
------ ------ ------ ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value of benefit
obligations
Vested benefit obligation....... $ 26 $ 21 $ 17 $ 1 $ 2 $ 2
Nonvested benefit obligation.... 4 3 3 -- -- --
------ ------ ------ ---- ---- ----
Accumulated benefit obligation.... 30 24 20 1 2 2
Effect of projecting future salary
increases on past service........ 17 14 12 3 2 2
------ ------ ------ ---- ---- ----
Projected benefit obligation...... 47 38 32 4 4 4
Plan assets at market value....... 42 37 34 -- -- --
------ ------ ------ ---- ---- ----
Plan assets in excess of (less
than) projected benefit
obligation....................... $ (5) $ (1) $ 2 $ (4) $ (4) $ (4)
====== ====== ====== ==== ==== ====
Assumptions:
Discount rate..................... 7.25% 7.75% 7.25% 7.25% 7.75% 7.25%
Expected return on assets......... 9.00 9.00 9.00 N/A N/A N/A
Rate of salary increases.......... 6.00 6.00 6.00 6.00 6.00 6.00
</TABLE>
Components of net pension cost for the defined benefit plan for the
following periods are:
<TABLE>
<CAPTION>
DEFINED BENEFIT PLAN
------------------------
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost-benefits
earned during the year... $ 3 $ 3 $ 2
Interest accrued on
projected benefit
obligation............... 3 2 2
Actual return on assets... (6) (3) (6)
Net amortization and
deferral................. 2 -- 3
------ ------ ------
Net periodic pension
cost................... $ 2 $ 2 $ 1
====== ====== ======
</TABLE>
F-25
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Supplemental Retirement Plan had a net periodic pension cost of
approximately $1 million in the years ended December 31, 1997, 1996 and 1995.
The prepaid pension cost (liability) of the defined benefit and supplemental
retirement plans were as follows:
<TABLE>
<CAPTION>
SUPPLEMENTAL
DEFINED RETIREMENT
BENEFIT PLAN PLAN
---------------- ----------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
---------------- ----------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Plan assets in excess of (less than)
projected benefit obligation.............. $(5) $(1) $ 2 $ (4) $ (4) $ (4)
Unrecognized prior service (asset) cost.... (1) (1) (1) 2 2 1
Unrecognized net (gain) loss from past
experience different from that assumed.... 4 2 2 (2) (1) 1
Unrecognized net asset from initial
application............................... (1) (1) (1) -- -- --
--- --- --- ---- ---- ----
Pension (liability) prepaid cost......... $(3) $(1) $ 2 $ (4) $ (3) $ (2)
=== === === ==== ==== ====
</TABLE>
The Company adjusts the discount and salary rates, as well as the rates of
return on assets, to reflect market conditions at the measurement date.
Changes in these assumptions will impact the amount of the pension expense in
future years. The change in the discount rate at December 31, 1997 is expected
to increase pension expense by $1 million in 1998. The change in the discount
rate at December 31, 1996 decreased 1997 pension expense by $1 million. The
Company maintained the salary rate assumption at 6% at December 31, 1997,
based on the Company's experience.
The Company also provides health care benefits for eligible retired
employees and their eligible dependents. The following table presents the
funded status of the post-retirement benefits other than pensions of active
and retired employees as of December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
POST-RETIREMENT
HEALTH CARE PLAN
-------------------
DECEMBER 31,
-------------------
1997 1996 1995
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Accumulated postretirement obligation:
Retirees.......................................... $ 5 $ 4 $ 4
Fully eligible active plan participants........... 2 1 1
Other active plan participants.................... 3 2 2
----- ----- -----
Total unfunded accumulated postretirement
benefit obligation............................. 10 7 7
Unrecognized net gain (loss) from past experience
different from that assumed........................ (1) 1 1
Unrecognized net asset from initial application..... (5) (6) (6)
----- ----- -----
Accrued postretirement benefit cost............. $ 4 $ 2 $ 2
===== ===== =====
Assumptions:
Discount rate..................................... 7.25% 7.75% 7.25%
</TABLE>
F-26
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company adjusts the discount, salary and health care cost trend rates to
reflect market conditions at the measurement date. Changes in these
assumptions will impact the amount of the benefit expense in future years. The
accumulated postretirement benefit obligation, under the terms of the amended
healthcare plan, was calculated using relevant actuarial assumptions and
health care cost trend rates projected at annual rates ranging from 9.0% in
1997 to 5.5% in 2004 and thereafter. The effect of a 1.0% annual increase in
these assumed cost trend rates would increase the accumulated postretirement
benefit obligation by $1 million, while annual service and interest cost
components in the aggregate would not be materially affected. The change in
the discount rate at December 31, 1997 had no effect on the 1997 expense and
is expected to increase 1998 expense by less than $1 million. The change in
the discount rate at December 31, 1996 decreased the 1997 expense by less than
$1 million. The unamortized balance of the transition asset was $5 million at
December 31, 1997 and $6 million at December 31, 1996 and 1995. The net
periodic postretirement benefit cost was $1 million for the years ended
December 31, 1997, 1996 and 1995.
The Company has an Executive Deferred Compensation Plan (the "Plan"), a
nonqualified deferred compensation plan, in which certain employees of HIC and
the Company may elect to defer a portion of their annual compensation on a
pre-tax basis. The amount deferred remains an asset of the Company and may be
invested in any of certain mutual funds at the participant's direction.
Payment of amounts deferred are made in a lump sum or in annual installments
over a five, ten or fifteen year period as determined by the participant. Plan
assets were approximately $24 million and $13 million at December 31, 1997 and
1996, respectively. Earnings on plan assets totaled $5 million and $1 million
in 1997 and 1996, respectively, and are included as part of fees and other
income, while the offsetting compensation expense amount is included in
operating expenses.
The Company has long-term incentive plans in which participants receive
performance units that are granted at the beginning of a three year
performance period. The value of a performance unit is based on the three year
average return on equity target for the Company. The total expense related to
the long-term incentive plans was $3 million in 1997 and $3 million in 1996
and $2 million in 1995.
14. INCOME TAXES
The provision for income taxes is summarized in the following table:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Current:
Federal............................................... $107 $ 60 $116
Utilization of investment and foreign tax credits..... (46) (29) (22)
---- ---- ----
Net federal......................................... 61 31 94
State................................................. 5 (4) 2
Foreign............................................... 19 4 3
---- ---- ----
Total current....................................... 85 31 99
---- ---- ----
Deferred:
Federal............................................... (17) 11 (43)
State................................................. (2) 1 (7)
---- ---- ----
Total deferred...................................... (19) 12 (50)
---- ---- ----
$ 66 $ 43 $ 49
==== ==== ====
</TABLE>
Although the Company files a consolidated U.S. tax return with HIC, the
Company reports income tax expense as if it were a separate taxpayer and
records deferred tax benefits for deductible temporary differences if it is
more likely than not that these benefits will be realized. Included in income
tax expense are amounts relating to the International Group, which files a
separate United States
F-27
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
federal income tax return. United States federal income taxes paid by
International Group amounted to $3 million in 1997 and $5 million in 1996.
Under the terms of the tax allocation agreement between HIC and the Company,
as amended, each company covered by the agreement calculates its current and
deferred income taxes based on its separate company taxable income or loss,
utilizing separate company net operating losses, tax credits, capital losses
and deferred tax assets or liabilities. In accordance with the provisions of
the current tax allocation agreement, net payments of $73 million, $43 million
and $70 million were made to HIC in 1997, 1996 and 1995, respectively.
The reconciliation between the statutory federal income tax provision and
the actual effective tax provision for each of the three years ended December
31 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Tax provision at statutory rate........................ $ 82 $ 64 $ 63
State and foreign income taxes, net of federal income
tax effects........................................... 23 8 4
Income of foreign subsidiaries and joint ventures and
foreign tax credit utilization........................ (32) (13) (12)
Net foreign tax rate differential...................... -- -- 4
Resolution of tax issues............................... (2) (7) (13)
Other, net............................................. (5) (9) 3
---- ---- ----
$ 66 $ 43 $ 49
==== ==== ====
</TABLE>
The significant components of the deferred tax assets and deferred tax
liabilities at December 31, 1997 and 1996 are shown below:
<TABLE>
<CAPTION>
DECEMBER
31,
----------
1997 1996
---- ----
(IN
MILLIONS)
<S> <C> <C>
Deferred Tax Assets:
Allowance for loan losses................................... $ 97 $ 77
Repossessed properties...................................... -- 1
Foreign tax credits......................................... 8 16
Alternative minimum tax credit carryforward................. -- 1
Net operating losses........................................ 41 28
Equity interests and other investments...................... 22 10
Terminated swap income...................................... 5 17
Accrued expenses............................................ 25 18
---- ----
Gross deferred tax assets..................................... 198 168
Valuation allowance........................................... (8) (16)
---- ----
Gross deferred tax assets, net of valuation allowance......... 190 152
Deferred Tax Liabilities:
Repossessed properties...................................... $ (6) $--
Fixed assets and deferred income from lease financing....... (17) (17)
Unrealized appreciation of securities available for sale.... (4) (8)
---- ----
Gross deferred tax liabilities................................ (27) (25)
---- ----
Net deferred tax asset........................................ $163 $127
==== ====
</TABLE>
F-28
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Provision has not been made for United States or additional foreign taxes on
$80 million of undistributed earnings of subsidiaries outside the United
States, as those earnings are intended to be reinvested. Such earnings would
become taxable upon the sale or liquidation of these international operations
or upon the remittance of dividends. Given the availability of foreign tax
credits and various tax planning strategies, management believes any tax
liability which may ultimately be paid on these earnings would be
substantially less than that computed at the statutory federal income tax
rate. Upon remittance, certain foreign countries impose withholding taxes that
are then available, subject to certain limitations, for use as credits against
the Company's U.S. tax liability. The amount of withholding tax that would be
payable upon remittance of the entire amount of undistributed earnings would
be approximately $14 million.
The Company had unused foreign tax credit carryforwards of $8 million and
$16 million at December 31, 1997 and 1996, respectively. Due to substantial
restrictions on the utilization of foreign tax credits imposed by the Tax
Reform Act of 1986, the Company may not be able to utilize a significant
portion of foreign tax credit carryforwards prior to expiration. Accordingly,
the Company has recognized a valuation allowance for the amount of foreign tax
credits recorded at December 31, 1997 and 1996. Consistent with this approach,
the Company reduced income tax expense by $15 million in 1997 representing
utilization of such foreign tax credit carryovers.
The Company has recorded a net deferred tax asset of $163 million as of
December 31, 1997. Although realization is not assured, management believes it
is more likely than not that the deferred tax assets will be realized. The
amount of the deferred tax assets considered realizable, however, could be
reduced if estimates of future taxable income are reduced.
15. RELATED PARTIES
Several financial, administrative or other service arrangements exist
between the Company and Fuji Bank, HIC or related affiliates. In management's
opinion, the terms of these arrangements were similar to those the Company
would have been able to obtain in like agreements with unaffiliated entities
in arms-length transactions.
KEEP WELL AGREEMENT WITH FUJI BANK. The Keep Well Agreement provides that if
the Company should lack sufficient cash or credit facilities to meet its
commercial paper obligations, Fuji Bank will lend the Company up to $500
million. That loan would be payable on demand and the proceeds from the loan
could only be used by the Company to meet its commercial paper obligations.
The Keep Well Agreement further provides that Fuji Bank will maintain the
Company's stockholders' equity in an amount equal to $500 million.
Accordingly, if the Company should determine, at the close of any month, that
its stockholders' equity is less than $500 million, then Fuji Bank will
purchase, or cause one of its subsidiaries to purchase, shares of the
Company's NW Preferred Stock in an amount necessary to increase the Company's
stockholders' equity to $500 million. Commitment fees paid by the Company to
Fuji Bank under the Keep Well Agreement amounted to less than $1 million in
1997, 1996 and 1995. Interest on any loans will be charged at the prime rate
of Morgan Guaranty Trust Company of New York plus .25% per annum. No loans or
purchases of NW Preferred Stock have been made by Fuji Bank under this
agreement.
In connection with the issuance of the Series B Preferred Stock (Note 9),
the Company and Fuji Bank amended the termination provisions of the Keep Well
Agreement. The Keep Well Agreement cannot be terminated by either party prior
to December 31, 2002. After December 31, 2002, the Agreement cannot be
terminated by either party unless the Company has received written
certifications
F-29
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
from Moody's Investor Service, Inc. and Standard and Poor's Corporation that
upon such termination, the Series A Preferred Stock will be rated no lower
than "a3" and "A--," respectively and the Series C Preferred Stock will be
rated no lower than "baa1" and "BBB" respectively. Similarly, after December
31, 2002, the agreement may only be terminated if the Company's senior debt
ratings were unchanged as a result of the termination of the Agreement. After
December 31, 2007, either Fuji Bank or the Company may terminate the agreement
upon 30 business days prior written notice.
SERVICES PROVIDED BY FUJI BANK AND HIC FOR THE COMPANY. Certain employees of
Fuji Bank and HIC performed managerial, administrative and other related
functions for the Company during 1997. The Company compensated Fuji Bank and
HIC for the use of such individuals' services at a rate which reflects current
costs to Fuji Bank and HIC. The amounts paid to Fuji Bank and HIC for these
services were $2 million and $77 million, respectively for 1997, $2 million
and $60 million for 1996 and $2 million and $53 million for 1995. In
conjunction with the transfer of the Company to FAHI, the majority of
employees of HIC who were providing services to the Company were transferred
to the Company. Additionally, certain subsidiaries of Fuji Bank served as
managers for various offerings of the Company's debt securities and acts as
registrar and paying agent for certain debt issuances by the Company. These
services are provided at market rates. The Company has entered into similar
agreements with FAHI. In the Company's opinion, the amounts to be paid under
such agreements will be significantly less than the amounts paid in 1997.
SERVICES PROVIDED BY THE COMPANY FOR FUJI BANK AND HIC. The Company performs
services for its affiliates, including FAHI, and charges them for the cost of
the work performed. The Company may also guarantee the obligations of its
clients or the clients of certain joint ventures, under letters of credit
issued by financial institutions, some of which are affiliates of the Company.
Additionally, the Company guaranteed payment under a deferred compensation
arrangement between HIC and certain of its employees. The Company had
agreements with HIC and certain other subsidiaries of HIC which provide for
the Company to receive an annual negotiated fee for servicing assets which had
been sold by the Company to HIC and these affiliates. The amount of fees for
servicing these assets in 1997, 1996 and 1995, was approximately $200,000, $1
million and $1 million, respectively.
Heller Capital Markets Group, Inc. ("CMG"), a wholly-owned subsidiary of the
Company, acted as placement agent for the sale of commercial paper issued by
HIC during 1997. CMG received compensation based upon the face amount of the
commercial paper notes sold. HIC paid compensation to CMG pursuant to this
arrangement of $61,000 during 1997 and less than $1 million during each of
1996 and 1995. The HIC commercial paper program was terminated during 1997.
INTERCOMPANY RECEIVABLES, PAYABLES, TRANSACTIONS AND FINANCIAL INSTRUMENTS.
At December 31, 1997, other liabilities included net amounts due to affiliates
of $29 million, and at December 31, 1996, other assets included net amounts
due from affiliates of $20 million. These amounts are principally comprised of
interest bearing demand notes representing amounts due to or from the Company
arising from an interest rate swap agreement with HIC, advances,
administrative fees and costs charged to other subsidiaries of HIC and amounts
payable to HIC for services provided. The notes bear interest at rates which
approximate the average rates on the Company's commercial paper obligations or
short-term bank borrowing rates outstanding during the period. During 1997,
the Company paid interest of $3 million to HIC related to these notes.
During 1997, the Company was a party to a $200 million notional amount
interest rate swap agreement with HIC, which expires December 15, 2000 and was
assumed by FAHI effective January 2, 1998. The purpose of this agreement is to
manage the Company's exposure to interest rate fluctuations. Under this
agreement, the Company pays interest to the counterparty at a variable rate
based on the commercial paper rate published by the Board of Governors of the
Federal Reserve
F-30
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
System. The counterparty pays interest to the Company at a fixed rate of
5.57%. This agreement, which FAHI assumed from HIC effective January 1998,
increased the Company's interest expense by $295,000 and $3 million in 1997
and 1996, respectively.
During 1997, HIC converted all of its shares of Series D Preferred Stock
into common stock of the Company. Prior to the conversion, the Company paid a
dividend to HIC on the Series D Preferred Stock of approximately $500,000.
Also, during 1997, the Company paid to Fuji Bank a commitment fee of
approximately $317,000, related to the Keep Well Agreement.
The trust department of Fuji Bank may purchase commercial paper of the
Company for its clients. Interest expense paid by the Company related to such
commercial paper borrowings was $235,000 in 1997.
In the ordinary course of its business, the Company participates in joint
financings with Fuji Bank or certain affiliates. During 1997, the Company sold
$10 million of an outstanding $25 million commitment to Fuji Bank at book
value. No gain or loss was recorded on the sale. During 1996, the Company
jointly participated with Fuji Bank in $53 million of financings, of which the
Company retained an $8 million interest.
Fuji Bank and one of its subsidiaries provided uncommitted lines of credit
to consolidated international subsidiaries totaling $29 million and $15
million at December 31, 1997 and 1996, respectively. Borrowings under these
facilities totaled $5 million and $4 million at December 31, 1997 and 1996,
respectively. In addition, Fuji Bank provides committed and uncommitted lines
of credit to certain international joint ventures.
The Company has an accounts receivable sale facility which allows the
Company to sell an undivided interest of up to $550 million in a designated
pool of its factored accounts receivable to five bank-sponsored conduits. The
Company sold approximately $500 million of receivables under this facility as
of December 31, 1997. The underlying liquidity support for the conduits is
provided by unaffiliated entities. One of the conduits has an operating
agreement with Fuji Bank. The Company paid fees of $346,000 to Fuji Bank
during 1997 for services provided under this agreement.
In conjunction with the formation of FAHI, the Company purchased, at book
value, less than $10 million of assets from HIC on December 31, 1997. The
assets are primarily recorded as real estate receivables at the purchase
price.
16. FAIR VALUE DISCLOSURES
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure of fair value information
for certain financial instruments, for which it is practicable to estimate
that value. Since there is no well-established market for many of the
Company's assets and financial instruments, fair values are estimated using
present value, property yield, historical rate of return and other valuation
techniques. These techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. These
assumptions are inherently judgmental and changes in such assumptions could
significantly affect fair value calculations. The derived fair value estimates
may not be substantiated by comparison to independent markets and may not be
realized in immediate liquidation of the instrument.
F-31
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The carrying values and estimated fair values of the Company's financial
instruments at December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1996
------------------- ------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- --------- -------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net receivables..................... $10,461 $10,883 $8,304 $8,509
Total investments................... 994 1,044 805 863
Debt................................ 9,436 9,371 7,506 7,514
Swap agreements
Asset............................. 4 12 4 20
Liability......................... (7) (111) (6) (37)
Forward contracts................... 623 623 262 262
Purchased options................... 74 74 42 42
</TABLE>
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments. Carrying values
approximate fair values for all financial instruments which are not
specifically addressed.
For variable rate receivables that reprice frequently and are performing at
acceptable levels, fair values were assumed to equal carrying values. All
other receivables were pooled by loan type and risk rating. The fair value for
these receivables was estimated by employing discounted cash flow analyses,
using interest rates equal to the London Inter-Bank Offered Rate or the Prime
rate offered as of December 31, 1997 and 1996 plus an adjustment for normal
spread, credit quality and the remaining terms of the loans.
Carrying and fair values of the trading securities and securities available
for sale are based on quoted market prices. The fair values of equity
interests and other investments are calculated by using the Company's business
valuation model to determine the estimated value of these investments as of
the anticipated exercise date. The business valuation model analyzes the cash
flows of the related company and considers values for similar equity
investments. The determined value is then discounted back to December 31, 1997
and 1996, using a rate appropriate for returns on equity investments. Although
the investments in international joint ventures accounted for by the equity
method are not considered financial instruments and, as such, are not included
in the above table, management believes that the fair values of these
investments significantly exceed the carrying value of these investments.
The fair value of the notes and debentures was estimated using discounted
cash flow analyses, based on current incremental borrowing rates for
arrangements with similar terms and remaining maturities, as quoted by
independent financial institutions as of December 31, 1997 and 1996. Fair
values were assumed to equal carrying values for commercial paper and other
short term borrowings.
The carrying value of the swap agreements represents the interest receivable
and interest payable as of December 31, 1997 and 1996. The estimated fair
value represents the mark to market loss and mark to market gain outstanding
as of December 31, 1997 and 1996, respectively, as based upon quoted market
prices obtained from independent financial institutions. Forwards and
purchased options are carried at fair value. The fair values of loan
commitments, letters of credit and guarantees are negligible.
F-32
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. FINANCIAL DATA BY REGION
The following table shows certain financial information by geographic region
for the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------
UNITED ASIA- LATIN
STATES EUROPE PACIFIC AMERICA CONSOLIDATED
------- ------ ------- ------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Assets
1997...................... $10,048 $2,378 $267 $168 $12,861
1996...................... 9,157 330 306 133 9,926
1995...................... 8,981 295 265 97 9,638
Total revenues
1997...................... $ 1,063 $ 159 $ 29 $ 19 $ 1,270
1996...................... 893 47 30 15 985
1995...................... 1,009 39 28 8 1,084
Income before taxes and
minority interest
1997...................... $ 183 $ 59 $ 6 $(15) $ 233
1996...................... 145 36 6 (4) 183
1995...................... 148 23 7 3 181
Net income
1997...................... $ 126 $ 41 $ 5 $(14) $ 158
1996...................... 100 31 5 (3) 133
1995...................... 95 21 5 4 125
</TABLE>
F-33
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following financial information for the calendar quarters of 1997, 1996
and 1995, is unaudited. In the opinion of management, all adjustments
necessary to present fairly the results of operations for such periods have
been included.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net interest income--
1997.................................. $ 92 $107 $104 $105
1996.................................. 90 87 87 91
1995.................................. 94 95 98 100
Operating revenues--
1997.................................. $141 $199 $193 $221
1996.................................. 131 129 124 149
1995.................................. 146 132 161 181
Provision for losses--
1997.................................. $ 22 $ 34 $ 48 $ 60
1996.................................. 24 25 12 42
1995.................................. 50 28 56 89
Net income--
1997.................................. $ 39 $ 44 $ 40 $ 35
1996.................................. 34 35 35 29
1995.................................. 30 34 35 26
</TABLE>
19. ACCOUNTING DEVELOPMENTS
The Company adopted Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS 125") as amended by Statement of
Financial Accounting Standards No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125" (collectively referred to
hereafter as "SFAS 125") on January 1, 1997. SFAS 125 uses a "financial
components" approach that focuses on control to determine the proper
accounting for financial asset transfers and addresses the accounting for
servicing rights on financial assets in addition to mortgage loans.
Securitizations of finance receivables are accounted for as sales when legal
and effective control over the related receivables is surrendered. Servicing
assets or liabilities are recognized when the servicing rights are retained by
the seller.
In June, 1997, the Financial Accounting Standards Board released Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income,"
which the Company has adopted effective January 1, 1998. This statement
establishes standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information" ("SFAS 131") was also
released in June, 1997 and has also been adopted effective January 1, 1998.
SFAS 131 requires segments to be reported based on the way management
organizes segments within the Company for making operating decisions and
assessing performance.
As SFAS 130 and 131 relate to disclosure requirements, management believes
that neither statement will have a material impact on the financial results of
the Company.
F-34
<PAGE>
HELLER FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
20. SUBSEQUENT EVENTS
On January 29, 1998, Fuji Bank announced that it is considering an initial
public offering of Common Stock by the Company. Fuji Bank will retain majority
ownership of the Company after any such offering. The timing and the terms of
the offering have not yet been determined.
In anticipation of an initial public offering, the Company amended its
Restated Certificate of Incorporation to increase the number of authorized
shares of Common Stock. The total number of shares of stock which the Company
shall have authority to issue is 852 million, of which 2 million shares, no
par value, are to be of a class designated "Preferred Stock", 50 million
shares, of the par value of $.01 each, are to be of a class designated "Senior
Preferred Stock" and 800 million shares, of the par value of $0.25 each, are
to be of a class designated "Common Stock." The Company's Certificate of
Incorporation, as amended, authorizes two classes of Common Stock: Class A
Common Stock and Class B Common Stock. The authorization of the two classes of
Common Stock has been retroactively reflected in the Company's consolidated
financial statements.
Prior to the consummation of the offering, the Keep Well Agreement will be
amended to allow the Company or Fuji Bank or any of its affiliates to sell or
dispose of Common Stock to any person or entity, provided that after any such
sale or disposition, Fuji Bank (directly or indirectly through one or more
subsidiaries) continues to hold greater than 50% of the combined voting power
of the outstanding Common Stock.
In February 1998, the Company paid a dividend of 51 million shares of Class
B Common Stock to FAHI, which has been retroactively reflected in the
Company's consolidated financial statements.
In February 1998, the Company was authorized to purchase the 21% ownership
interest in International Group held by Fuji Bank for approximately $83
million. If completed the Company intends to account for this transaction
using the purchase method of accounting.
On February 24, 1998, the Company paid a dividend on the Common Stock owned
by FAHI of $450 million. The dividend was paid out of the surplus of the
Company in the form of a subordinated note maturing six years from the date of
issuance with an interest rate of LIBOR plus 0.50%. The note can be prepaid at
any time without a premium.
21. BASIC AND DILUTED NET INCOME PER SHARE
Net income applicable to common stock per share is computed based on the
number of common shares outstanding of 51,050,000, reflecting the common stock
dividend in February 1998.
22. PRO FORMA EARNINGS PER SHARE (UNAUDITED)
Pro forma net income applicable to common stock per share for 1997 is
computed based on net income applicable to common stock of $144 million
divided by 84,550,000 shares of common stock, reflecting the number of shares
outstanding after the Company's initial public offering of common stock.
F-35
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the U.S. Underwriters named below, and
each of such U.S. Underwriters, for whom Goldman, Sachs & Co., J.P. Morgan
Securities Inc., BT Alex. Brown Incorporated, Lehman Brothers Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated are acting as representatives, has
severally agreed to purchase from the Company, the respective number of shares
of Class A Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF CLASS A
UNDERWRITER COMMON STOCK
----------- -----------------
<S> <C>
Goldman, Sachs & Co.....................................
J.P. Morgan Securities Inc..............................
BT Alex. Brown Incorporated.............................
Lehman Brothers Inc.....................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated......
----------
Total............................................... 30,150,000
==========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The U.S. Underwriters propose to offer the shares of Class A Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $ per share. The U.S. Underwriters
may allow, and such dealers may reallow, a concession not in excess of
$ per share to certain brokers and dealers. After the shares of
Class A Common Stock are released for sale to the public, the offering price
and other selling terms may from time to time be varied by the
representatives.
The Company and Fuji Bank have entered into an underwriting agreement (the
"International Underwriting Agreement") with the underwriters of the
international offering (the "International Underwriters") providing for the
concurrent offer and sale of 3,350,000 shares of Class A Common Stock in an
international offering outside the United States. The offering price and
aggregate underwriting discounts and commissions per share for the two
Offerings are identical. The closing of the Offering made hereby is a
condition to the closing of the International Offering, and vice versa. The
representatives of the International Underwriters are Goldman Sachs
International, J.P. Morgan Securities Ltd., BT Alex. Brown International, A
Division of Bankers Trust International PLC, Lehman Brothers International
(Europe) and Merrill Lynch International.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two Offerings, each of
the U.S. Underwriters named herein has agreed that, as a part of the
distribution of the shares offered hereby and subject to certain exceptions,
it will offer, sell or deliver the shares of Class A Common Stock, directly or
indirectly, only in the United States of America (including the States and the
District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction (the "United States") and to U.S. persons, which
term shall mean, for purposes of this paragraph: (a) any individual who is a
resident of the United States or (b) any
U-1
<PAGE>
corporation, partnership or other entity organized in or under the laws of the
United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of
the International Underwriters has agreed pursuant to the Agreement Between
that, as a part of the distribution of the shares offered as a part of the
International Offering, and subject to certain exceptions, it will (i) not,
directly or indirectly, offer, sell or deliver shares of Class A Common Stock
(a) in the United States or to any U.S. persons or (b) to any person who it
believes intends to reoffer, resell or deliver the shares in the United States
or to any U.S. persons, and (ii) cause any dealer to whom it may sell such
shares at any concession to agree to observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Class A Common Stock as may be mutually agreed. The price of any shares so
sold shall be the initial public offering price, less an amount not greater
than the selling concession.
The Company, has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of
4,522,500 additional shares of Class A Common Stock solely to cover over-
allotments, if any. If the U.S. Underwriters exercise their over-allotment
option, the U.S. Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares to be purchased by each of them, as shown in the foregoing
table, bears to the 30,150,000 shares of Class A Common Stock offered hereby.
The Company has granted the International Underwriters a similar option to
purchase up to an aggregate of 502,500 additional shares of Class A Common
Stock.
The Company, FAHI and Fuji Bank have agreed that, during the period
beginning from the date of this Prospectus and continuing to and including the
date 180 days after the date of this Prospectus, they will not, directly or
indirectly, offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock or any other securities of the Company which are substantially
similar to the shares of the Common Stock, including, but not limited to, any
securities that are convertible into or exchangeable for, or that represent
the right to receive, Common Stock or any such substantially similar
securities (other than pursuant to employee benefit plans existing, or on the
conversion or exchange of convertible or exchangeable securities outstanding,
on the date of this Prospectus), or enter into any swap, option, future,
forward or other agreement that transfers, in whole or in part, the economic
consequences of ownership of Common Stock or any securities substantially
similar to the Common Stock, without the prior written consent of Goldman,
Sachs & Co., except for the shares of Class A Common Stock issued in
connection with the concurrent U.S. and International Offerings.
Prior to the Offerings, there has been no public market for the shares of
Class A Common Stock. The initial public offering price will be negotiated
among the Company and the representatives of the U.S. Underwriters and the
International Underwriters. Among the factors to be considered in determining
the initial public offering price of the Class A Common Stock, in addition to
prevailing market conditions, are the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
The Class A Common Stock has been approved for listing on the NYSE, upon
notice of issuance, under the symbol "HF". In order to meet one of the
requirements for listing the Class A Common Stock on the NYSE, the U.S.
Underwriters have undertaken to sell lots of 100 or more shares to a minimum
of 2,000 beneficial holders.
The Company and Fuji Bank have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act.
In connection with the Offerings, the Underwriters may purchase and sell the
Class A Common Stock in the open market. These transactions may include over-
allotment and stabilizing transactions
U-2
<PAGE>
and purchases to cover syndicate short positions created in connection with
the Offerings. Stabilizing transactions consist of certain bids or purchases
for the purpose of preventing or retarding a decline in the market price of
the Class A Common Stock, and syndicate short positions involve the sale by
the Underwriters of a greater number of shares of Class A Common Stock than
they are required to purchase from the Company in the Offerings. The
Underwriters also may impose a penalty bid, whereby selling concessions
allowed to syndicate members or other broker-dealers in respect of the
securities sold in the Offerings for their account may be reclaimed by the
syndicate if such shares of Class A Common Stock are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Class A Common
Stock, which may be higher than the price that might otherwise prevail in the
open market; and these activities, if commenced, may be discontinued at any
time. These transactions may be effected on the NYSE, in the over-the-counter
market or otherwise.
Certain of the Underwriters perform investment banking and financial
advisory and other financial services for the Company, Fuji Bank and their
affiliates from time to time. Affiliates of certain of the Underwriters engage
from time to time in general financing and banking transactions with the
Company, Fuji Bank and their affiliates.
At the request of the Company, the U.S. Underwriters have reserved up to 5%
of the shares of Class A Common Stock offered hereby for sale, at the initial
offering price, to directors, officers and employees of the Company, to the
Company's Executive Deferred Compensation Plan and Savings and Profit Sharing
Plan, at the direction of the officers and employees participating in such
Plans, and to certain other persons designated by the Company. The number of
shares of Class A Common Stock available for sale to the general public will
be reduced to the extent such persons purchase such reserved shares. Any
reserved shares which are not so purchased will be offered by the U.S.
Underwriters to the general public on the same basis as the other shares
offered hereby.
U-3
<PAGE>
[LOGO OF HELLER FINANCIAL APPEARS HERE]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPEC-
TUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IM-
PLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 12
Special Note Regarding Forward-looking Statements......................... 19
Use of Proceeds........................................................... 20
Dividend Policy........................................................... 20
Capitalization............................................................ 21
Selected Financial Data................................................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 25
Business.................................................................. 39
Risk Management........................................................... 61
Management................................................................ 68
Certain Relationships and Related Transactions............................ 82
Ownership of Common Stock................................................. 87
Shares Available for Future Sale.......................................... 88
Description of Capital Stock.............................................. 90
Validity of Shares of Class A Common Stock................................ 97
Independent Public Accountants............................................ 97
Index to Consolidated Financial Statements................................ F-1
Underwriting.............................................................. U-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
33,500,000 SHARES
[LOGO OF HELLER FINANCIAL APPEARS HERE]
CLASS A COMMON STOCK
(PAR VALUE $0.25 PER SHARE)
----------------
PROSPECTUS
----------------
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
BT ALEX. BROWN
LEHMAN BROTHERS
MERRILL LYNCH & CO.
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 28, 1998
33,500,000 SHARES
[LOGO OF HELLER FINANCIAL APPEARS HERE]
CLASS A COMMON STOCK
(PAR VALUE $0.25 PER SHARE)
-----------
Of the 33,500,000 shares of Class A Common Stock offered, 3,350,000 shares
are being offered hereby in an international offering outside of the United
States and 30,150,000 shares are being offered in a concurrent United States
offering. The initial public offering price and the aggregate underwriting
discount per share will be identical for both Offerings. See "Underwriting".
All of the shares of Class A Common Stock offered hereby are being sold by
the Company. The Company is currently an indirect, wholly-owned subsidiary of
The Fuji Bank, Limited. Upon completion of the Offerings, Fuji Bank will
beneficially own, indirectly, 100% of the outstanding shares of Class B Common
Stock of the Company. The Class B Common Stock, which has three votes per share
(except that the outstanding shares of Class B Common Stock, while held by Fuji
Bank, may never represent more than 79% of the combined voting power of all
outstanding shares of the Company's voting stock), is a class of common stock
separate from the Class A Common Stock, which has one vote per share.
Immediately following the Offerings, the 33,500,000 shares of Class A Common
Stock offered in the Offerings will represent 39.6% of the economic interest
(or rights of holders of common equity to participate in distributions in
respect of the common equity) in the Company (43.0% if the Underwriters' over-
allotment options are exercised in full) and, due to the limitation on the
voting power of the Class B Common Stock while held by Fuji Bank, 21.0% of the
combined voting power of all classes of voting stock of the Company (regardless
of whether the Underwriters' over-allotment options are exercised). The
remainder of the voting power and economic interest in the Company will be
beneficially held by Fuji Bank, which will therefore continue to be able to
exercise a controlling influence over the business and affairs of the Company
upon consummation of the Offerings. See "Risk Factors--Control by and
Relationship with Fuji Bank", "Certain Relationships and Related Transactions--
Relationship with Fuji Bank" and "Description of Capital Stock".
Prior to this offering, there has been no public market for the Class A
Common Stock. It is currently estimated that the initial public offering price
per share will be between $23.00 and $25.00. For factors to be considered in
determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE CLASS A COMMON STOCK.
The Class A Common Stock has been approved for listing on the New York Stock
Exchange, upon notice of issuance, under the symbol "HF".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-
TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
-------------- ------------ -----------
<S> <C> <C> <C>
Per Share............................... $ $ $
Total (3)............................... $ $ $
</TABLE>
- -----
(1) The Company and Fuji Bank have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933.
(2) Before deducting estimated expenses of $2,200,000 payable by the Company.
(3) The Company has granted the International Underwriters an option for 30
days to purchase up to an additional 502,500 shares at the initial public
offering price per share, less the underwriting discount, solely to cover
over-allotments. Additionally, the Company has granted the U.S.
Underwriters a similar option with respect to an additional 4,522,500
shares as part of the concurrent U.S. offering. If such options are
exercised in full, the total initial public offering price, underwriting
discount and proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting".
-----------
The shares offered hereby are offered severally by the International
Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that the shares will be ready for delivery in New York, New York, on
or about , 1998, against payment therefor in immediately available
funds.
GOLDMAN SACHS INTERNATIONAL J.P. MORGAN SECURITIES LTD.
Joint Lead Managers
BT ALEX. BROWN INTERNATIONAL
LEHMAN BROTHERS
MERRILL LYNCH INTERNATIONAL
-----------
The date of this Prospectus is , 1998.
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
AVAILABLE INFORMATION
Heller Financial, Inc. (the "Company") is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports and other information with
the Securities and Exchange Commission (the "Commission"). Reports and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's Regional Offices located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
materials may also be obtained from the web site the Commission maintains at
http://www.sec.gov. In addition, such materials may be inspected and copied at
the offices of The New York Stock Exchange (the "NYSE"), 20 Broad Street, New
York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-2 (herein, together with all amendments and exhibits, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"). This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information,
reference is hereby made to the Registration Statement.
----------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 1-6157) pursuant
to the Exchange Act are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997; and
(2) The Company's Current Reports on Form 8-K filed with the Commission
on January 29, 1998, January 30, 1998, February 20, 1998, February 27, 1998
and April 21, 1998.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, on the
written or oral request of any such person, a copy of any or all of the
documents incorporated herein by reference, other than exhibits to such
information (unless such exhibits are specifically incorporated by reference
into such documents). Requests should be directed to Heller Financial, Inc.,
500 West Monroe Street, Chicago, Illinois 60661, Attention: Treasurer,
telephone (312) 441-7000.
----------------
Any statement contained in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is, or is deemed to be, incorporated by reference herein modifies
or supersedes such statement. Any statement so modified shall not be deemed to
constitute a part of this Prospectus except as so modified, and any statement
so superseded shall not be deemed to constitute a part of this Prospectus.
----------------
This Prospectus does not constitute an offer to sell or the solicitation of
an offer to buy the shares in any jurisdiction in which such offer or
solicitation is unlawful. There are restrictions on the offer and sale of the
shares in the United Kingdom. All applicable provisions of the Financial
Services Act 1986 and the Public Offers of Securities Regulations 1995 with
respect to anything done by any person in relation to the Shares in, from or
otherwise involving the United Kingdom must be complied with. See
"Underwriting".
In this Prospectus, references to "dollars" and to "$" are to United States
dollars.
----------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING".
2
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
of three years after the date of the transaction in which the person becomes
an interested stockholder,
unless either (i) prior to the date at which the stockholder becomes an
interested stockholder the board of directors approved either the business
combination or the transaction in which the person becomes an interested
stockholder, (ii) the stockholder acquires more than 85% of the outstanding
voting stock of the corporation (excluding shares held by directors who are
officers or held in certain employee stock plans) upon consummation of the
transaction in which the stockholder becomes an interested stockholder or
(iii) the business combination is approved by the board of directors and by
two-thirds of the outstanding voting stock of the corporation (excluding
shares held by the interested stockholder) at a meeting of the stockholders
(and not by written consent) held on or subsequent to the date of the business
combination. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or at any time within the prior three years
did own) 15% or more of the corporation's voting stock. Section 203 defines a
"business combination" to include, without limitation, mergers,
consolidations, stock sales and asset based transactions and other
transactions resulting in a financial benefit to the interested stockholder.
LIMITATIONS ON DIRECTORS' LIABILITY
The Company's Restated Certificate will provide that no director of the
Company shall be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases or (iv)
for any transaction from which the director derived an improper personal
benefit. The effect of these provisions will be to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of
fiduciary duty as a director (including breaches resulting from grossly
negligent behavior), except in the situations described above.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock will be The
Bank of New York.
97
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain material U.S. federal
income and estate tax consequences of the ownership and disposition of Class A
Common Stock by a Non-U.S. Holder. For this purpose, a "Non-U.S. Holder" is
any beneficial owner of Class A Common Stock that, for U.S. federal income tax
purposes, is a foreign corporation, a non-resident alien individual, a foreign
partnership or a foreign estate or trust. This discussion does not address all
aspects of U.S. federal income and estate taxes and does not deal with
foreign, state and local tax consequences that may be relevant to such Non-
U.S. Holders in light of their individual circumstances (such as certain tax
consequences applicable to pass-through entities). Furthermore, this
discussion is based upon provisions of the Code existing and proposed Treasury
Regulations promulgated thereunder and administrative and judicial
interpretations thereof, as of the date hereof, all of which are subject to
change (possibly with retroactive effect). This discussion addresses the tax
considerations applicable to persons or entities who purchase Class A Common
Stock in the Offerings and does not discuss the tax considerations applicable
to subsequent purchasers of the Class A Common Stock. EACH PROSPECTIVE
PURCHASER OF CLASS A COMMON STOCK IS ADVISED TO CONSULT A TAX ADVISOR WITH
RESPECT TO CURRENT AND POSSIBLE FUTURE TAX CONSEQUENCES OF ACQUIRING, HOLDING
AND DISPOSING OF CLASS A COMMON STOCK AS WELL AS ANY TAX CONSEQUENCES THAT MAY
ARISE UNDER THE LAWS OF ANY U.S. STATE, LOCAL OR FOREIGN TAXING JURISDICTION
OR UNDER ANY APPLICABLE TAX TREATY.
DIVIDENDS
Dividends paid to a Non-U.S. Holder of Class A Common Stock generally will
be subject to withholding of U.S. federal income tax either at a rate of 30%
of the gross amount of the dividends or at such lower rate as may be specified
by an applicable income tax treaty. However, dividends that are effectively
connected with the conduct of a trade or business by the Non-U.S. Holder
within the United States and, where a tax treaty applies, are attributable to
a U.S. permanent establishment of the Non-U.S. Holder, are not subject to the
withholding tax, but instead are subject to U.S. federal income tax on a net
income basis at applicable graduated individual or corporate rates. Any such
effectively connected dividends received by a foreign corporation may, under
certain circumstances, be subject to an additional "branch profits tax" at a
30% rate or such lower rate as may be specified by an applicable income tax
treaty.
Under currently effective United States Treasury regulations, dividends paid
prior to January 1, 2000 to an address outside the United States are presumed
to be paid to a resident of such country (unless the payer has knowledge to
the contrary) for purposes of the withholding discussed above and for purposes
of determining the applicability of a tax treaty rate. Under recently
finalized United States Treasury regulations (the "Final Withholding
Regulations"), however, a Non-U.S. Holder of Class A Common Stock who wishes
to claim the benefit of an applicable treaty rate (and/or generally to avoid
backup withholding, as discussed below) with respect to dividends paid after
December 31, 1999 will be required to satisfy applicable certification and
other requirements. In addition, under the Final Withholding Regulations, in
the case of Class A Common Stock held by a foreign partnership, (i) the
certification requirement would generally be applied to the partners of the
partnership and (ii) the partnership would be required to provide certain
information, including a United States taxpayer identification number. The
Final Withholding Regulations also provide look-through rules for tiered
partnerships. Currently, certain certification and disclosure requirements
must be complied with in order to be exempt from withholding under the
effectively connected income exemption discussed above.
A Non-U.S. Holder of Class A Common Stock eligible for a reduced rate of
U.S. withholding tax pursuant to an applicable income tax treaty may obtain a
refund of any excess amounts withheld by filing an appropriate claim for
refund with the Internal Revenue Service (the "IRS").
98
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
with respect to gain recognized on a sale or other disposition of Class A
Common Stock unless (i) the gain is effectively connected with a trade or
business within the United States by the Non-U.S. Holder, and, where a tax
treaty so requires, is attributable to a U.S. permanent establishment of the
Non-U.S. Holder, (ii) in the case of a Non-U.S. Holder who is an individual
and holds the Class A Common Stock as a capital asset, such holder is present
in the United States for a period or periods aggregating 183 days or more
during the taxable year of the sale or other disposition and certain other
conditions are met, (iii) the Non-U.S. Holder is subject to tax pursuant to
certain provisions of the Code applicable to U.S. expatriates or (iv) the
Company is or has been a "U.S. real property holding corporation" for U.S.
federal income tax purposes and, in the event that the Class A Common Stock is
considered "regularly traded", the Non-U.S. Holder held directly or indirectly
at any time during the five-year period ending on the date of disposition more
than five percent of the Class A Common Stock. The Company believes it is not
and does not anticipate becoming a "U.S. real property holding corporation"
for U.S. federal income tax purposes.
An individual Non-U.S. Holder described in clause (i) above will, unless an
applicable treaty provides otherwise, be taxed on the net gain derived from
the sale under graduated U.S. federal income tax rates. An individual Non-U.S.
Holder described in clause (ii) above will be subject to a flat 30% tax on the
gain derived from the sale, which may be offset by certain U.S. source capital
losses.
If a Non-U.S. Holder that is a foreign corporation falls under clause (i)
above, it will be taxed on its net gain under regular graduated U.S. federal
income tax rates and may be subject to an additional branch profits tax at a
30% rate, unless it qualifies for a lower rate under an applicable income tax
treaty.
FEDERAL ESTATE TAX
Class A Common Stock owned or treated as owned by an individual Non-U.S.
Holder at the time of death will be included in such holder's gross estate for
U.S. federal estate tax purposes, unless an applicable estate tax treaty
provides otherwise, and therefore may be subject to U.S. federal estate tax.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to such holder and the tax withheld with respect to
such dividends, regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-U.S. Holder
resides under the provisions of an applicable income tax treaty.
Under current law, backup withholding at the rate of 31% generally will not
apply to dividends paid prior to January 1, 2000 to a Non-U.S. Holder at an
address outside the United States (unless the payor has knowledge that the
payee is a U.S. person). Under the Final Withholding Regulations, however, a
Non-U.S. Holder will generally be subject to backup withholding with respect
to dividends paid after December 31, 1999 unless applicable certification
requirements are met.
Payment of the proceeds of a sale of Class A Common Stock by or through a
U.S. office of a broker is subject to both backup withholding and information
reporting unless the beneficial owner provides the payor with its name and
address and certifies under penalties of perjury that it is a Non-U.S. Holder,
or otherwise establishes an exemption. In general, backup withholding and
information
99
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
reporting will not apply to a payment of the proceeds of a sale of Class A
Common Stock outside of the United States by or through a foreign office of a
foreign broker. If, however, such broker is, for U.S. federal income tax
purposes a U.S. person, a controlled foreign corporation, a foreign person
that derives 50% or more of its gross income for a certain period from the
conduct of a trade or business in the United States or, effective after
December 31, 1999, a foreign partnership, if 50% or more of its income or
capital interests are held by U.S. persons or if it is engaged in the conduct
of a trade or business in the United States, such payments will be subject to
information reporting, but not backup withholding, unless (1) such broker has
documentary evidence in its records that the beneficial owner is a Non-U.S.
Holder and certain other conditions are met, or (2) the beneficial owner
otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules generally will be
allowed as a refund or a credit against such holder's U.S. federal income tax
liability provided the required information is furnished in a timely manner to
the IRS.
VALIDITY OF SHARES OF CLASS A COMMON STOCK
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Katten Muchin & Zavis, Chicago, Illinois, and
for the Underwriters by Sullivan & Cromwell, New York, New York. Upon
consummation of the Offerings, certain partners of, and attorneys associated
with, Katten Muchin & Zavis will own less than 1% of the outstanding shares of
Class A Common Stock.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated balance sheets of the Company as of December 31, 1997 and
1996 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997 included in this Prospectus have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
100
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the International Underwriters named
below, and each of such International Underwriters, for whom Goldman Sachs
International, J.P. Morgan Securities Ltd., BT Alex. Brown International, A
Division of Bankers Trust International PLC, Lehman Brothers International
(Europe) and Merrill Lynch International are acting as representatives, has
severally agreed to purchase from the Company, the respective number of shares
of Class A Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF CLASS A
UNDERWRITER COMMON STOCK
----------- -----------------
<S> <C>
Goldman Sachs International.............................
J.P. Morgan Securities Ltd..............................
BT Alex. Brown International
A Division of Bankers Trust International PLC..........
Lehman Brothers International (Europe)..................
Merrill Lynch International.............................
---------
Total............................................... 3,350,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
International Underwriters are committed to take and pay for all of the shares
offered hereby, if any are taken.
The International Underwriters propose to offer the shares of Class A Common
Stock in part directly to the public at the initial public offering price set
forth on the cover page of this Prospectus and in part to certain securities
dealers at such price less a concession of $ per share. The International
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain brokers and dealers. After the shares of
Class A Common Stock are released for sale to the public, the offering price
and other selling terms may from time to time be varied by the
representatives.
The Company and Fuji Bank have entered into an underwriting agreement (the
"U.S. Underwriting Agreement") with the underwriters of the U.S. Offering (the
"U.S. Underwriters") providing for the concurrent offer and sale of 30,150,000
shares of Class A Common Stock in a U.S. offering in the United States. The
offering price and aggregate underwriting discounts and commissions per share
for the two Offerings are identical. The closing of the Offering made hereby
is a condition to the closing of the U.S. Offering, and vice versa. The
representatives of the U.S. Underwriters are Goldman, Sachs & Co., J.P. Morgan
Securities Inc., BT Alex. Brown Incorporated, Lehman Brothers Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two Offerings, each of
the U.S. Underwriters has agreed that, as a part of the distribution of the
shares offered in the U.S. Offering and subject to certain exceptions, it will
offer, sell or deliver the shares of Class A Common Stock, directly or
indirectly, only in the United States of America (including the States and the
District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction (the "United States") and to U.S. persons, which
term shall mean, for purposes of this paragraph: (a) any individual who is a
resident of the United States or (b) any corporation, partnership or other
entity organized in or under the laws of the United States or any political
subdivision thereof and whose office most directly involved with the purchase
is located in the United States. Each of the International Underwriters named
herein has agreed pursuant to the
U-1
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
Agreement Between that, as a part of the distribution of the shares offered
hereby and subject to certain exceptions, it will (i) not, directly or
indirectly, offer, sell or deliver shares of Class A Common Stock (a) in the
United States or to any U.S. persons or (b) to any person who it believes
intends to reoffer, resell or deliver the shares in the United States or to
any U.S. persons, and (ii) cause any dealer to whom it may sell such shares at
any concession to agree to observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Class A Common Stock as may be mutually agreed. The price of any shares so
sold shall be the initial public offering price, less an amount not greater
than the selling concession.
The Company has granted the International Underwriters an option exercisable
for 30 days after the date of this Prospectus to purchase up to an aggregate
of 502,500 additional shares of Class A Common Stock solely to cover over-
allotments, if any. If the International Underwriters exercise their over-
allotment option, the International Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares to be purchased by each of them, as shown in
the foregoing table, bears to the 3,350,000 shares of Class A Common Stock
offered hereby. The Company has granted the U.S. Underwriters a similar option
to purchase up to an aggregate of 4,522,500 additional shares of Class A
Common Stock.
The Company, FAHI and Fuji Bank have agreed that, during the period
beginning from the date of this Prospectus and continuing to and including the
date 180 days after the date of this Prospectus, they will not, directly or
indirectly, offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock or any other securities of the Company which are substantially
similar to the shares of the Common Stock, including, but not limited to, any
securities that are convertible into or exchangeable for, or that represent
the right to receive, Common Stock or any such substantially similar
securities (other than pursuant to employee benefit plans existing, or on the
conversion or exchange of convertible or exchangeable securities outstanding,
on the date of this Prospectus), or enter into any swap, option, future,
forward or other agreement that transfers, in whole or in part, the economic
consequences of ownership of Common Stock or any securities substantially
similar to the Common Stock, without the prior written consent of Goldman,
Sachs & Co., except for the shares of Class A Common Stock issued in
connection with the concurrent U.S. and International Offerings.
Each International Underwriter has also agreed that (a) it has not offered
or sold and prior to the date six months after the date of issue of the shares
of Class A Common Stock will not offer or sell any shares of Class A Common
Stock to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995, (b) it has complied, and will comply,
with all applicable provisions of the Financial Services Act of 1986 of Great
Britain with respect to anything done by it in relation to the shares of Class
A Common Stock in, from or otherwise involving the United Kingdom, and (c) it
has only issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the issuance of the
shares of Class A Common Stock to a person who is of a kind described in
Article 11(3) of the Financial Services Act of 1986 (Investment
Advertisements) (Exemptions) Order 1996 of Great Britain or is a person to
whom the document may otherwise lawfully be issued or passed on.
Buyers of shares of Class A Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the initial public offering price.
U-2
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
Prior to the Offerings, there has been no public market for the shares of
Class A Common Stock. The initial public offering price will be negotiated
among the Company and the representatives of the U.S. Underwriters and the
International Underwriters. Among the factors to be considered in determining
the initial public offering price of the Class A Common Stock, in addition to
prevailing market conditions, are the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
The Class A Common Stock has been approved for listing on the NYSE, upon
notice of issuance, under the symbol "HF". In order to meet one of the
requirements for listing the Class A Common Stock on the NYSE, the U.S.
Underwriters have undertaken to sell lots of 100 or more shares to a minimum
of 2,000 beneficial holders.
The Company and Fuji Bank have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act.
In connection with the Offerings, the Underwriters may purchase and sell the
Class A Common Stock in the open market. These transactions may include over-
allotment and stabilizing transactions and purchases to cover syndicate short
positions created in connection with the Offerings. Stabilizing transactions
consist of certain bids or purchases for the purpose of preventing or
retarding a decline in the market price of the Class A Common Stock, and
syndicate short positions involve the sale by the Underwriters of a greater
number of shares of Class A Common Stock than they are required to purchase
from the Company in the Offerings. The Underwriters also may impose a penalty
bid, whereby selling concessions allowed to syndicate members or other broker-
dealers in respect of the securities sold in the Offerings for their account
may be reclaimed by the syndicate if such shares of Class A Common Stock are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Class A Common Stock, which may be higher than the price that might otherwise
prevail in the open market; and these activities, if commenced, may be
discontinued at any time. These transactions may be effected on the NYSE, in
the over-the-counter market or otherwise.
Certain of the Underwriters perform investment banking and financial
advisory and other financial services for the Company, Fuji Bank and their
affiliates from time to time. Affiliates of certain of the Underwriters engage
from time to time in general financing and banking transactions with the
Company, Fuji Bank and their affiliates.
U-3
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITA-
TION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OF-
FER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUB-
SEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 12
Special Note Regarding Forward-looking Statements......................... 19
Use of Proceeds........................................................... 20
Dividend Policy........................................................... 20
Capitalization............................................................ 21
Selected Financial Data................................................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 25
Business.................................................................. 39
Risk Management........................................................... 61
Management................................................................ 68
Certain Relationships and Related Transactions............................ 82
Ownership of Common Stock................................................. 87
Shares Available for Future Sale.......................................... 88
Description of Capital Stock.............................................. 90
Certain United States Tax Consequences to Non-United States Holders....... 98
Validity of Shares of Class A Common Stock................................ 100
Independent Public Accountants............................................ 100
Index to Consolidated Financial Statements................................ F-1
Underwriting.............................................................. U-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
33,500,000 SHARES
[LOGO OF HELLER FINANCIAL APPEARS HERE]
CLASS A COMMON STOCK
(PAR VALUE $0.25 PER SHARE)
---------------
PROSPECTUS
---------------
GOLDMAN SACHS INTERNATIONAL
J.P. MORGAN SECURITIES LTD.
BT ALEX. BROWN INTERNATIONAL
LEHMAN BROTHERS
MERRILL LYNCH INTERNATIONAL
REPRESENTATIVES OF THE UNDERWRITERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Set forth below is an estimate (other than the Securities and Exchange
Commission registration fee, NASD filing fee and New York Stock Exchange
listing fee) of the fees and expenses (other than underwriting discounts)
payable by the Registrant in connection with the Offerings. The Registrant
will pay all of these expenses.
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT
-----------
<S> <C>
Securities and Exchange Commission registration fee........... $ 284,122
NASD filing fee............................................... 30,500
New York Stock Exchange listing fee........................... 201,900
Accountants' fees and expenses................................ 350,000
Legal fees and expenses....................................... 450,000
Transfer Agent and Registrar fees and expenses................ 15,000
Printing and engraving expenses............................... 450,000
Miscellaneous expenses........................................ 418,478
----------
Total..................................................... $2,200,000
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant, a Delaware corporation, is empowered by Section 145 of the
Delaware General Corporation Law, subject to the procedures and limitations
stated therein, to indemnify any person against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in the defense of any threatened, pending or completed
action, suit or proceeding in which such person is made a party by reason of
his being or having been a director or officer of the Registrant. The statute
provides that indemnification pursuant to its provisions is not exclusive of
other rights of indemnification to which a person may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors, or
otherwise. The Amended and Restated By-Laws of the Registrant provide for
indemnification by the Registrant of its directors and officers to the full
extent permitted by the Delaware General Corporation Law. Also, as permitted
by the Delaware General Corporation Law, the Registrant's Amended and Restated
Certificate of Incorporation eliminates the personal liability of each
director of the Registrant to the Registrant or its stockholders for monetary
damages arising out of or resulting from any breach of such director's
fiduciary duty as a director, except where such director breached such
director's duty of loyalty to the Registrant or its stockholders, failed to
act in good faith, engaged in intentional misconduct or a knowing violation of
the law, paid an unlawful dividend, approved an unlawful stock purchase or
redemption, or obtained an improper personal benefit.
Prior to the consummation of the Offerings, the Registrant intends to
purchase a directors' and officers' liability insurance policy.
Under the terms of the Underwriting Agreement, the Underwriters have agreed
to indemnify, under certain conditions, the Registrant, its directors, certain
of its officers and persons who control the Company within the meaning of the
Securities Act of 1933, as amended, against certain liabilities.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<S> <C> <C>
1.1 Form of Underwriting Agreement (U.S. version).
1.2 Form of Underwriting Agreement (International version).
3.1 Form of Amended and Restated Certificate of Incorporation of the Regis-
trant.
3.2 Form of Amended and Restated By-laws of the Registrant.
4 Form of specimen stock certificate representing Class A Common Stock.
5 Opinion of Katten Muchin & Zavis as to the legality of the securities be-
ing registered (including consent).
10.1 1998 Heller Financial, Inc. Stock Incentive Plan.
10.2 Form of Registration Rights Agreement to be entered into by and between
the Registrant and The Fuji Bank, Limited ("Fuji Bank").
10.3 Employment Letter Agreement dated as of December 31, 1997, between the
Registrant and Richard J. Almeida (the "Almeida Employment Agreement"),
incorporated by reference to Exhibit 10(w) to the Registrant's Annual Re-
port on
Form 10-K for the Fiscal Year ended December 31, 1997 (the "1997 10-K").
10.4 Employment Letter Agreement dated as of December 31, 1997, between the
Registrant and Frederick E. Wolfert (the "Wolfert Employment Agreement"),
incorporated by reference to Exhibit 10(x) to the 1997 10-K.
10.5 Form of Amended and Restated Keep Well Agreement, as amended, between the
Registrant and Fuji Bank.
10.6 Services Agreement dated January 1, 1985 between the Registrant and Fuji
Bank, incorporated by reference to Exhibit (10)(e) to the 1992 10-K.
10.7 Management Agreement dated as of January 1, 1991 between Heller Interna-
tional Corporation, Inc. ("HIC") and the Registrant, incorporated by ref-
erence to Exhibit (10)(m) to the Registrant's Quarterly Report on Form 10-
Q for the period ending March 31, 1991.
10.8 Management Services Agreement dated as of January 2, 1998 between Fuji
American Holdings, Inc. ("FAHI") and the Registrant, incorporated by ref-
erence to Exhibit 10(d) to the 1997 10-K.
10.9 Agreement for the Allocation of Federal, State and Foreign Income Tax Lia-
bility and Benefits Among HIC and its Subsidiaries, effective as of July
1, 1996, incorporated by reference to Exhibit (10)(g) to the Company's An-
nual Report on Form
10-K for the Fiscal Year ended December 31, 1996 (the "1996 10-K").
10.10 Supplemental Executive Retirement Benefit Plan, amended and restated ef-
fective January 1, 1996, incorporated by reference to Exhibit (10)(e) to
the 1996 10-K.
10.11 Long Term Incentive Plan, effective January 1, 1994, incorporated by ref-
erence to Exhibit 10(n) to the Company's Annual Report on Form 10-K for
the Fiscal Year ended December 31, 1994 (the "1994 10-K").
10.12 1996-1998 Long Term Incentive Plan, effective January 1, 1996, incorpo-
rated by reference to Exhibit 10(h) to the 1997 10-K.
10.13 1997-1999 Long Term Incentive Plan, effective January 1, 1997, incorpo-
rated by reference to Exhibit 10(i) to the 1997 10-K.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C> <C>
10.14 Executive Deferred Compensation Plan, dated January 1, 1994, as amended on
October 1, 1994, incorporated by reference to Exhibit 10(o) to the 1994
10-K.
10.15 Second Amendment to the Executive Deferred Compensation Plan, dated
December 29, 1995, incorporated by reference to Exhibit 10(n) to the
Company's Annual Report on Form 10-K for the Fiscal Year ended December
31, 1995
(the "1995 10-K").
10.16 Third Amendment to the Executive Deferred Compensation Plan, dated January
1, 1996, incorporated by reference to Exhibit (10)(m) to the 1996 10-K.
10.17 Fourth Amendment to the Executive Deferred Compensation Plan, dated
November 26, 1996, incorporated by reference to Exhibit (10)(n) to the
1996 10-K.
10.18 Fifth Amendment to the Executive Deferred Compensation Plan, dated
November 21, 1997, incorporated by reference to Exhibit 10(n) to the 1997
10-K.
10.19 Sixth Amendment to the Executive Deferred Compensation Plan effective as
of January 1, 1997.
10.20 Seventh Amendment to the Executive Deferred Compensation Plan, dated
March 2, 1998 and effective as of January 1, 1998.
10.21 Eighth Amendment to the Executive Deferred Compensation Plan, effective as
of January 1, 1998 and April 1, 1998.
10.22 Cross Guaranty for the Executive Deferred Compensation Plan, incorporated
by reference to Exhibit (10)(p) to the 1994 10-K.
10.23 Management Incentive Plan (effective January 1, 1987, revised January 1,
1989), incorporated by reference to Exhibit 10(m) to the 1995 10-K.
10.24 Savings and Profit Sharing Plan, amended and restated effective as of Jan-
uary 1, 1989, incorporated by reference to Exhibit (10)(q) to the 1996 10-
K.
10.25 First Amendment to Savings and Profit Sharing Plan, dated December 23,
1993, incorporated by reference to Exhibit (10)(r) to the 1996 10-K.
10.26 Second Amendment to Savings and Profit Sharing Plan, dated December 20,
1994, incorporated by reference to Exhibit (10)(s) to the 1996 10-K.
10.27 Third Amendment to Savings and Profit Sharing Plan, dated September 9,
1996, incorporated by reference to Exhibit (10)(t) to the 1996 10-K.
10.28 Fourth Amendment to Savings and Profit Sharing Plan, dated April 30, 1997,
incorporated by reference to Exhibit 10(u) to the 1997 10-K.
10.29 Fifth Amendment to Savings and Profit Sharing Plan, effective as of April
30, 1998.
10.30 Form of Amendment to the Almeida Employment Agreement.
10.31 Form of Amendment to the Wolfert Employment Agreement.
10.32 Form of Change in Control Agreement.
10.33 Subordinated Promissory Note in the principal amount of $450 million is-
sued by the Registrant to FAHI, incorporated by reference to Exhibit 10(y)
to the 1997 10-K.
10.34 Heller Financial, Inc. 1998 Employee Stock Purchase Plan.
12 Computation of ratio of earnings to fixed charges, incorporated by
reference to Exhibit 12 to the 1997 10-K.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C> <C>
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Katten Muchin & Zavis (contained in its opinion filed as
Exhibit 5 hereto).
24 Power of Attorney (previously included on signature page of the
Registration Statement).
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the Offerings of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS AMENDMENT TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO, STATE OF ILLINOIS ON THE
28TH DAY OF APRIL, 1998.
Heller Financial, Inc.
By: /s/ Lauralee E. Martin
---------------------------------
Lauralee E. Martin
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on April 28, 1998.
* *
- ------------------------------------- -------------------------------------
Richard J. Almeida Michael J. Litwin
Chairman, Chief Executive Officer Director
(Principal Executive Officer) and
Director
* *
- ------------------------------------- -------------------------------------
Atsushi Takano Dennis P. Lockhart
Director Director
* /s/ Lauralee E. Martin
- ------------------------------------- -------------------------------------
Yukihiko Chayama Lauralee E. Martin
Director Executive Vice President, Chief
Financial Officer and Director
(Principal Financial Officer)
* *
- ------------------------------------- -------------------------------------
Kenichi Tomita Takeshi Takahashi
Director Director
* *
- ------------------------------------- -------------------------------------
Tsutomu Hayano Osamu Ogura
Director Director
* *
- ------------------------------------- -------------------------------------
Mark Kessel Hideo Nakajima
Director Director
* *
- ------------------------------------- -------------------------------------
Masahiro Sawada Kenichiro Tanaka
Director Director
*By: /s/ Lauralee E. Martin *
-------------------------------- -------------------------------------
Lauralee E. Martin Lawrence G. Hund
As Attorney-in-fact Executive Vice President and
Controller (Principal Accounting
Officer)
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C> <C>
1.2 Form of Underwriting Agreement (International version).
3.1 Form of Amended and Restated Certificate of Incorporation of the Regis-
trant.
3.2 Form of Amended and Restated By-laws of the Registrant.
4 Form of specimen stock certificate representing Class A Common Stock.
5 Opinion of Katten Muchin & Zavis as to the legality of the securities be-
ing registered (including consent).
10.1 1998 Heller Financial, Inc. Stock Incentive Plan.
10.2 Form of Registration Rights Agreement to be entered into by and between
the Registrant and The Fuji Bank, Limited ("Fuji Bank").
10.5 Form of Amended and Restated Keep Well Agreement, as amended, between the
Registrant and Fuji Bank.
10.19 Sixth Amendment to the Executive Deferred Compensation Plan, effective as
of January 1, 1997.
10.20 Seventh Amendment to the Executive Deferred Compensation Plan, dated March
2, 1998 and effective as of January 1, 1998.
10.21 Eighth Amendment to the Executive Deferred Compensation Plan, effective as
of January 1, 1998 and April 1, 1998.
10.29 Fifth Amendment to Savings and Profit Sharing Plan, effective as of April
30, 1998.
10.30 Form of Amendment to the Almeida Employment Agreement.
10.31 Form of Amendment to the Wolfert Employment Agreement.
10.32 Form of Change in Control Agreement.
10.34 Heller Financial, Inc. 1998 Employee Stock Purchase Plan.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Katten Muchin & Zavis (contained in its opinion filed as Ex-
hibit 5 hereto).
</TABLE>
<PAGE>
EXHIBIT 1.2
Heller Financial, Inc.
Class A Common Stock
(par value $0.25 per share)
---------------------
Underwriting Agreement
(International Version)
---------------------
_____ __, 1998
Goldman Sachs International,
J.P. Morgan Securities Ltd.,
BT Alex. Brown International,
A Division of Bankers Trust International PLC,
Lehman Brothers International (Europe),
Merrill Lynch International
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman Sachs International,
Peterborough Court,
133 Fleet Street,
London EC4A 2BB, England.
Ladies and Gentlemen:
Heller Financial, Inc., a Delaware corporation (the "Company") and a
wholly-owned subsidiary of Fuji America Holdings, Inc., a Delaware corporation
("FAHI"), which in turn is a wholly-owned subsidiary of The Fuji Bank, Limited,
a Japanese banking corporation ("Fuji Bank"), proposes, subject to the terms and
conditions stated herein, to issue and sell to the Underwriters named in
Schedule I hereto (the "Underwriters") an aggregate of 3,350,000 shares (the
"Firm Shares") and, at the election of the Underwriters, up to 502,500
additional shares (the "Optional Shares") of Class A Common Stock, par value
$0.25 per share ("Stock"), of the Company (the Firm Shares and the Optional
Shares that the Underwriters elect to purchase pursuant to Section 2 hereof
being collectively called the "Shares").
It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement, a copy of which is attached hereto (the
"U.S. Underwriting Agreement") providing for the sale by the Company of up to a
total of 34,672,500 shares of Stock (the "U.S. Shares"), including the
overallotment option thereunder, through arrangements with certain underwriters
in the United States (the "U.S. Underwriters"), for whom Goldman, Sachs & Co.,
J.P. Morgan Securities Inc., BT Alex. Brown Incorporated, Lehman Brothers Inc.
and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting as
representatives. Anything herein or therein to the contrary notwithstanding, the
respective closings under this Agreement and the U.S. Underwriting Agreement are
hereby expressly made conditional on one another. The Underwriters hereunder and
the U.S. Underwriters are simultaneously entering into an Agreement between U.S.
and International Underwriting Syndicates (the "Agreement between Syndicates")
which provides, among other things, for the transfer of shares of Stock between
the two syndicates and for consultation by the Lead Managers hereunder with
Goldman, Sachs & Co. prior to exercising the rights of the Underwriters under
Section 7 hereof. Two forms of prospectus are to be used in connection with the
offering and sale of shares of Stock contemplated by the foregoing, one relating
to the Shares hereunder and the other relating to the U.S. Shares. The latter
form of prospectus will be identical to the former except for certain substitute
pages. Except as used in Sections 2, 3, 4, 9 and 11 herein, and except as the
context may otherwise require,
<PAGE>
references hereinafter to the Shares shall include all the shares of Stock which
may be sold pursuant to either this Agreement or the U.S. Underwriting
Agreement, and references herein to any prospectus whether in preliminary or
final form, and whether as amended or supplemented, shall include both the U.S.
and the international versions thereof.
In addition, this Agreement incorporates by reference certain provisions
from the U.S. Underwriting Agreement (including the related definitions of
terms, which are also used elsewhere herein) and, for purposes of applying the
same, references (whether in these precise words or their equivalent) in the
incorporated provisions to the "Underwriters" shall be to the Underwriters
hereunder, to the "Shares" shall be to the Shares hereunder as just defined, to
"this Agreement" (meaning therein the U.S. Underwriting Agreement) shall be to
this Agreement (except where this Agreement is already referred to or as the
context may otherwise require), to "Preliminary Prospectus" shall include any
preliminary prospectus relating to the International Shares, to "Prospectus"
shall include the prospectus relating to the International Shares, and to the
representatives of the Underwriters or to Goldman, Sachs & Co. shall be to the
addressees of this Agreement and to Goldman Sachs International ("GSI"), and, in
general, all such provisions and defined terms shall be applied mutatis mutandis
as if the incorporated provisions were set forth in full herein having regard to
their context in this Agreement as opposed to the U.S. Underwriting Agreement.
1. Each of the Company and Fuji Bank hereby makes to and with the
Underwriters the same representations, warranties and agreements as are set
forth in Section 1 of the U.S. Underwriting Agreement, which Section is
incorporated herein by this reference.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $..............., the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company agrees to issue and sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company, at the purchase price per share set
forth in clause (a) of this Section 2, that portion of the number of Optional
Shares as to which such election shall have been exercised (to be adjusted by
you so as to eliminate fractional shares) determined by multiplying such number
of Optional Shares by a fraction, the numerator of which is the maximum number
of Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 502,500 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. Upon the authorization by GSI of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus and in the forms of Agreement among
Underwriters (International Version) and Selling Agreements, which have been
previously submitted to the Company by you. Each Underwriter hereby makes to and
with the Company and Fuji Bank the representations and agreements of such
Underwriter as a member of the selling group contained in Sections 3(d) and 3(e)
of the form of Selling Agreements.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as GSI may request upon at least forty-eight
-2-
<PAGE>
hours' prior notice to the Company, shall be delivered by or on behalf of the
Company to GSI, through the facilities of The Depository Trust Company ("DTC"),
for the account of such Underwriter, against payment by or on behalf of such
Underwriter of the purchase price therefor by wire transfer of Federal same day
funds to an account specified by the Company. The Company will cause the
certificates representing the Shares to be made available for checking and
packaging at least twenty-four hours prior to the Time of Delivery (as defined
below) with respect thereto at the office of DTC or its designated custodian
(the "Designated Office"). The time and date of such delivery and payment shall
be, with respect to the Firm Shares, 9:30 a.m., New York City time, on May ....,
1998 or such other time and date as GSI and the Company may agree upon in
writing, and, with respect to the Optional Shares, 9:30 a.m., New York City
time, on the date specified by GSI in the written notice given by GSI of the
Underwriters' election to purchase such Optional Shares, or such other time and
date as GSI and the Company may agree upon in writing. Such time and date for
delivery of the Firm Shares is herein called the "First Time of Delivery", such
time and date for delivery of the Optional Shares, if not the First Time of
Delivery, is herein called the "Second Time of Delivery", and each such time and
date for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 of the U.S. Underwriting Agreement,
including the cross receipt for the Shares and any additional documents
requested by the Underwriters pursuant to Section 7(i) of the U.S. Underwriting
Agreement, will be delivered at the offices of Katten Muchin & Zavis, 525 West
Monroe Street, Chicago, Illinois 60661 (the "Closing Location"), and the Shares
will be delivered at the Designated Office against payment therefor, all at such
Time of Delivery. A meeting will be held at the Closing Location at 2:00 p.m.,
New York City time, on the day next preceding such Time of Delivery, at which
meeting the final drafts of the documents to be delivered pursuant to the
preceding sentence will be available for review by the parties hereto or their
representatives.
5. The Company hereby makes with the Underwriters the same agreements as
are set forth in Section 5 of the U.S. Underwriting Agreement, which Section is
incorporated herein by this reference.
6. Each of the Company and Fuji Bank and the Underwriters hereby agree
with respect to certain expenses on the same terms as are set forth in Section 6
of the U.S. Underwriting Agreement, which Section is incorporated herein by this
reference.
7. Subject to the provisions of the Agreement between Syndicates, the
obligations of the Underwriters hereunder, as to the Shares to be delivered at
each Time of Delivery, shall be subject, in their discretion, to the condition
that all representations and warranties and other statements of each of the
Company and Fuji Bank herein are, at and as of such Time of Delivery, true and
correct, the condition that each of the Company and Fuji Bank shall have
performed all of its obligations hereunder theretofore to be performed, and
additional conditions identical to those set forth in Section 7 of the U.S.
Underwriting Agreement, which Section is incorporated herein by this reference.
8. (a) Each of the Company and Fuji Bank (each, a "Heller Party"), jointly
and severally, will indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus distributed by the
Underwriters, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that the Heller Parties
shall not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any Preliminary
Prospectus distributed by the Underwriters, the Registration Statement or
-3-
<PAGE>
the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through GSI expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless each Heller Party
against any losses, claims, damages or liabilities to which such Heller Party
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus distributed by the Underwriters, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus distributed by the
Underwriters, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through GSI expressly for use
therein; and will reimburse such Heller Party for any legal or other expenses
reasonably incurred by such Heller Party in connection with investigating or
defending any such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) of this Section 8 of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of such indemnified party from
all liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of such indemnified party.
(d) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) of this Section 8 in respect of any losses, claims, damages or liabilities
(or actions in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
benefits received by the Heller Parties on the one hand and the Underwriters on
the other from the offering of the Shares. If, however, the allocation provided
by the immediately preceding sentence is not permitted by applicable law or if
the indemnified party failed to give the notice required under subsection (c) of
this Section 8, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault of the
Heller Parties on the one hand and the Underwriters on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Heller Parties
on the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering of the Shares
purchased under this Agreement (before deducting expenses) received by the
-4-
<PAGE>
Company bear to the total underwriting discounts and commissions received by the
Underwriters with respect to the Shares purchased under this Agreement, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Heller
Parties on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Heller Parties and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
subsection (d) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this subsection (d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations hereunder and not joint.
(e) The obligations of the Heller Parties under this Section 8 shall be in
addition to any liability which the Heller Parties may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who controls
any Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to each
person, if any, who controls any Heller Party within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not arrange for the purchase of such Shares,
then the Company shall be entitled to a further period of thirty-six hours
within which to procure another party or other parties reasonably satisfactory
to you to purchase such Shares on such terms. In the event that, within the
respective prescribed periods, you notify the Company that you have so arranged
for the purchase of such Shares, or the Company notifies you that it has so
arranged for the purchase of such Shares, you or the Company shall have the
right to postpone such Time of Delivery for a period of not more than seven
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section 9 with like effect as if such person
had originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) of this Section 9, the aggregate number of such
Shares which remains unpurchased does not exceed one-eleventh of the aggregate
number of all the Shares to be purchased at such Time of Delivery, then the
Company shall have the right to require each non-defaulting Underwriter to
purchase the number of Shares which such Underwriter agreed to purchase
hereunder at such Time of Delivery and, in addition, to require each non-
defaulting Underwriter to purchase its pro rata share (based on the number of
Shares which such Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or Underwriters for which such
-5-
<PAGE>
arrangements have not been made; but nothing herein shall relieve a defaulting
Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) of this Section 9, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the aggregate number of
all the Shares to be purchased at such Time of Delivery, or if the Company shall
not exercise the right described in subsection (b) of this Section 9 to require
non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or
Underwriters, then this Agreement (or, with respect to the Second Time of
Delivery, the obligations of the Underwriters to purchase and of the Company to
sell the Optional Shares) shall thereupon terminate, without liability on the
part of any non-defaulting Underwriter or the Company, except for the expenses
to be borne by the Company, Fuji Bank and the Underwriters as provided in
Section 6 hereof and the indemnity and contribution agreements in Section 8
hereof; but nothing herein shall relieve a defaulting Underwriter from liability
for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and Fuji Bank, and the several Underwriters,
as set forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation (or any statement as to the results thereof) made by or on
behalf of any Underwriter or any controlling person of any Underwriter, or the
Company or Fuji Bank, or any officer or director or controlling person of the
Company or Fuji Bank, and shall survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company and Fuji Bank shall not then be under any liability to any
Underwriter except as provided in Sections 6 and 8 hereof; but if for any other
reason any Shares are not delivered by or on behalf of the Company as provided
herein, the Company and Fuji Bank will reimburse the Underwriters through GSI
for all out-of-pocket expenses approved in writing by GSI, including fees and
disbursements of counsel, reasonably incurred by the Underwriters in making
preparations for the purchase, sale and delivery of the Shares not so delivered,
but the Company and Fuji Bank shall then be under no further liability to any
Underwriter in respect of the Shares not so delivered except as provided in
Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by GSI on behalf of you as the representatives of the
Underwriters.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to the Underwriters in care of GSI, Peterborough Court,
133 Fleet Street, London EC4A 2BB, England, Attention: Equity Capital Markets,
Telex No. 94012165, facsimile transmission No. (071) 774-1550; and if to the
Company or Fuji Bank shall be delivered or sent by mail, telex or facsimile
transmission to the address of the Company or Fuji Bank (as the case may be) set
forth in the Registration Statement, Attention: Secretary; provided, however,
that any notice to an Underwriter pursuant to Section 8(c) hereof shall be
delivered or sent by mail, telex or facsimile transmission to such Underwriter
at its address set forth in its Underwriters' Questionnaire, or telex
constituting such Questionnaire, which address will be supplied to the Company
by GSI upon request. Any such statements, requests, notices or agreements shall
take effect at the time of receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and Fuji Bank and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors of the Company or Fuji Bank
and each person who controls the Company or Fuji Bank or any Underwriter, and
their respective heirs, executors, administrators, successors and assigns, and
no other person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the Shares from any Underwriter shall be
deemed a successor or assign by reason merely of such purchase.
-6-
<PAGE>
14. Time shall be of the essence of this Agreement.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, United States of America.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
-7-
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to us seven counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement among each of the Underwriters, the Company
and Fuji Bank. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters (International Version), the form of which shall be
furnished to the Company for examination upon request, but without warranty on
your part as to the authority of the signers thereof.
Very truly yours,
Heller Financial, Inc.
By:
--------------------
Name:
Title:
The Fuji Bank, Limited
By:
--------------------
Name:
Title:
Accepted as of the date hereof:
Goldman Sachs International
J.P. Morgan Securities Ltd.
BT Alex. Brown International,
A Division of Bankers Trust International PLC
Lehman Brothers International (Europe)
Merrill Lynch International
By: Goldman Sachs International
By:
------------------------
(Attorney-in-fact)
On behalf of each of the Underwriters
-8-
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares Maximum Option
Underwriter to be Purchased Exercised
----------- --------------- ---------
<S> <C> <C>
Goldman Sachs International...............................
J.P. Morgan Securities Inc................................
BT Alex. Brown International,
A Division of Bankers Trust International PLC...........
Lehman Brothers International (Europe)....................
Merrill Lynch International...............................
[Names of other Underwriters].............................
---------------- -----------------
Total
================ =================
</TABLE>
-9-
<PAGE>
EXHIBIT 3.1
HELLER FINANCIAL, INC.
(a Delaware corporation)
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
Under Sections 242 and 245
of the
Delaware General Corporation Law
Heller Financial, Inc. (the "Company"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that:
1. The name of the Company is Heller Financial, Inc.
2. The original Certificate of Incorporation of the Company was filed
with the Secretary of State of the State of Delaware on November 20, 1919, under
the name Heller-Marks & Company.
3. This Amended and Restated Certificate of Incorporation has been duly
proposed by resolutions adopted and declared advisable by the Board of Directors
of the Company, duly adopted by written consent of the sole stockholder of the
Company in lieu of a meeting and duly executed and acknowledged by the officers
of the Company in accordance with the provisions of Sections 103, 228, 242 and
245 of the General Corporation Law of the State of Delaware and, upon filing
with the Secretary of State in accordance with Section 103, shall supersede the
original Certificate of Incorporation, as previously amended, and shall, as it
may thereafter be amended in accordance with its terms and applicable law, be
the Certificate of Incorporation of the Company.
4. The text of the Certificate of Incorporation of the Company is hereby
amended, integrated and restated to read in its entirety as follows:
FIRST: The name of this Company is HELLER FINANCIAL, INC.
SECOND: The location of its registered office in the State of Delaware is
to be 1209 Orange Street, in the City of Wilmington, County of New Castle. The
name of its agent therein and in charge thereof, and upon whom legal process
against this Company may be served, is THE CORPORATION TRUST COMPANY, 1209
Orange Street, in said City of Wilmington.
THIRD: The nature of the business and the objects and purposes for which,
and for any of which, this Company is formed are to do any or all of the things
herein set forth as fully and to the same extent as natural persons might or
could do and in any part of the world, namely:
(a) To buy, sell and generally deal in commercial paper, securities,
shares of stock, bonds, debentures, and evidences of indebtedness of all kinds,
whether secured or unsecured, including bills and accounts receivable, and to
loan money on the security thereof, or otherwise, and to make investments in
commercial paper, securities, shares of
<PAGE>
stock, bonds, debentures, and evidences of indebtedness of all kinds, whether
secured or unsecured, including bills and accounts receivable, and to loan money
on the security thereof, or otherwise, and to make advances upon consignments of
merchandise and commodities, and to hypothecate such merchandise and commodities
as security, with power to transact all of the commercial and financial
transactions pertaining to any of the businesses herein provided for.
(b) To organize, incorporate, reorganize, finance, or assist financially
or otherwise companies, corporations, syndicates, partnerships and associations
of all kinds, and individuals, and to endorse, underwrite and subscribe for the
bonds, stocks, securities, debentures, notes or undertakings of any company,
corporation, syndicate, partnership, association or individual, and to make any
guarantee in connection therewith, or otherwise, for the payment of money, and
for the performance of any obligation or undertaking and to do any and all
things necessary or convenient to carry any such purposes into effect.
(c) To investigate, develop, consummate, undertake, and carry on any
enterprise, business, transaction or operation, commonly carried on or
undertaken by capitalists, financiers, trust companies, contracts, syndicates,
merchants, importers, exporters, commission men or agents, and to acquire the
good will, rights and property, and undertake the whole or any part of the
assets and liabilities of any person, firm, association or corporation, and to
pay for the same in cash, stock, bonds, or notes, or otherwise, and generally,
as principal or agent, to institute, enter into, carry on, assist, promote, and
participate in financial, commercial, mercantile, and other business, works,
contracts, undertakings and operations.
(d) To manufacture, buy, sell, warehouse, store and deal in goods, wares,
merchandise, commodities and property of any and every kind, and also to advance
money to any person, firm or corporation on the security of any such property,
or on the security of commercial paper or notes given as evidence of any
deferred payments for any property sold by this Company or by any person, firm,
association or corporation.
(e) To insure any of the property or interest aforesaid, and the persons,
firms or corporations owning, using or operating the same, against loss of fire,
theft, collision or damage, or any risk or liability whatever.
(f) To engage in and carry on the business of general commission
merchants, and purchasing and selling agents; to manufacture, buy, hold, own,
produce, sell and otherwise dispose of, either as principal or agent, and upon
commission or consignment or otherwise, goods, wares, merchandise, commodities,
and personal property of all kinds.
(g) To hold in trust, issue on commission, make advances upon, or sell,
lease, license, transfer, organize, reorganize, incorporate, or dispose of any
of the undertakings or resulting investments aforesaid, or the stock or
securities thereof; to act as agent, trustee, or depositary for any of the above
or like purposes, or any purpose herein mentioned, and to act as fiscal agent of
any person, firm, association or corporation.
2
<PAGE>
(h) To obtain the grant of, purchase, lease, or otherwise acquire any
concessions, rights, options, patents, privileges, franchises, licenses, lands,
properties, undertakings, or businesses, or any right, option, or contract in
relation thereto, and to perform, carry out and fulfill the terms and conditions
thereof, and to carry the same into effect, and develop, maintain, lease, sell,
transfer, dispose of, and otherwise deal with the same.
(i) To subscribe for, or cause to be subscribed for, buy, own, hold,
purchase, receive or otherwise acquire, and to sell, negotiate, guarantee,
assign, deal in, exchange, transfer, mortgage, pledge, or otherwise dispose of,
shares of the capital stock, scrip, bonds, coupons, mortgages, debentures,
debenture stock, securities, notes and evidences of indebtedness, issued or
created by other corporations, joint stock companies or associations, whether
public, private or municipal, or any corporate body, and while owner thereof to
possess and to exercise in respect thereof, all the rights, powers and
privileges of ownership, including the right to vote thereon; to guarantee the
payment of dividends on any shares of the capital of any of the corporations,
joint stock companies or associations in which this Company has or may have an
interest and to become surety in respect of, endorse or otherwise guarantee the
payment of the principal or interest of any scrip, bonds, coupons, mortgages,
debentures, securities, notes, or evidences of indebtedness issued or created by
any such corporations, joint stock companies or associations; to become surety
for or guarantee the carrying out and performance of any and all contracts,
leases and other obligations of every kind of any such corporation, joint stock
company, or association, any of whose shares, bonds, securities or evidences of
indebtedness are held by or for this Company, and to do any acts or things
designed to protect, preserve, improve or enhance the value of any such shares,
bonds, securities or evidences of indebtedness.
(j) To purchase, apply for, obtain, or otherwise acquire, any and all
letters patent, licenses, patent rights, patented processes and similar rights
granted by the United States or any other government or country, or any interest
therein, or any inventions which may seem capable of being used for or in
connection with any of the objects or purposes of this Company, and to use,
exercise, develop, sell, lease, grant licenses in respect to, or other interests
in the same, and otherwise turn the same to account, and to carry on any
business, manufacturing or otherwise, which may be deemed to directly or
indirectly effectuate these objects or any of them.
(k) To secure, acquire, apply for, register, hold, own or otherwise
dispose of any and all copyrights, trademarks, trade names and other trade
rights.
(l) To organize, or cause to be organized, under the laws of the State of
Delaware, or of any other state, territory or country, or the District of
Columbia, a corporation or corporations for the purpose of accomplishing any of
the objects for which this Company is organized, or for any other purpose or
purposes, and to dissolve, wind up, liquidate, merge or consolidate any such
corporation or corporations.
(m) To borrow money for the purposes of this Company, and to issue bonds,
debentures, notes, and other obligations, and to secure the sale by pledge or
mortgage of the whole, or any part of the property of this Company, either real
or personal, or to issue bonds, notes, debentures, or other obligations, without
any such security.
3
<PAGE>
(n) To issue shares of stock, preferred stock, debentures, debenture
stock, bonds, notes, and other obligations for cash, or property, or in exchange
for the stock, bonds, notes or securities of any person, firm or corporation.
(o) To enter into, make, perform and carry out contracts of every kind for
any lawful purpose, without limit as to amount, with any person, firm,
association or corporation.
(p) To draw, make, accept, endorse, discount, execute and issue promissory
notes, bills of exchange, warrants and other negotiable or transferable
instruments.
(q) To purchase and acquire shares of the capital stock, bonds, and other
obligations of this Company, from time to time, to such extent, and in such
manner and upon such terms as its Board of Directors shall determine, and from
time to time to accept, any such shares, bonds and obligations as security for,
or in payment on account, or in satisfaction of, any claim or demand of this
Company, and to reissue the same from time to time.
(r) To have one or more offices to carry on any or all of its operations
and business, and, without restriction or limit as to amount, to purchase,
lease, or otherwise acquire, hold, and own, and to mortgage, sell, convey,
lease, or otherwise dispose of real and personal property of every class and
description, in any of the states or territories of the United States and in the
District of Columbia and in any and all foreign countries, subject to the laws
of such state, district, territory or country.
(s) To do any and all things herein set forth, and in addition such other
acts as are incident or conducive to the attainment of the purposes of this
Company, or any of them, to the same extent as natural persons lawfully might or
could do in any part of the world, insofar as such acts are not inconsistent
with the provisions of the laws of the State of Delaware.
The foregoing clauses shall be construed both as objects and powers, and it
is hereby expressly provided that the foregoing enumeration of specific powers
shall not be held to limit or restrict in any manner the powers of this Company,
and are in furtherance of, and in addition to, and not in limitation of the
general powers conferred by the laws of the State of Delaware.
It is the intention that the purposes and powers specified in this Article
Third hereof shall, except as otherwise expressly provided, in no wise be
limited or restricted by reference to or interference from the terms of any
other clause or paragraph of this Amended and Restated Certificate of
Incorporation (this "Certificate of Incorporation"), and that each of the
purposes and powers specified in this Article Third hereof, shall be regarded as
independent purposes and powers.
FOURTH: (a) The total number of shares of stock which the Company shall
have authority to issue is 852,000,000, of which 2,000,000 shares, no par value,
are to be of a class designated "Preferred Stock," 50,000,000 shares, of the par
value of $0.01 each, are to be of a class designated "Senior Preferred Stock,"
500,000,000 shares, of the par value of $0.25 each, are to be of a class
designated Class A Common Stock ("Class A Common Stock") and 300,000,000 shares,
of the par value of $0.25 each, are to be of a class
4
<PAGE>
designated Class B Common Stock ("Class B Common Stock," and together with the
Class A Common Stock, "Common Stock").
The relative powers, preferences and participating, optional or other
special rights, and the qualifications, limitations and restrictions of the
Class A Common Stock and Class B Common Stock of the Company shall be as
follows:
(1) Except as otherwise set forth below in this Article FOURTH, the
relative powers, preferences and participating, optional or other special
rights, and the qualifications, limitations or restrictions of the Class A
Common Stock and Class B Common Stock shall be identical in all respects.
(2) Subject to the rights of the holders of any outstanding Preferred
Stock and Senior Preferred Stock and subject to any other provisions of this
Certificate of Incorporation, holders of Class A Common Stock and Class B Common
Stock shall be entitled to receive such dividends and other distributions in
cash, stock of any corporation or, subject to the next sentence, shares of
Common Stock of the Company, or any property of the Company as may be declared
thereon by the Board of Directors from time to time out of assets or funds of
the Company legally available therefor and shall share equally on a per share
basis in all such dividends and other distributions. In the case of dividends or
other distributions payable in Common Stock, including distributions pursuant to
stock splits or divisions of Common Stock, only shares of Class A Common Stock
shall be paid or distributed with respect to Class A Common Stock and only
shares of Class B Common Stock shall be paid or distributed with respect to
Class B Common Stock. The shares of Class A Common Stock and Class B Common
Stock so distributed shall be equal in number on a per share basis. Neither the
shares of Class A Common Stock nor the shares of Class B Common Stock may be
reclassified, subdivided or combined unless such reclassification, subdivision
or combination occurs simultaneously and in the same proportion for each class.
Notwithstanding anything herein to the contrary, the holders of the Class A
Common Stock shall not be entitled to receive any special dividend declared and
paid in respect of the Class B Common Stock within seven (7) days after the
initial issuance by the Company of the Class A Common Stock, provided that any
such dividend or dividends, in the aggregate, shall not be in an amount greater
than the excess over $450 million of the net proceeds received by the Company
from the initial issuance of such Class A Common Stock.
(3) At every meeting of the stockholders of the Company every holder
of Class A Common Stock shall be entitled to one vote in person or by proxy for
each share of Class A Common Stock standing in its name on the transfer books of
the Company, and every holder of Class B Common Stock shall be entitled to three
votes in person or by proxy for each share of Class B Common Stock standing in
its name on the transfer books of the Company, in connection with the election
of directors and all other matters submitted to a vote of stockholders, subject
to the right of The Fuji Bank, Limited and its subsidiaries (together with their
respective successors, "Fuji Bank") or the Class B Transferee (as defined in
Section (a)(6)(ii) below), as the case may be, to elect to reduce from time to
time the number of votes per share to which the holders of Class B Common Stock
are entitled from three to any number of votes per share of Class B Common Stock
less than three (but not fewer than one) by written notice to the Company, which
notice shall (A) specify the
5
<PAGE>
reduced number of votes per share, (B) be included with the records of the
Company maintained by the Secretary and (C) for so long thereafter as there
shall be shares of Class B Common Stock outstanding, be referred to or reflected
in any proxy or information statement provided to holders of the Common Stock in
connection with any matter to be voted upon by such holders. Any such notice,
once given, shall be irrevocable. Except as may be otherwise required by law or
this Article FOURTH, the holders of Class A Common Stock and Class B Common
Stock shall vote together as a single class, subject to any voting rights that
may be granted to holders of Preferred Stock and Senior Preferred Stock, on all
matters submitted to a vote of the stockholders of the Company. Notwithstanding
anything herein to the contrary, in the event that at any time while held by
Fuji Bank the outstanding shares of Class B Common Stock would otherwise
represent greater than seventy nine percent (79%) of the combined voting power
of all outstanding classes of voting stock of the Company, then for voting
purposes the number of votes per share of Class B Common Stock shall be
automatically reduced so that the outstanding shares of Class B Common Stock in
the aggregate represent seventy nine percent (79%) of such combined voting
power.
(4) In the event of any dissolution, liquidation or winding up of the
affairs of the Company, whether voluntary or involuntary, after payment in full
of the amounts required to be paid to the holders of any Preferred Stock and
Senior Preferred Stock, the remaining assets and funds of the Company shall be
distributed pro rata to the holders of Class A Common Stock and Class B Common
Stock. For purposes of this Section (a)(4), the voluntary sale, conveyance,
lease, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the assets of the Company or a
consolidation or merger of the Company with one or more other corporations
(whether or not the Company is the corporation surviving such consolidation or
merger) shall not be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary.
(5) In the case of any reorganization or consolidation or merger of
the Company with one or more other entities, each holder of a share of Class A
Common Stock shall be entitled to receive with respect to such share the same
kind and amount of shares of stock and other securities and property (including
cash), if any, receivable upon such reorganization, consolidation or merger by
each holder of a share of Class B Common Stock, and each holder of a share of
Class B Common Stock shall be entitled to receive with respect to such share the
same kind and amount of shares of stock and other securities and property
(including cash), if any, receivable upon such reorganization, consolidation or
merger by a holder of a share of Class A Common Stock, except that shares of
stock or other securities receivable upon such reorganization, consolidation or
merger by a holder of a share of Class B Common Stock may differ from the shares
of stock or other securities receivable upon such reorganization, consolidation
or merger by a holder of a share of Class A Common Stock to the extent that the
Class B Common Stock and Class A Common Stock differ as provided in this
Certificate of Incorporation of the Company.
(6) (i) Each record holder of shares of Class B Common Stock may
convert such shares into an equal number of shares of Class A Common Stock by
surrendering the certificates for such shares, accompanied by any required tax
transfer stamps and by a written notice by such record holder to the Company
stating that such record holder desires to convert such shares of Class B Common
Stock into the same number of shares of
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Class A Common Stock and requesting that the Company issue all of such shares of
Class A Common Stock to persons named therein, and setting forth the number of
shares of Class A Common Stock to be issued to each such person and the
denominations in which the certificates therefor are to be issued. To the extent
permitted by law, such voluntary conversion shall be deemed to have been
effected at the close of business on the date of such surrender.
(ii) Each share of Class B Common Stock shall automatically
convert into one share of Class A Common Stock upon the transfer of such share
if, after such transfer, such share is not beneficially owned by Fuji Bank or,
as set forth below in this Section (a)(6)(ii), the Class B Transferee or any
subsidiaries of the Class B Transferee. For purposes of this Certificate of
Incorporation, "beneficial owner", and any derivative term thereof, shall have
the meaning ascribed to such term in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended. In addition, a
person shall be the "beneficial owner" of any shares of Common Stock which such
person or any of its affiliates or associates has (a) the right to acquire
(whether such right is exercisable immediately or only after the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (b) the right to vote pursuant to any agreement, arrangement or
understanding (but neither such person nor any such affiliate or associate shall
be deemed to be the beneficial owner of any shares of Common Stock solely by
reason of a revocable proxy granted for a particular meeting of stockholders,
pursuant to a public solicitation of proxies for such meeting, and with respect
to which shares neither such person nor any such affiliate or associate is
otherwise deemed the beneficial owner). For purposes of this Section (a), the
term "subsidiary" means as to any person or entity, any corporation,
partnership, joint venture, association or other entity in which such person or
entity beneficially owns (directly or indirectly) 50% or more of the outstanding
voting stock, voting power, partnership interests or similar voting interests.
Notwithstanding anything herein to the contrary, shares of Class
B Common Stock representing more than a 50% voting interest in the then
outstanding shares of Common Stock taken as a whole, when transferred by Fuji
Bank in a single transaction or series of related transactions to one person
unaffiliated with Fuji Bank (together with its successors, the "Class B
Transferee") and/or any subsidiaries of the Class B Transferee, shall not
automatically convert to shares of Class A Common Stock upon the transfer of
such shares. Upon any such transfer of shares of Class B Common Stock
representing more than a 50% voting interest in the outstanding shares of Common
Stock taken as a whole to the Class B Transferee, any shares of Class B Common
Stock retained by Fuji Bank shall automatically convert into shares of Class A
Common Stock. For avoidance of doubt, the Class B Common Stock shall
automatically convert to shares of Class A Common Stock, as provided in the
preceding paragraph, upon any transfer by the Class B Transferee or any of its
subsidiaries to any person other than the Class B Transferee or any of its
subsidiaries, whether in a single transaction or series of related or unrelated
transactions and whether representing more or less than a 50% voting interest in
the then outstanding shares of Common Stock taken as a whole. For purposes of
this Section (a)(6), each reference to a "person" shall be deemed to include not
only a natural person, but also a corporation, partnership, joint venture,
association, or other legal entity of any kind; and each reference to a "natural
person" (or to a "record holder" of shares, if a
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natural person) shall be deemed to include in his representative capacity a
guardian, committee, executor, administrator or other legal representative of
such natural person or record holder.
Each share of Class B Common Stock shall automatically convert
into one share of Class A Common Stock if at any time the number of shares of
Class B Common Stock then outstanding is less than thirty percent (30%) of the
aggregate number of shares of Common Stock then outstanding.
The Company will provide notice of any automatic conversion
pursuant to this Section (a)(6)(iii) of all outstanding shares of Class B Common
Stock to all holders of record of shares of Common Stock as soon as practicable
following such conversion; provided, however, that the Company may also satisfy
such notice requirement by providing such notice prior to such conversion. Such
notice shall be provided by mailing notice of such conversion, first class,
postage prepaid, to each holder of record of shares of Common Stock, at such
holder's address as it appears on the transfer books of the Company; provided,
however, that no failure to give such notice nor any defect therein shall affect
the validity of the automatic conversion of any shares of Class B Common Stock.
Each such notice shall state, as appropriate, the following:
(A) the automatic conversion date;
(B) that all outstanding shares of Class B Common Stock are
to be or have been automatically converted on such automatic conversion date,
and that from such automatic conversion date the certificates evidencing any
shares of Class B Common Stock shall evidence the same number of shares of Class
A Common Stock; and
(C) the place or places where certificates for such shares
are to be surrendered for exchange for certificates evidencing the shares of
Class A Common Stock.
Immediately upon such conversion on the automatic conversion
date, the rights of the holders of shares of Class B Common Stock as such shall
cease and such holders shall be treated for all purposes as having become the
record owners of the shares of Class A Common Stock issuable upon such
conversion; provided, however, that such persons shall be entitled to receive
when paid any dividends declared on the Class B Common Stock as of a record date
preceding the time of such conversion and unpaid as of the time of such
conversion, subject to Section (a)(6)(vi) below.
(iii) Holders of shares of Class B Common Stock may (A) sell or
otherwise dispose of or transfer any or all of such shares held by them only in
connection with a transfer which meets the qualifications of Section (a)(6)(iv)
below, and under no other circumstances, or (B) convert any or all of such
shares into shares of Class A Common Stock as provided in Section (a)(6)(i)
above. No one other than those persons or entities in whose names shares of
Class B Common Stock become registered on the original stock ledger of the
Company by reason of their record ownership of shares of Common Stock of the
Company which are reclassified into shares of Class B Common Stock, or
transferees or successive transferees who receive shares of Class B Common Stock
in
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<PAGE>
connection with a transfer which meets the qualifications set forth in Section
(a)(6)(iv) below, shall by virtue of the acquisition of a certificate for shares
of Class B Common Stock have the status of an owner or holder of shares of Class
B Common Stock or be recognized as such by the Company or be otherwise entitled
to enjoy for its own benefit the special rights and powers of a holder of shares
of Class B Common Stock.
Holders of shares of Class B Common Stock may at any and all
times transfer to any person or entity the shares of Class A Common Stock
issuable upon conversion of such shares of Class B Common Stock.
(iv) Shares of Class B Common Stock shall be transferred on the
books of the Company and a new certificate therefor issued, upon presentation at
the office of the Secretary of the Company (or at such additional place or
places as may from time to time be designated by the Secretary or any Assistant
Secretary of the Company) of the certificate for such shares, in proper form for
transfer and accompanied by all requisite stock transfer tax stamps, only if
such certificate when so presented shall also be accompanied by any one of the
following:
(a) a written notice from Fuji Bank, stating that the
certificate for such shares is being presented to effect a transfer by Fuji Bank
of shares to a subsidiary or subsidiaries of Fuji Bank;
(b) a written notice from Fuji Bank, stating that the
certificate for such shares is being presented to effect a transfer by any
subsidiary of Fuji Bank of shares to Fuji Bank or another subsidiary or
subsidiaries of Fuji Bank;
(c) a written notice from Fuji Bank, stating that the
certificate for such shares is being presented to effect a transfer by Fuji Bank
or any of its subsidiaries of shares to the Class B Transferee or a subsidiary
or subsidiaries of the Class B Transferee as contemplated by Section (a)(6)(ii);
(d) a written notice from the Class B Transferee stating
that the certificate for such shares is being presented to effect a transfer by
the Class B Transferee of shares to a subsidiary or subsidiaries of the Class B
Transferee; or
(e) a written notice from the Class B Transferee stating
that the certificate for such shares is being presented to effect a transfer by
any subsidiary of the Class B Transferee of shares to the Class B Transferee or
another subsidiary or subsidiaries of the Class B Transferee.
If a record holder of shares of Class B Common Stock shall deliver a
certificate for such shares, endorsed by it for transfer or accompanied by an
instrument of transfer signed by it, to a person or entity who receives such
shares in connection with a transfer which does not meet the qualifications set
forth in this Section (a)(6)(iv), then such person or entity or any successive
transferee of a certificate for such shares may treat such endorsement or
instrument as authorizing it on behalf of such record holder to convert such
shares in the manner above provided for the purpose of the transfer to itself of
the shares of Class A Common Stock issuable upon such conversion, and to give on
behalf of
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<PAGE>
such record holder the written notice of conversion above required, and may
convert such shares of Class B Common Stock accordingly.
If any shares of Class B Common Stock shall improperly have been
registered in the name of any person or entity (or in the name of any successive
transferee of such certificate) and a new certificate therefor issued, such
person or entity or such transferee shall surrender such new certificate for
cancellation, accompanied by the written notice of conversion above required, in
which case (1) such person or entity or such transferee shall be deemed to have
elected to treat the endorsement on (or instrument of transfer accompanying) the
certificate so delivered by such former record holder as authorizing such person
or entity or such transferee on behalf of such former record holder so to
convert such shares and so to give such notice, (2) the shares of Class B Common
Stock registered in the name of such former record holder shall be deemed to
have been surrendered for conversion for the purpose of the transfer to such
person or entity or such transferee of the shares of Class A Common Stock
issuable upon conversion and (3) the appropriate entries shall be made on the
books of the Company to reflect such action.
In the event that the Board of Directors of the Company (or any
committee or subcommittee of the Board of Directors, or any officer of the
Company, designated for this purpose by the Board of Directors) shall determine,
upon the basis of facts not disclosed in any notice or other document
accompanying the certificate for shares of Class B Common Stock when presented
for transfer, that such shares of Class B Common Stock have been registered in
violation of the provisions of Section (a)(6), or shall determine that a person
or entity is enjoying for his or its own benefit the special rights and powers
of shares of Class B Common Stock in violation of such provisions, then the
Company shall take such action at law or in equity as is appropriate under the
circumstances. An unforeclosed pledge made to secure a bona fide obligation
shall not be deemed to violate such provisions.
(v) Every certificate for shares of Class B Common Stock shall
bear a legend on the face thereof reading as follows:
"The shares of Class B Common Stock represented by this certificate
may not be transferred to any person or entity in connection with a
transfer that does not meet the qualifications set forth in Section
(a)(6)(iv) of Article FOURTH of the Certificate of Incorporation of Heller
Financial, Inc. and no person or entity who receives such shares in
connection with a transfer which does not meet the qualifications
prescribed by Section (a)(6)(iv) of said Article FOURTH is entitled to own
or to be registered as the record holder of such shares of Class B Common
Stock, but the record holder of this certificate may at any time convert
such shares of Class B Common Stock into the same number of shares of Class
A Common Stock. Each holder of this certificate, by accepting the same,
accepts and agrees to all of the foregoing."
(vi) Upon any conversion of shares of Class B Common Stock into
shares of Class A Common Stock pursuant to the provisions of this Section
(a)(6), any dividend for which the record date or payment date shall be
subsequent to such conversion and which may have been declared on the shares of
Class B Common Stock so converted shall be deemed to have been declared, and
shall be payable, with respect to the shares of
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<PAGE>
Class A Common Stock into or for which such shares of Class B Common Stock shall
have been so converted, and any such dividend which shall have been declared on
such shares payable in shares of Class B Common Stock shall be deemed to have
been declared, and shall be payable, in shares of Class A Common Stock.
(vii) The Company shall not reissue or resell any shares of
Class B Common Stock which shall have been converted into shares of Class A
Common Stock pursuant to or as permitted by the provisions of this Section
(a)(6), or any shares of Class B Common Stock which shall have been acquired by
the Company in any other manner. The Company shall, from time to time, take such
appropriate action as may be necessary to retire such shares and to reduce the
authorized amount of Class B Common Stock accordingly.
The Company shall at all times reserve and keep available, out of
its authorized but unissued Common Stock, such number of shares of Class A
Common Stock as would be issuable upon the conversion of all shares of Class B
Common Stock then outstanding.
(viii) In connection with any transfer or conversion of any
stock of the Company pursuant to or as permitted by the provisions of this
Section (a)(6), or in connection with the making of any determination referred
to in this Section (a)(6):
(A) The Company shall be under no obligation to make any
investigation of facts unless an officer, employee or agent of the Company
responsible for making such transfer or determination or issuing Class A Common
Stock pursuant to such conversion has substantial reason to believe, or unless
the Board of Directors (or a committee or subcommittee of the Board of Directors
designated for the purpose) determines that there is substantial reason to
believe, that any notice or other document is incomplete or incorrect in a
material respect or that an investigation would disclose facts upon which any
determination referred to in Section (a)(6)(iv) above should be made, in either
of which events the Company shall make or cause to be made such investigation as
it may deem necessary or desirable in the circumstances and have a reasonable
time to complete such investigation.
(B) Except as otherwise required by law, neither the Company
nor any director, officer, employee or agent of the Company shall be liable in
any manner for any action taken or omitted in good faith in connection with the
registration of transfer of the shares of Common Stock.
(C) The Company will not be required to pay any documentary,
stamp or similar issue or transfer taxes payable in respect of the issue or
delivery of shares of Class A Common Stock on the conversion of shares of Class
B Common Stock pursuant to this Section (a)(6), and no such issue or delivery
shall be made unless and until the person or entity requesting such issue has
paid to the Company the amount of any such tax or has established, to the
satisfaction of the Company, that such tax has been paid.
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(D) Subject to the rights of any holders of Preferred Stock
and Senior Preferred Stock, all rights to vote and all voting power (including,
without limitation thereto, the right to elect directors) shall be vested
exclusively, in accordance with Section (a)(3) and subsections (D) through (F)
of this Section (a)(6)(viii), inclusive, in the holders of Common Stock, voting
together as a single class, except as otherwise required by the law of the State
of Delaware, this Article FOURTH or the By-Laws of the Company.
(E) At any meeting of stockholders, the presence in person
or by proxy of the holders of shares entitled to cast a majority of all the
votes which could be cast at such meeting by the holders of all of the
outstanding shares of stock of the Company entitled to vote on every matter that
is to be voted on without regard to class at such meeting shall constitute a
quorum for purposes of such vote.
(F) At every meeting of stockholders, except as otherwise
required by the law of the State of Delaware or this Article FOURTH, the holders
of shares of Class A Common Stock and the holders of shares of Class B Common
Stock shall vote together as one class, and their votes shall be counted and
totaled together; and at any meeting of stockholders duly called and held at
which any such vote as one class is to be taken and at which a quorum
(determined in accordance with the provisions of subsection (E)) is present, (i)
in all matters other than the election of directors, a majority of the votes
which could be cast at such meeting upon a given question and (ii) in the case
of the election of directors, a plurality of the votes which could be cast at
such meeting upon such election, in each case by such holders who are present in
person or by proxy, shall be necessary in addition to any vote or other action
that may be expressly required by the provisions of this Certificate of
Incorporation or by the law of the State of Delaware, to decide such question or
election, and shall decide such question or election if no such additional vote
or other action is so required.
(7) In the event that at any time or from time to time after the
original issuance of the Class A Common Stock, the Company issues any additional
shares of Class A Common Stock of the Company or any other securities of the
Company convertible into shares of Class A Common Stock of the Company (other
than pursuant to any employee stock or stock option benefit plan or in
connection with any stock split or stock dividend), the holders of shares of
Class B Common Stock shall have the right to subscribe for and purchase
additional shares of Class B Common Stock or shares of such other securities
such that such holders of Class B Common Stock may, by purchasing such
additional securities, maintain the same percentage beneficial ownership
interest (including voting and/or economic interest) that such holders held
immediately prior to the issue of such additional securities.
As of February 24, 1998, each outstanding whole share of Common Stock,
par value $0.25 per share, was automatically, without the necessity of any
further action on the part of the holder thereof, reclassified into one share of
Class B Common Stock.
The Preferred Stock and the Senior Preferred Stock may be issued from
time to time in one or more series of any number of shares, provided that (i)
the aggregate number of shares of Preferred Stock issued and not canceled of any
and all such series
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<PAGE>
shall not exceed the total number of shares of Preferred Stock authorized, and
(ii) the aggregate number of shares of Senior Preferred Stock issued and not
canceled of any and all such series shall not exceed the total number of shares
of Senior Preferred Stock authorized. Authority is hereby expressly granted to
the Board of Directors, by the vote of a majority of the then total number of
its membership, from time to time to issue the Preferred Stock or Senior
Preferred Stock as Preferred Stock or Senior Preferred Stock, respectively, of
any series and, in connection with the creation of each such series, to fix by
the resolution or resolutions providing for the issue of shares thereof, the
number of shares of such series, and the voting powers, full or limited, or no
voting powers, and such distinctive designations, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions of such series, to the full extent now or hereafter
permitted by the laws of the State of Delaware.
Subject to the provisions of this Certificate of Incorporation and
except as otherwise provided by law, the shares of stock of the Company,
regardless of class, may be issued for such consideration and for such corporate
purposes as the Board of Directors may from time to time determine.
Except as otherwise specifically set forth herein, no holder of stock
of the Company shall have any preemptive rights with respect to stock of the
Company.
(b) The Board of Directors pursuant to the authority expressly vested in
this Article FOURTH, and pursuant to the provisions of the General Corporation
Law of the State of Delaware has by resolution fixed the voting powers,
designation, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof of the
following series of Preferred Stock:
NW Preferred Stock, Class B
(1) Designation. The designation of the series of Preferred Stock
created by this resolution shall be "NW Preferred Stock, Class B (No Par
Value)", the first series of said stock when issued to be designated as "Series
A," and each subsequent series when issued thereafter to be lettered
consecutively (all such series hereinafter called the "NW Preferred Stock"). The
NW Preferred Stock, Class B shall consist of 100,000 shares. Except as
hereinafter set forth, all such series when issued are to be governed by the
same voting powers, designation, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof as each of the other series of Preferred Stock.
(2) Dividends. The holders of shares of the NW Preferred Stock shall
be entitled to receive, when, as and if declared by the Board of Directors,
dividends in cash in an amount determined at a rate equal to one percent per
annum above the rate of interest at which deposits in United States dollars are
offered by the principal office of The Fuji Bank, Limited in London, England, to
prime banks in the London interbank market for a period equal to three months
(or, in the case of the initial issuance of a series of NW Preferred Stock, for
a period equal to the period commencing on the date of issuance of such series
and ending on the date of the calendar quarter during which such issuance
occurred), which dividend amount shall be established on the second business day
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<PAGE>
preceding the first day of each calendar quarter (or in the case of the initial
issuance of a series of NW Preferred Stock, on the second business day preceding
the date of issuance of such series), payable quarterly on March 31, June 30,
September 30, and December 31 in each year, commencing on the first such date
following the initial issuance of any series of NW Preferred Stock (each of such
quarterly periods (or, in the case of the initial issuance of a series of NW
Preferred Stock, such shorter period) ending on the last day of such months,
being hereinafter called a "dividend period"). The rights of holders of the NW
Preferred Stock shall be noncumulative. Accordingly, if the Board of Directors
fails to declare a dividend on the NW Preferred Stock payable on a dividend
payment date, then holders of NW Preferred Stock will have no right to receive a
dividend in respect of the dividend period ending on such dividend payment date,
and the Company will have no obligation to pay dividends accrued for such
period, whether or not dividends on the NW Preferred Stock are declared payable
on any future dividend payment date. The amount of dividends payable for any
period shorter than a full quarterly dividend period will be calculated on the
basis of a 360-day year consisting of twelve 30-day months. All dividends
declared upon the shares of the NW Preferred Stock and any other preferred stock
ranking on a parity as to dividends with the NW Preferred Stock shall be
declared pro rata, so that the amounts of dividends declared per share on the NW
Preferred Stock and such other preferred stock shall in all cases bear to each
other the same rate that Accrued Dividends per share on the shares of the NW
Preferred Stock and such other preferred stock bear to each other. No full
dividends shall be declared or paid or set apart for payment of the preferred
stock of any series ranking, as to dividends, on a parity with or junior to the
NW Preferred Stock for any period unless dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the NW Preferred Stock for the
then-current dividend period (without accumulation of accrued and unpaid
dividends for prior dividend periods unless previously declared). When dividends
are not paid in full, as aforesaid, upon the shares of NW Preferred Stock and
any other preferred stock ranking on a parity as to dividends with the NW
Preferred Stock, all dividends declared upon shares of NW Preferred Stock and
any other class of series of preferred stock ranking on a parity as to dividends
with the NW Preferred Stock shall be declared pro rata so that the amount of
dividends declared per share on the NW Preferred Stock and such other preferred
stock shall in all cases bear to each other the same ratio that dividends per
share on the shares of NW Preferred Stock for the then-current dividend period
(without accumulation of accrued and unpaid dividends for prior dividend periods
unless previously declared) and such other preferred stock bear to each other.
Holders of shares of NW Preferred Stock shall not be entitled to any dividend,
whether payable in cash, property or stock, in excess of full dividends for the
then-current dividend period (without accumulation of accrued and unpaid
dividends for prior dividend periods unless previously declared), as herein
provided, on the NW Preferred Stock. Holders of shares of the NW Preferred Stock
shall not be entitled to any dividends, whether payable in cash, property or
stock, and no dividends shall be paid on any shares of NW Preferred Stock during
the existence of a default in the payment of principal of or interest on any
outstanding indebtedness of the Company for money borrowed.
(3) Rights of Redemption. The shares of the NW Preferred Stock shall
be subject to redemption as follows:
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<PAGE>
A. Mandatory Redemption. Each share of each series of NW
Preferred Stock shall be redeemable no less than 30 and no more than 45 days
following the end of a calendar quarter upon five business days' prior written
notice to the Company from the holder (the date on which any such redemption
shall occur being referred to herein as the "Redemption Date"), in whole or in
part, in an aggregate amount in such calendar quarter not exceeding the excess
of the Net Worth of the Company, as defined herein, at the end of such quarter
over $500,000,000, at a redemption price equal to the price paid to the Company
upon the issuance thereof, plus Accrued Dividends in respect thereof, provided
that the Company shall be obligated to effect any such redemption only to the
extent that its doing so will not (i) result in a breach of or default under any
agreement for or instrument evidencing indebtedness of, or guaranteed by, the
Company and (ii) conflict with the provisions set forth under paragraph 2 of
this Section (b) restricting the payment of dividends on any shares of NW
preferred Stock during the existence of a default in the payment of principal of
or interest on any outstanding indebtedness of the Company for money borrowed.
Unless provision has been made for payment in full of Accrued
Dividends on all preferred stock, no sum shall be set aside for the redemption
of any Preferred Stock nor shall any Preferred Stock be purchased or otherwise
acquired by the Company.
B. Sinking Fund, Etc. Shares of the NW Preferred Stock are not
subject or entitled to the benefit of a sinking fund.
C. Effect of Redemption. After a Redemption Date in respect of
any shares of NW Preferred Stock, shares redeemed on such Redemption Date shall
not be deemed to be outstanding and shall not be transferable on the books of
the Company except to the Company.
D. Receipt of Redemption Price. At any time on or after a
Redemption Date in respect of any shares of NW Preferred Stock, the respective
holders of record of shares of NW Preferred Stock to be redeemed shall be
entitled to receive the redemption price upon actual delivery to the Company of
certificates for the shares to be redeemed.
E. Return of Deposits, Etc. Any moneys deposited with the
transfer agent, or other redemption agent, for the redemption of any shares of
NW Preferred Stock which shall not be claimed after five years from the
Redemption Date shall be repaid to the Company by such agent on demand, and the
holder of any such shares of NW Preferred Stock shall thereafter look only to
the Company for any payment to which such holder may be entitled. Any interest
accrued on money so deposited shall belong to the Company and shall be paid to
it from time to time on demand.
F. Redemption by Deposit. If on or before the Redemption Date in
respect of any shares of NW Preferred Stock, funds necessary for such redemption
shall have been deposited by the Company, in trust for the pro rata benefit of
the holders of the shares called for redemption on such Redemption Date, with a
bank or trust company in good standing organized under the laws of the United
States of America, doing business in the City of Chicago or in the Borough of
Manhattan, in the City of New York, having a
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capital, surplus and undivided profits aggregating at least $10,000,000
according to its last published statement of condition, then, notwithstanding
that any certificate for shares to be redeemed shall not have been surrendered
for cancellation, from and after such Redemption Date, all shares to be redeemed
shall no longer be deemed to be outstanding and all rights with respect to such
shares shall forthwith cease and terminate, except only the right of the holders
thereof to receive the redemption price for such shares, without interest, and
the right to exercise on or before the close of business on the Redemption Date,
privileges of exchange or conversion, if any, not theretofore expiring. Any
interest accrued on such funds shall be paid to the Company from time to time.
(4) Rights on Liquidation, Dissolution or Winding Up.
A. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of shares of the NW
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Company available for distribution to its stockholders, before any
payment shall be made to the holders of any class of capital stock of the
Company ranking junior upon liquidation to the NW Preferred Stock, an amount
equal to the price paid for each such share upon the issuance thereof plus an
amount equal to all Accrued Dividends thereon to and including the date of
payment.
B. In the event the assets of the Company available for
distribution to the holders of shares of NW Preferred Stock upon any involuntary
or voluntary liquidation, dissolution or winding up of the Company shall be
insufficient to pay in full all amounts to which such holders are entitled
pursuant to subparagraph A of this paragraph 4, no such distribution shall be
made on account of any shares of any other class or series of preferred stock
ranking on a parity with the shares of NW Preferred Stock upon liquidation
unless proportionate distributive amounts shall be paid on account of the shares
of NW Preferred Stock, ratably, in proportion to the full distributive amounts
to which the holders of all such parity shares are respectively entitled upon
such liquidation, dissolution or winding up.
(5) Voting. The shares of the NW Preferred Stock shall not have any
voting powers, either general or special, except as required by applicable law.
(6) Definitions.
A. The term "business day" shall mean a day on which dealings are
carried on in the London interbank market and banks are open in London, and
banks are not required or authorized to close in New York City or in Chicago, it
being understood, however, that for purposes of paragraph 2 of this Resolution,
the term "business day" shall not include reference to Chicago.
B. The term "Accrued Dividends" shall mean the aggregate amount
of dividends that have been declared but have not been paid in respect of shares
of the NW Preferred Stock.
C. Intentionally Omitted.
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D. Intentionally Omitted.
E. The term "Net Worth" in respect of any period shall mean the
stockholders' equity of the Company, including preferred stock, common stock and
earned surplus and all other items listed under the heading "Stockholders'
Equity" on the balance sheet of the Company, as determined in accordance with
generally accepted accounting principles, consistently applied, and shown on the
balance sheet of the Company as at the close of such period; provided, that Net
Worth shall be increased by the aggregate amount of the accrued and unpaid
dividends on all shares of NW Preferred Stock outstanding on the last day of the
period in respect of which Net Worth is being determined, and by the aggregate
amount of the liquidation preference of all such shares of NW Preferred Stock to
the extent not otherwise included in Net Worth pursuant to the foregoing
provisions of this definition.
F. The term "Preferred Stock" shall mean any preferred stock
created and issued under the Certificate of Incorporation of the Company as in
effect on the date of this resolution, including the NW Preferred Stock, whether
or not issued. The term "preferred stock" shall mean shares of any class of
stock (including Preferred Stock) if the holders of such class shall be entitled
to the receipt of dividends or of amounts distributable upon liquidation,
dissolution or winding up, in preference or priority to the holders of shares of
Common Stock.
G. For the purposes of this resolution any stock of any class or
classes of the Company shall be deemed to rank:
(1) prior to shares of the NW Preferred Stock, either as to
dividends or upon liquidation, if the holders of such class or classes shall be
entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference or
priority to the holders of shares of the NW Preferred Stock;
(2) on a parity with shares of the NW Preferred Stock,
either as to dividends or upon liquidation, whether or not the dividend rates,
dividend payment dates, or redemption or liquidation prices per share thereof be
different from those of the NW Preferred Stock, if the holders of such stock
shall be entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion to
their respective dividend rates or liquidation prices, without preference or
priority of one over the other as between the holders of such stock and the
holders of shares of NW Preferred Stock; and
(3) junior to shares of the NW Preferred Stock, either as to
dividends or upon liquidation, if such class shall be common stock of the
Company or if the holders of the NW Preferred Stock shall be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution
or winding up, as the case may be, in preference or priority to the holders of
shares of such class or classes.
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(c) The Board of Directors pursuant to the authority expressly vested in
this Article FOURTH, and pursuant to the provisions of the General Corporation
Law of the State of Delaware has by resolution fixed the voting powers,
designation, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof of the
following series of Senior Preferred Stock:
Cumulative Perpetual Senior Preferred Stock, Series A
(1) Designation. The designation of the series of Senior Preferred Stock
created by these resolutions shall be Cumulative Perpetual Senior Preferred
Stock, Series A (the "Series A Senior Preferred Stock"). The number of
authorized shares constituting the Series A Senior Preferred Stock is 5,000,000.
The shares of the Series A Senior Preferred Stock shall have a stated value of
$25.00 per share.
(2) Voting Rights. The Series A Senior Preferred Stock shall not have any
voting powers, either general or special, except as required by applicable law
and as stated herein.
The affirmative vote of the holders of at least two-thirds of the
outstanding shares of the Series A Senior Preferred Stock voting as a class is
required to approve any proposed amendment to this Certificate of Incorporation
or the By-laws of the Company if such amendment would increase or decrease the
aggregate number of authorized shares of the Series A Senior Preferred Stock,
increase or decrease the par value of the Series A Senior Preferred Stock or
alter or change the powers, preferences or special rights of the Series A Senior
Preferred Stock so as to affect the Series A Senior Preferred Stock adversely.
In case the Company shall be in arrears in the payment of six consecutive
quarterly dividends on the outstanding Series A Senior Preferred Stock, the
holders of the Series A Senior Preferred Stock voting separately as a class and
in addition to any voting rights that holders of the Series A Senior Preferred
Stock shall have as required by law, shall have the exclusive right to elect two
additional directors beyond the number to be elected by the shareholders at the
next annual meeting of the shareholders called for the election of directors,
and at every subsequent such meeting at which the terms of office of the
directors so elected by the Series A Senior Preferred Stock expire, provided
such arrearage exists on the date of such meeting or subsequent meetings, as the
case may be. The right of the holders of Series A Senior Preferred Stock voting
separately as a class to elect two members of the Board of Directors of the
Company as aforesaid shall continue until such time as all dividends accumulated
on Series A Senior Preferred Stock shall have been paid in full and provision
has been made for the payment in full of the dividends for the current quarter,
at which time the special right of the holders of Series A Senior Preferred
Stock so to vote separately as a class for the election of directors shall
terminate, subject to revesting at such time as the Company shall be in arrears
in the payment of six consecutive quarterly dividends on the outstanding Series
A Senior Preferred Stock. If the annual meeting of stockholders of the Company
is not, for any reason, held on the date fixed in the By-laws at a time when the
holders of Series A Senior Preferred Stock, voting separately and as a class,
shall be entitled to elect directors, or if vacancies shall exist in both of the
two offices of directors elected by the holders of Series A Senior Preferred
Stock, a proper officer of the Company shall, upon the written request of the
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holders of record of at least ten percent (10%) of the Series A Senior Preferred
Stock then outstanding addressed to the Secretary of the Company, call a
special meeting in lieu of the annual meeting of stockholders, or, in the event
of such vacancies, a special meeting of the holders of Series A Senior Preferred
Stock, for the purpose of electing directors. Any such meeting shall be held at
the earliest practicable date at the place for the holding of the annual
meetings of stockholders. If such meeting shall not be called by the proper
officer of the Company within twenty (20) days after personal service of
said written request upon the Secretary of the Company, or within twenty
(20) days after mailing the same within the United States by certified mail,
addressed to the Secretary of the Company at its principal executive
offices, then the holders of record of at least ten percent (10%) of the
outstanding Series A Senior Preferred Stock may designate in writing one of
their number to call such meeting at the expense of the Company, and such
meeting may be called by the person so designated upon the notice required for
the annual meetings of stockholders of the Company and shall be held at the
place for holding the annual meetings of stockholders. Any holder of Series A
Senior Preferred Stock so designated shall have access to the lists of
stockholders to be called pursuant to the provisions hereof.
At any meeting held for the purpose of electing directors at which the
holders of Series A Senior Preferred Stock shall have the right, voting
separately as a class, to elect directors as aforesaid, the presence in person
or by proxy of the holders of at least thirty-three and one-third percent
(33-1/3%) of the outstanding Series A Senior Preferred Stock shall be required
to constitute a quorum of such Series A Senior Preferred Stock.
Any vacancy occurring in the office of director elected by the Holders of
Series A Senior Preferred Stock may be filled by the remaining director elected
by the holders of the shares of such class, unless and until such vacancy shall
be filled by the holders of the shares of such series voting as a class. Any
director to be elected by the holders of Series A Senior Preferred Stock shall
agree, prior to his election to office, to resign upon any termination of the
right of the holders of Series A Senior Preferred Stock to vote as a class for
directors as herein provided, and upon any such termination the directors then
in office elected by the holders of Series A Senior Preferred Stock shall
forthwith resign.
Unless the Company receives the affirmative vote of the holders of at
least a majority of the then outstanding shares of the Series A Preferred Stock
voting as a class, the Company shall not issue to the holder of the common
stock of the Company as of this date or to any affiliate of such common
stockholder, from any class or series of stock existing at the time of this
resolution or to be created in the future, any shares of stock ranking on a
parity with the Series A Senior Preferred Stock as to payment of dividends and
upon liquidation. For the purpose of this paragraph, the term "affiliate" of the
common stockholder shall mean a person who directly, or indirectly through one
or more intermediaries, controls or is controlled by, or is under common control
with, the common stockholder.
Unless the Company receives the affirmative vote of the holders of at
least two-thirds of the then outstanding shares of the Series A Senior Preferred
Stock voting as a class, the Company shall not issue, from any class or
series of stock existing at the time
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of the resolutions designating the Series A Preferred Stock or to be created in
the future, any shares of stock ranking senior to the Series A Senior Preferred
Stock as to payment of dividends and upon liquidation.
(3) Preferences. The Series A Senior Preferred Stock will be cumulative
perpetual Senior Preferred Stock (i.e., will be redeemable, if at all, solely at
the option of the Company) and will rank senior to the class designated as
any Preferred Stock as to payments of dividends and upon liquidation.
The 5,000,000 shares of Series A Senior Preferred Stock authorized for
issuance pursuant to resolutions of the Board of Directors of the Company all
constitute Senior Preferred Stock within the 20,000,000 shares originally
authorized pursuant to resolutions of the Board of Directors.
(4) Dividends. The holders of the shares of Series A Senior Preferred Stock
shall be entitled to receive, when as and if declared by the Board of Directors
of the Company (the "Board of Directors" or "Board") or a committee thereof out
of funds legally available therefor, cash dividends at the rate 8-1/8% per annum
to be payable quarterly on the fifteenth day of, February, May, August and
November of each year, commencing November 15, 1992 (each a "Series A Dividend
Payment Date"). Each such dividend will be paid to holders of record on each
record date, which shall not be less than 5 nor more than 50 days preceding the
Series A Dividend Payment Date, as fixed by the Board or a duly authorized
committee thereof.
Dividends on the Series A Senior Preferred Stock, whether or not declared,
will be cumulative from the date of original issue of the Series A Senior
Preferred Stock. The amount of dividends payable for any period shorter than a
full quarterly dividend period will be determined on the basis of twelve 30-day
months and a 360-day year. Accrued but unpaid dividends will not hear interest.
No full dividends shall be declared or paid or set apart for payment on the
Company's preferred stock of any series ranking, as to dividends on a parity
with or junior to the Series A Senior Preferred Stock for any period unless full
dividends on the Series A Senior Preferred Stock (including any accumulated
dividends) have been or contemporaneously are declared and paid or declared and
a sum sufficient for the payment thereof set apart for such payment. When
dividends are not paid in full upon the Series A Senior Preferred Stock and any
other preferred stock of the Company ranking on a parity as to dividends
with the Series A Senior Preferred Stock, dividends upon shares of Series A
Senior Preferred Stock and dividends on such other preferred stock shall be
declared pro rata so that the amount of dividends declared per share on the
Series A Senior Preferred Stock and such other preferred stock shall in all
cases bear to each other the same ratio that accrued dividends per share on
shares of Series A Senior Preferred Stock and such other preferred stock bear to
each other. Except as provided in the preceding sentence, unless full dividends
on the Series A Senior Preferred Stock have been paid for a dividend period, no
dividends (other than on Common Stock or another stock ranking junior to the
Series A Senior Preferred Stock as to dividends and upon liquidation) shall be
declared or paid or set aside for payment or other distribution made upon the
Common Stock of the Company or on any other stock of the Company ranking
junior to or on a parity with the Series A Senior Preferred Stock as to
dividends or upon liquidation be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to
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or made available for a sinking fund for the redemption of any shares of any
such stock) by the Company (except by conversion into or exchange for stock
of the Company ranking junior to the Series A Senior Preferred Stock as to
dividends and upon liquidation).
(5) Rights of Redemption. At the option of the Company, shares of the
Series A Senior Preferred Stock may be redeemed, as a whole or in part, on any
Series A Dividend Payment Date occurring on or after the eighth anniversary of
the date of issue at a redemption price equal to the stated value per share
plus, in each case, dividends accrued and unpaid thereon (whether or not earned
or declared) to the date fixed for redemption.
Notwithstanding the foregoing, unless full dividends, including any
accumulation on all outstanding shares of Series A Senior Preferred Stock of and
full dividends, including any accumulation on preferred stock of the Company
of any series ranking, as to dividends, on a parity with or senior to the Series
A Senior Preferred Stock, shall have been paid or contemporaneously are declared
and paid, no shares of Series A Senior Preferred Stock shall be redeemed unless
all outstanding shares of Series A Senior Preferred Stock and shares of such
other preferred stock are simultaneously redeemed, provided that the foregoing
shall not prevent the purchase or acquisition of shares of Series A Senior
Preferred Stock or shares of such other preferred stock by conversion into or
exchange for shares of the Company ranking junior to the Series A Senior
Preferred Stock and such other preferred stock as to dividends and upon
liquidation.
If shares of Series A Senior Preferred Stock are to be redeemed, the notice
of redemption shall be mailed to each record holder of shares of Series A
Preferred Stock to be redeemed, not less than 30 nor more than 45 days prior to
the date fixed for redemption thereof. Each notice of redemption will include a
statement setting forth: (i) the redemption date, (ii) the number of shares of
Series A Senior Preferred Stock to be redeemed, (iii) the redemption price
(specifying the amount of accrued and unpaid dividends to be included therein),
(iv) that dividends on the shares to be redeemed will cease to accrue on such
redemption date, (v) the provision of the Certificate under which redemption is
made and (vi) the place or places where holders may surrender such shares of
Series A Senior Preferred Stock, if applicable, and obtain payment of the
redemption price. No defect in the notice of redemption or in the mailing
thereof or publication of its contents shall affect the validity of the
redemption proceedings.
In the event that less than all of the outstanding shares of Series A
Senior Preferred Stock are to be redeemed, the shares to be redeemed shall be
selected by the Company by lot or such other method as the Company shall
deem fair and equitable.
If the Company gives notice of redemption, then, by 12:00 Noon, New
York City time, on the redemption date, the Company shall irrevocably deposit
with a paying agent (the "Series A Paying Agent") funds sufficient to pay the
applicable redemption price, including any accrued and unpaid dividends to the
redemption date, and shall give the Series A Paying Agent irrevocable
instructions and authority to pay the redemption price to the holder or holders
of record thereof upon surrender of certificates. If notice of redemption shall
have been given, then upon the date of such deposit, all rights of holders of
the shares so called for redemption shall cease, except the right of the holders
of such shares to receive the redemption price against delivery of such shares,
but without interest, and such shares shall cease to be
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outstanding. The Company shall be entitled to receive, from time to time,
from the Series A Paying Agent, the interest, if any, earned on such monies
deposited with the Series A Paying Agent, and the holders of any shares to be
redeemed with such monies shall have no claim to any such interest. Any funds so
deposited which are unclaimed at the end of two years from such redemption date
shall upon demand be repaid to the Company, after which the holders of the
shares of Series A Senior Preferred Stock so called for redemption shall be
entitled to look only to the Company for payment thereof.
(6) Liquidation Preference. (a) In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the
holders of shares of the Series A Senior Preferred Stock shall be entitled to
receive out of the assets of the Company available for distribution to
stockholders, before any distribution of assets shall be made to the holders of
shares of Common Stock, the Preferred Stock or of any other class or series of
stock ranking junior to the Series A Preferred Stock as to such a distribution,
an amount equal to $25.00 per share, plus an amount equal to any accrued and
unpaid dividends (whether or not declared) for the then-current, and each prior
dividend period (without accumulation of accrued and unpaid dividends for prior
dividend periods) to the date fixed for payment of such distribution.
(b) If upon any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the amounts payable with respect to shares of the
Series A Senior Preferred Stock and shares of any other class or series of stock
of the Company ranking on a parity with the Series A Senior Preferred Stock
as to any such distribution are not paid in full, the holders of shares of the
Series A Senior Preferred Stock and the holders of shares of such other class or
series of stock shall share ratably in any such distribution of assets of the
Company in proportion to the full respective preferential amounts to which
they are entitled.
(c) After payment to the holders of shares of the Series A Senior Preferred
Stock of the full preferential amounts provided for in this Section 3, the
holders of such shares shall not be entitled to any further participation in any
distribution of assets by the Company.
(d) The consolidation or merger of the Company with or into any other
corporation or corporations, or the sale, lease or conveyance of all or
substantially all the assets of the Company, whether for cash, shares of
stock, Series A Senior Preferred Stock or properties, shall not be regarded as a
liquidation, dissolution or winding up of the Company within the meaning of
this Section 3.
(e) Conversion and Exchange. The holders of shares of the Series A Senior
Preferred Stock shall not have any rights to convert such shares into or to
exchange such shares for shares of Common Stock, any other class or classes of
capital stock (or any other security) or any other series of any class or
classes of capital stock (or any other security) of the Company.
(7) Priority as to Certain Distributions. As a series of Senior Preferred
Stock, the shares of the Series A Senior Preferred Stock shall be entitled to
such rights and
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priorities, and subject to such limitations, as to dividends as are set forth in
the resolutions and in this Certificate of Incorporation.
(8) Sinking Fund. No sinking fund shall be provided for the purchase or
redemption of shares of the Series A Senior Preferred Stock.
(9) Ranking. Without limitation to any provision set forth in the
resolutions or in this Certificate of Incorporation, it is hereby confirmed and
expressly declared that the Series A Senior Preferred Stock constitutes a series
of Senior A Preferred Stock and, accordingly, ranks senior to all shares of
Preferred Stock as to dividends and distributions of assets upon liquidation,
dissolution or winding up.
For purposes hereof, any class or series or stock of the Company shall be
deemed to rank:
(a) prior to the Series A Senior Preferred Stock as to dividends or
distribution of assets upon liquidation, dissolution or winding up, if the
holders of such class or series shall be entitled to the receipt of dividends or
of amounts distributable upon liquidation, dissolution or winding up, as the
case may be, in preference or priority to the holders of the Series A Senior
Preferred Stock;
(b) on a parity with the Series A Senior Preferred Stock as to dividends or
distribution of assets upon liquidation, dissolution or winding up, whether or
not the dividend rates, dividend payment dates, redemption prices or liquidation
preferences per share thereof are different from those of the Series A Senior
Preferred Stock, if the holders of such class or series of stock and of the
Series A Senior Preferred Stock shall be entitled to the receipt of dividends or
of amount distributable upon liquidation, dissolution or winding up, as the case
may be, in proportion to their respective dividend amounts or liquidation
preferences, without preference or priority to the holders of the Series A
Senior Preferred Stock; and
(c) junior to the Series A Senior Preferred Stock as to dividends or
distribution of assets upon liquidation, dissolution or winding up, if such
stock shall be Common Stock, Preferred Stock or if the holders of the Series A
Senior Preferred Stock shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as the case
may be, in preference or priority to the holders of shares of such class or
series.
(10) Exclusion of Other Rights. Unless otherwise required by law, shares of
the Series A Senior Preferred Stock shall not have any rights, including
preemptive rights, or preferences other than those specifically set forth herein
or as provided by applicable law.
(11) Miscellaneous. The Board of Directors may interpret the provisions
hereof to resolve any inconsistency or ambiguity which may arise or be revealed
and if such inconsistency or ambiguity reflects an inaccurate provision hereof,
the Board of Directors may, in appropriate circumstances, authorize the filing
of a Certificate of Correction pursuant to Delaware law.
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(12) Change in Number of Shares. As provided in this Certificate of
Incorporation but subject to applicable law, the Board of Directors may increase
or decrease the number of shares of this series of Preferred Stock subsequent to
the issue of shares of this series, but not below the number of shares of the
Series A Senior Preferred Stock then outstanding.
(d) The Board of Directors pursuant to the authority expressly vested in
this Article Fourth, and pursuant to the provisions of the General Corporation
Law of the State of Delaware has by resolution fixed the voting powers,
designation, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof of the
following series of Senior Preferred Stock:
Fixed Rate Noncumulative Perpetual Senior Preferred Stock, Series C
1. Designation. The designation of the series of Senior Preferred Stock
created by these resolutions shall be Fixed Rate Noncumulative Perpetual Senior
Preferred Stock, Series C ("Series C Senior Preferred Stock"). The number of
authorized shares constituting the Series C Senior Preferred Stock is 1,500,000.
The shares of the Series C Senior Preferred Stock shall have a stated value of
$100.00 per share.
2. Voting Rights. The Series C Senior Preferred Stock shall not have any
voting powers, either general or special, except as required by applicable law
and as stated herein.
(a) Unless the vote or consent of the holders of a greater number of
shares shall then be required by law, the consent of the holders of at least
66 2/3% of all of the shares of Series C Senior Preferred Stock at the time
outstanding, given in person or by proxy, either in writing or by a vote at a
meeting called for the purpose at which the holders of shares of Series C Senior
Preferred Stock shall vote together as a separate class, shall be necessary for
authorizing, effecting or validating the amendment, alteration or repeal of any
of the provisions of this Certificate of Incorporation or of any other
certificate amendatory of or supplemental to this Certificate of Incorporation
(including any certificate of designation, preferences and rights or any similar
document relating to any series of Senior Preferred Stock or any series of the
Preferred Stock, no par value per share, of the Company ("Junior Preferred
Stock")) or of the By-laws of the Company which would adversely affect the
preferences, rights, powers or privileges of the Series C Senior Preferred
Stock;
(b) Unless the vote or consent of the holders of a greater number of
shares shall then be required by law, the consent of the holders of at least
66 2/3% of all of the Series C Senior Preferred Stock and all other series of
Senior Preferred Stock for which dividends are noncumulative ("Noncumulative
Senior Preferred Stock") ranking on a parity with shares of the Series C Senior
Preferred Stock, either as to dividends or upon liquidation, at the time
outstanding, given in person or by proxy, either in writing or by a vote at a
meeting called for the purpose at which the holders of shares of the Series C
Senior Preferred Stock and such other series of Noncumulative Senior Preferred
Stock shall vote together as a single class without regard to series, shall be
necessary for authorizing, effecting, increasing or validating
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the creation, authorization or issue of any shares of any class of stock of the
Corporation ranking prior to the shares of the Series C Senior Preferred Stock
as to dividends or upon liquidation, or the reclassification of any authorized
stock of the Company into any such prior shares, or the creation, authorization
or issue of any obligation or security convertible into or evidencing the right
to purchase any such prior shares.
(c) If, at the time of any annual meeting of stockholders for the
election of directors of the Company, a default in preference dividends on the
Series C Senior Preferred Stock or any other class or series of Noncumulative
Senior Preferred Stock ranking on a parity with the Series C Senior Preferred
Stock, either as to dividends or upon liquidation, and upon which like voting
rights have been conferred and are exercisable (excluding any other class or
series of Series C Senior Preferred Stock expressly entitled to elect additional
directors to the Board by a vote separate and distinct from the vote provided
for in this paragraph (c), "Voting Noncumulative Senior Preferred Stock") shall
exist, the number of directors constituting the Board shall be increased by two
(without duplication of any increase made pursuant to the terms of any other
class or series of Voting Noncumulative Senior Preferred Stock), and the holders
of the Series C Senior Preferred Stock and the Voting Noncumulative Senior
Preferred Stock shall have the right at such meeting, voting together as a
single class without regard to class or series (to the exclusion of the holders
of Common Stock, Junior Preferred Stock and of any series of Senior Preferred
Stock which is not Voting Noncumulative Senior Preferred Stock), to elect two
directors of the Company to fill such newly created directorships. Each director
elected by the holders of shares of Series C Senior Preferred Stock and any
class or series of Voting Noncumulative Preferred Stock in an election provided
for by this Section 2(c) (herein called a "Preferred Director") shall continue
to serve as such director until the next annual meeting of stockholders for the
election of directors of the Company and until his successor is elected and
qualified, notwithstanding that prior to the end of such term a default in
preference dividends shall cease to exist. Any Preferred Director may be removed
by, and shall not be removed except by, the vote of the holders of record of the
outstanding shares of Series C Senior Preferred Stock and Voting Noncumulative
Senior Preferred Stock entitled to have originally voted for such director's
election, voting together as a single class without regard to class or series,
at a meeting of the Company's stockholders, or of the holders of shares of
Series C Senior Preferred Stock and Voting Noncumulative Senior Preferred Stock,
called for that purpose. So long as a default in any preference dividends on the
Series C Senior Preferred Stock or any class or series of Voting Noncumulative
Senior Preferred Stock shall exist, (A) any vacancy in the office of a Preferred
Director may be filled (except as provided in the following clause (B)) by an
instrument in writing signed by the remaining Preferred Director and filed with
the Company and (B) in the case of the removal of any Preferred Director, the
vacancy may be filled by the vote of the holders of the outstanding shares of
Series C Senior Preferred Stock and Voting Noncumulative Senior Preferred Stock
entitled to have originally voted for the removed director's election, voting
together as a single class without regard to class or series, at the same
meeting at which such removal shall be voted. Each director appointed as
aforesaid shall be deemed for all purposes hereto to be a Preferred Director.
Whenever the term of office of the Preferred Directors shall end and a
default in preference dividends shall no longer exist, the number of directors
constituting the Board shall be reduced by two. For purposes hereof, a "default
in preference dividends" on the
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Series C Series Preferred Stock or any class or series of Voting Noncumulative
Senior Preferred Stock shall be deemed to have occurred whenever dividends upon
the Series C Senior Preferred Stock or such class or series of Voting
Noncumulative Senior Preferred Stock have not been paid or declared and set
aside for payment for the equivalent of six full quarterly dividends or more
(whether or not consecutive), and, having so occurred, such default shall be
deemed to exist thereafter until, but only until, all dividends on the Series C
Senior Preferred Stock or such other class or series of Voting Noncumulative
Senior Preferred Stock have been paid or declared and set apart for payment
regularly for at least one year (i.e., four consecutive full quarterly dividend
periods).
3. Preferences. The Series C Senior Preferred Stock will be fixed rate
noncumulative perpetual (i.e., will be redeemable, if at all, solely at the
option of the Company) Senior Preferred Stock and will rank senior to the
Junior Preferred Stock as to payments of dividends and upon liquidation.
4. Dividends.
(a) The holders of shares of the Series C Senior Preferred Stock shall
be entitled to receive cash dividends thereon at a rate per annum of 6.687%,
such rate per annum to be computed on the basis of the stated value thereof of
$100.00 per share, and no more, payable (if declared) quarterly out of the funds
of the Company legally available for the payment of dividends. Such dividends
shall be payable, when, as and if declared by the Board or a duly authorized
committee thereof, on February 15, May 15, August 15 and November 15 of each
year (each a "Series C Dividend Payment Date"), commencing August 15, 1997. Each
such dividend shall be paid to the holders of record of shares of Series C
Senior Preferred Stock as they appear on the stock register of the Company on
the close of business on such record date, which shall be not less than five nor
more than 50 days (whether or not business days) preceding the Dividend Payment
Date, as shall be fixed by the Board or a duly authorized committee thereof. The
rights of holders of the Series C Senior Preferred Stock shall be noncumulative.
Accordingly, if the Board fails to declare a dividend on the Series C Senior
Preferred Stock payable on a Dividend Payment Date, then holders of Series C
Senior Preferred Stock will have no right to receive a dividend in respect of
the dividend period ending on such Series C Dividend Payment Date, and the
Company will have no obligation to pay dividends accrued for such period,
whether or not dividends on the Series C Senior Preferred Stock are declared
payable on any future Series C Dividend Payment Date. The amount of dividends
payable for any period shorter than a full quarterly dividend period will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
(b) If one or more amendments to the Internal Revenue Code of 1986,
as amended (the "Code"), are enacted that reduce the percentage of the dividends
received deduction (currently 70%) as specified in Section 243(a)(1) of the Code
or any successor provision (the "Dividends Received Percentage"), the amount of
each dividend payable (if declared) per share of the Series C Senior Preferred
Stock for dividend payments made on or after the date of enactment of such
change shall be increased by multiplying the amount of the dividend payable
determined as described above (before adjustment) by a factor, which shall be
the number determined in accordance with the following formula (the "DRD
Formula") and rounding the result to the nearest cent (with one-half cent
rounded up):
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1 - [.35 (1 - .70)]
________________
1 - [.35 (1 - DRP)]
For purposes of the DRD Formula, "DRP" means the Dividends Received
Percentage applicable to the dividend in question; provided, however, that if
the Dividends Received Percentage applicable to the dividend in question is less
than 50%, then the DRP will equal 0.50. No amendment to the Code, other than a
change in the percentage of the dividends received deduction set forth in
Section 243(a)(1) of the Code or any successor provision, will give rise to an
adjustment. Notwithstanding the foregoing provisions, in the event that, with
respect to any such amendment, the Company shall receive either (i) an
unqualified opinion of independent recognized tax counsel based upon the
legislation amending or establishing the DRP or upon a published pronouncement
of the Internal Revenue Service (the "IRS") addressing such legislation or (ii)
a private letter ruling or similar form of assurance from the IRS, in either
case to the effect that such an amendment would not apply to dividends payable
on shares of Series C Senior Preferred Stock, then any such amendment shall not
result in the adjustment provided for pursuant to the DRD Formula. The Company's
calculation of the dividends payable, as so adjusted and as certified accurate
as to calculation and reasonable as to method by the independent certified
public accountants then regularly engaged by the Company, shall be final and not
subject to review.
If any amendment to the Code which reduces the Dividends Received
Percentage is enacted after a dividend payable on a Series C Dividend Payment
Date has been declared but before such dividend has been paid, the amount of
dividends payable on such Series C Dividend Payment Date will not be increased;
but instead, an amount, equal to the excess, if any, of (x) the product of the
dividends paid by the Company on such Series C Dividend Payment Date and the DRD
Formula (where the DRP used in the DRD Formula would be equal to the greater of
the reduced Dividends Received Percentage and 0.50) over (y) the dividends paid
by the Company on such Series C Dividend Payment Date, will be payable (if
declared) on the next succeeding Series C Dividend Payment Date to holders of
Series C Senior Preferred Stock on the record date applicable to such succeeding
Series C Dividend Payment Date, in addition to any other amounts payable on such
Series C Dividend Payment Date.
In addition, if an amendment to the Code is enacted that reduces the
Dividends Received Percentage and such reduction retroactively applies to a
Series C Dividend Payment Date as to which the Corporation previously paid
dividends on shares of Series C Senior Preferred Stock (each an "Affected Series
C Dividend Payment Date"), the Company will pay (if declared) additional
dividends (the "Retroactive Dividends") on the next succeeding Series C Dividend
Payment Date (or if such amendment is enacted after the dividend payable on such
Series C Dividend Payment Date has been declared, on the second succeeding
Series C Dividend Payment Date following the date of enactment), to holders of
Series C Senior Preferred Stock on the record date applicable to such succeeding
Series C Dividend Payment Date, in an amount equal to the excess, if any, of (x)
the product of the dividends paid by the Company on each Affected Dividend
Payment Date and the DRD Formula (where the DRP used in the DRD Formula would be
equal to the greater of the reduced Dividends Received Percentage and 0.50,
applied to each Affected Series C Dividend Payment Date) over (y) the dividends
paid by the Company on each Affected Series C Dividend Payment Date.
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Retroactive Dividends will not be paid in respect of the enactment of any
amendment to the Code if such amendment would not result in an adjustment due to
the Company having received either an opinion of counsel or tax ruling referred
to in the third preceding paragraph. The Company will only make one payment of
Retroactive Dividends.
In the event that the amount of dividends payable per share of Series C
Senior Preferred Stock shall be adjusted pursuant to the DRD Formula and/or
Retroactive Dividends are to be paid, the Company will cause notice of each such
adjustment and, if applicable any Retroactive Dividends, to be sent to each
holder of record of the shares of Series C Senior Preferred Stock at such
holder's address as the same appears on the stock register of the Company.
(c) So long as any shares of Series C Senior Preferred Shares are
outstanding, no dividend (other than a dividend in Common Stock, Junior
Preferred Stock or any other stock ranking junior to the Series C Senior
Preferred Stock as to dividends and upon liquidation and other than as provided
in subsection (c) of this Section 4) shall be declared or paid or set aside for
payment, nor shall any other distribution be declared or made upon the Common
Stock, Junior Preferred Stock or any other stock ranking junior to or on a
parity with the Series C Senior Preferred Stock as to dividends or upon
liquidation, nor shall any Common Stock, Junior Preferred Stock or other stock
of the Company ranking junior to or on a parity with the Series C Senior
Preferred Stock as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (nor shall any funds be paid to, or
made available for, a sinking fund for the redemption of any shares of any such
stock) by the Company (except by conversion into or exchange for stock of the
Company ranking junior to the Series C Senior Preferred Stock as to dividends
and upon liquidation) unless, in each case, the full dividends on all
outstanding shares of the Series C Senior Preferred Stock shall have been, or
contemporaneously are, paid, or declared and a sum sufficient for the payment
thereof has been or is set apart for such payment, for the then-current dividend
period (without accumulation of accrued and unpaid dividends for prior dividend
periods unless previously declared).
(d) When dividends are not paid or declared and set aside for payment
in full, as aforesaid, upon the shares of Series C Senior Preferred Stock and
any other Senior Preferred Stock ranking on a parity as to dividends with the
Series C Senior Preferred Stock, all dividends declared upon shares of Series C
Senior Preferred Stock and any other class or series of Senior Preferred Stock
ranking on a parity as to dividends with the Series C Senior Preferred Stock
shall be declared pro rata so that the amount of dividends declared per share on
the Series C Senior Preferred Stock and such other Senior Preferred Stock shall
in all cases bear to each other the same ratio that dividends per share on the
shares of Series C Senior Preferred Stock for the then-current dividend period
(without accumulation of accrued and unpaid dividends for prior dividend periods
unless previously declared) and such other Senior Preferred Stock bear to each
other. Holders of shares of Series C Senior Preferred Stock shall not be
entitled to any dividend, whether payable in cash, property or stock, in excess
of full dividends for the then-current dividend period (without accumulation of
accrued and unpaid dividends for prior dividend periods unless previously
declared), as herein provided, on the Series C Senior Preferred Stock.
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5. Redemption.
(a) The shares of Series C Senior Preferred Stock shall not be
redeemable prior to August 15, 2007. On and after August 15, 2007, the
Company, at its option, may redeem shares of the Series C Senior Preferred
Stock, in whole or in part, at any time or from time to time, at a redemption
price of $100.00 per share, plus accrued and unpaid dividends thereon (whether
or not earned or declared) for the then-current dividend period (without
accumulation of accrued and unpaid dividends for prior dividend periods unless
previously declared), including any dividends payable due to changes in the
Dividends Received Percentage and Retroactive Dividends to the date fixed for
redemption. In the event that fewer than all the outstanding shares of Series C
Senior Preferred Stock are to be redeemed pursuant to this Section 5(a), the
number of shares to be redeemed shall be determined by the Board and the shares
to be redeemed shall be determined by lot or pro rata as may be determined by
the Board or by any other method as may be determined by the Board in its sole
discretion to be equitable.
(b) Notwithstanding the foregoing, if dividends for the then-current
dividend period to the redemption date (without accumulation of accrued and
unpaid dividends for prior dividend periods unless previously declared) have not
been declared and paid or set apart for payment on all outstanding shares of
Series C Senior Preferred Stock, no shares of Series C Senior Preferred Stock
shall be redeemed unless all outstanding shares of Series C Senior Preferred
Stock are simultaneously redeemed, and the Company shall not purchase or
otherwise acquire any shares of Series C Senior Preferred Stock; provided,
however, that the foregoing shall not prevent the purchase or acquisition of
shares of Series C Senior Preferred Stock pursuant to a tender or exchange offer
made on the same terms to all holders of Series C Senior Preferred Stock and
mailed to the holders of record of the Preferred Stock at such holders'
addresses as the same appear on the stock register of the Company; provided,
further, that if some, but less than all, of the shares of the Series C Senior
Preferred Stock are to be purchased or otherwise acquired pursuant to such
tender or exchange offer and the number of shares so tendered exceeds the number
of shares so to be purchased or otherwise acquired by the Company, the shares of
the Series C Senior Preferred Stock tendered will be purchased or otherwise
acquired by the Company on a pro rata basis (with adjustments to eliminate
fractions) according to the number of such shares tendered by each holder
tendering shares of Series C Senior Preferred Stock.
(c) In the event the Company shall redeem shares of Series C Senior
Preferred Stock pursuant to subsection (a) of this Section 5, notice of such
redemption shall be given by first class mail, postage prepaid, mailed not less
than 30 nor more than 60 days prior to the redemption date, to each holder of
record of the shares to be redeemed, at such holder's address as the same
appears on the stock register of the Company. Each such notice shall state: (i)
the redemption date; (ii) the number of shares of Series C Senior Preferred
Stock to be redeemed and, if fewer than all the shares held by such holder are
to be redeemed, the number of such shares to be redeemed from such holder; (iii)
the redemption price; (iv) the place or places where certificates for such
shares are to be surrendered for payment of the redemption price; and (v) that
dividends on the shares to be redeemed will cease to accrue on such redemption
date.
(d) Notice having been mailed as aforesaid, from and after the
redemption date (unless default shall be made by the Company in providing funds
for the payment of
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the redemption price) dividends on the shares of Series C Senior Preferred Stock
so called for redemption under subsection (a) of this Section 5 shall cease to
accrue, and said shares shall no longer be deemed to be outstanding, and all
rights of the holders thereof as stockholders of the Company (except the
right to receive from the Company the redemption price against delivery of
such shares) shall cease. Upon surrender in accordance with said notice of the
certificates for any shares so redeemed (properly endorsed or assigned for
transfer, if the Board shall so require and the notice shall so state), such
shares shall be redeemed by the Company at the applicable redemption price.
In case fewer than all the shares represented by any such certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares
without cost to the holder thereof.
(e) If the Company gives notice of redemption, then, by 12:00
Noon, Chicago time, on the redemption date, the Company shall irrevocably
deposit with a paying agent (which may be an affiliate of the Company) (the "the
Series C Paying Agent"), which shall be a bank or trust company organized and in
good standing under the laws of the United States, the State of Illinois or the
State of New York and having capital, surplus and undivided profits aggregating
at least $10,000,000, funds sufficient to pay the applicable redemption price,
including any accrued and unpaid dividends to the redemption date, and shall
give the Series C Paying Agent irrevocable instructions and authority to pay the
redemption price to the holder or holders of record of the shares of Series C
Senior Preferred Stock upon surrender of certificates for such shares
(previously endorsed or assigned for transfer). If notice of redemption shall
have been given, then upon the date of such deposit, all rights of holders of
the shares so called for redemption shall cease, except the right of the holders
of such shares to receive the redemption price against delivery of such shares,
but without interest, and such shares shall cease to be outstanding. The Company
shall be entitled to receive, from time to time, from the Series C Paying Agent,
the interest, if any, earned on such funds deposited with the Series C Paying
Agent, and the holders of any shares to be redeemed with such funds shall have
no claim to any such interest. Any funds so deposited which are unclaimed at the
end of two years from such redemption date shall upon demand be repaid to the
Company, after which the holders of the shares of Series C Senior Preferred
Stock so called for redemption shall be entitled to look only to the Company for
payment thereof.
6. Liquidation Preference.
(a) Upon the dissolution, liquidation or winding up of the
Company, voluntary or involuntary, the holders of the shares of Series C
Senior Preferred Stock shall be entitled to receive and be paid out of the
assets of the Company available for distribution to its stockholders, before
any payment or distribution shall be made on the Common Stock, the Junior
Preferred Stock or any other class of stock ranking junior to the Series C
Senior Preferred Stock upon liquidation, the amount of $100.00 per share, plus
an amount equal to the sum of all accrued and unpaid dividends (whether or not
earned or declared) on such shares for the then-current dividend period (without
accumulation of accrued and unpaid dividends for prior dividend periods unless
previously declared) to the date of final distribution.
(b) Neither the sale of all or substantially all the property or
business of the Company nor the merger or consolidation of the Company
into or with any other corporation or the merger or consolidation of any other
corporation into or with the
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Company, shall be deemed to be a dissolution, liquidation or winding up,
voluntary or involuntary, for the purposes of this Section 6.
(c) After the payment to the holders of the shares of Series C Senior
Preferred Stock of the full preferential amounts provided for in this Section 6,
the holders of the shares of Series C Senior Preferred Stock, as such, shall
have no right or claim to any of the remaining assets of the Company.
(d) In the event the assets of the Company available for
distribution to the holders of the shares of Series C Senior Preferred Stock
upon any dissolution, liquidation or winding up of the Company, whether
voluntary or involuntary, shall be insufficient to pay in full all amounts to
which such holders are entitled pursuant to subsection (a) of this Section 6, no
such distribution shall be made on account of any shares of any other class or
series of Senior Preferred Stock ranking on a parity with the shares of Series C
Senior Preferred Stock upon such dissolution, liquidation or winding up, unless
proportionate distributive amounts shall be paid on account of the shares of
Series C Senior Preferred Stock ratably, in proportion to the full distributable
amounts for which holders of all such parity shares are respectively entitled
upon such dissolution, liquidation or winding up.
7. Conversion and Exchange. The holders of shares of the Series C Senior
Preferred Stock shall not have any rights to convert such shares into, or to
exchange such shares for, shares of Common Stock, any other class or classes of
capital stock (or any other security) or any other series of any class or
classes of capital stock (or any other security) of the Company.
8. Priority as to Certain Distributions. As a series of Senior Preferred
Stock, the shares of the Series C Senior Preferred Stock shall be entitled to
such rights and priorities, and subject to such limitations, as to dividends as
are set forth in the resolutions designating the Series C Senior Preferred Stock
and in this Certificate of Incorporation.
9. Sinking Fund. No sinking fund shall be provided for the purchase or
redemption of shares of the Series C Senior Preferred Stock.
10. Ranking. Without limitation to any provision set forth in these
resolutions or in this Certificate of Incorporation, it is hereby confirmed and
expressly declared that the Series C Senior Preferred Stock constitutes a series
of Senior Preferred Stock and, accordingly, ranks senior to all shares of Junior
Preferred Stock as to dividends and distributions of assets upon liquidation,
dissolution or winding up.
For purposes hereof, any class or series or stock of the Company shall
be deemed to rank:
(a) prior to the Series C Senior Preferred Stock as to dividends or
distribution of assets upon liquidation, dissolution or winding up, if the
holders of such class or series shall be entitled to the receipt of dividends or
of amounts distributable upon liquidation, dissolution or winding up, as the
case may be, in preference or priority to the holders of Series C Senior
Preferred Stock;
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(b) on a parity with the Series C Senior Preferred Stock as to
dividends or distribution of assets upon liquidation, dissolution or winding up,
whether or not the dividend rates, dividend payment dates, redemption prices or
liquidation preferences per share thereof are different from those of the Series
C Senior Preferred Stock, if the holders of such class or series of stock and of
the Series C Senior Preferred Stock shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or winding
up, as the case may be, in proportion to their respective dividend amounts or
liquidation preferences, without preference or priority to the holders of Series
C Senior Preferred Stock; and
(c) junior to the Series C Senior Preferred Stock as to dividends or
distribution of assets upon liquidation, dissolution or winding up, if such
stock shall be Common Stock or Junior Preferred Stock or if the holders of the
Series C Senior Preferred Stock shall be entitled to the receipt of dividends or
of amounts distributable upon liquidation, dissolution or winding up, as the
case may be, in preference or priority to the holders of shares of such class or
series.
11. Exclusion of Other Rights. Unless otherwise required by law, shares
of the Series C Senior Preferred Stock shall not have any rights, including
preemptive rights, or preferences other than those specifically set forth herein
or as provided by applicable law.
12. Miscellaneous. The Board of Directors may interpret the provisions
hereof to resolve any inconsistency or ambiguity which may arise or be revealed
and if such inconsistency or ambiguity reflects an inaccurate provision hereof,
the Board of Directors may, in appropriate circumstances, authorize the filing
of a certificate of correction pursuant to Delaware law.
13. Change in Number of Shares. As provided in this Certificate of
Incorporation, but subject to applicable law, the Board of Directors may
increase or decrease the number of shares of this series of Senior Preferred
Stock subsequent to the issue of shares of this series, but not below the number
of shares of Series C Senior Preferred Stock then outstanding.
The 1,500,000 shares of Series C Senior Preferred Stock authorized for
issuance pursuant to resolutions of the Board of Directors all constitute Senior
Preferred Stock within the 20,000,000 shares originally authorized pursuant to
resolutions of the Board of Directors.
FIFTH: The existence of the Company is to be perpetual.
SIXTH: The private property of the stockholders shall not be subject to the
payment of corporate debts to any extent whatever.
SEVENTH: Except as otherwise provided for or fixed pursuant to the
provisions of Article Fourth of this Certificate of Incorporation relating to
the rights of the holders of a series of the Senior Preferred Stock to elect
additional directors, the number of directors of the Company shall be fixed and
may be altered from time to time as may be provided in
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the By-laws. In case of any increase in the number of directors, the additional
directors may be elected by the directors, or by the stockholders, at an annual
or special meeting.
EIGHTH: In furtherance, and not in limitation of the powers conferred by
statute, the Board of Directors are expressly authorized:
(a) To fix, determine and vary from time to time the amount to be
maintained as surplus and the amount or amounts to be set apart as working
capital.
(b) Subject to Article FIFTEENTH hereof, to make, alter, amend or repeal
By-laws for the Company without any action on the part of the stockholders.
(c) To designate two or more directors to constitute an executive
committee, which committee shall have and exercise (except when the Board of
Directors shall be in session and except as otherwise provided under the law of
the State of Delaware, this Certificate of Incorporation or the By-laws of the
Company) such powers and rights of the full Board of Directors in the management
of the business and affairs of the Company as may be lawfully delegated, and
shall have power to authorize the seal of the Company to be affixed to all
papers which may require it.
(d) If the By-laws of the Company shall so provide, the stockholders and
directors shall have power to hold their meetings either within or without the
State of Delaware, and to have one or more offices outside of the State of
Delaware, and to keep the books and records of the Company outside the State of
Delaware, and at such place or places as may from time to time be designated by
the Board of Directors.
(e) To authorize and cause to be executed mortgages and liens without limit
as to amount, upon the real and personal property of the Company.
(f) From time to time to determine whether and to what extent, and at what
time and place and under what conditions and regulations the accounts and books
of the Company, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any account or
book or document of the Company except as conferred by statute or the By-laws
or as authorized by a resolution of the directors or stockholders.
(g) To sell, assign, transfer, convey and otherwise dispose of a part of
the property, assets and effects of the Company, less than the whole or
substantially the whole thereof, on such terms and conditions as they shall deem
advisable, without the assent of the stockholders in writing or otherwise; and
also to sell, assign, transfer, convey and otherwise dispose of the whole, or
substantially the whole, of the property, assets, effects, franchises, and
goodwill of the Company on such terms and conditions as they shall deem
advisable but only with the assent in writing, or pursuant to the vote, of the
holders at least 66-2/3% of the total voting power of all outstanding Common
Stock, but in any event not less than the amount required by law.
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(h) All of the powers of the Company, insofar as the same lawfully may be
vested by this Certificate in the directors, are hereby conferred upon the said
directors of the Company.
NINTH: The Company may in its By-laws fix the number (not less than the
number required by law or in this Certificate of Incorporation) of shares (or
votes thereof), the holders of which must consent to, or which must be voted in
favor of, any specific act or acts by the Company, or its Board of Directors,
and during the period for which such number remains so fixed, such specified act
or acts shall not and may not be performed or carried out by the Company, or
its Board of Directors without the consent or affirmative vote of the holders of
at least the number of shares (or votes thereof) so fixed.
TENTH: Subject to Article SIXTEENTH hereof and to the law of the State of
Delaware, in the absence of fraud, no contract or transaction between the
Company and any other corporation shall be affected by the fact that the
directors of the Company are interested in or are directors or officers of such
other corporation, and any director individually may be a party to, or may be
interested in any such contract or transaction of the Company; and no such
contract or transaction of the Company with any person or persons, firm or
association, shall be affected by the fact that any director of this Company is
a party to, or interested in such contract or transaction, or in any way
connected with such person or persons, firm or association, provided that the
interest in any such contract or transaction of any such director shall be fully
disclosed, and that such contract or other transaction shall be authorized or
ratified by the vote of a sufficient number of the directors of the Company not
so interested; and each and every person who may become a director in the
Company is hereby relieved from any liability that might otherwise exist from
thus contracting with the Company for the benefit of himself or any firm,
association, or corporation in which he may be in anyway interested.
ELEVENTH: The Company may in its Bylaws make any other provisions or
requirements for the management or conduct of the business of the Company,
provided the same be not inconsistent with the provisions of this Certificate of
Incorporation, or contrary to the laws of the State of Delaware, or the United
States.
TWELFTH: Subject to any rights of holders of Preferred Stock and Senior
Preferred Stock of the Company and to the law of the State of Delaware, if one
or more vacancies occur in the Board of Directors by reason of death,
resignation, expansion of the Board of Directors or otherwise, except insofar as
otherwise provided in the case of a vacancy or vacancies occurring by reason of
removal by the stockholders, the remaining directors, although less than a
quorum, or the sole remaining director, may elect, by a majority vote (if there
be more than one remaining director), a successor or successors for the
unexpired term or terms, and, except as otherwise provided by law, any such
vacancy may not be filled by the stockholders of the Company.
THIRTEENTH: A special meeting of stockholders may be called at any time by
(i) the Chairman of the Board, the Vice Chairman or the President or (ii) the
Secretary at the request of a majority of the total number of members of the
Board of Directors. Any action required or permitted to be taken at any annual
or special meeting of stockholders may be taken without a meeting, without prior
notice and without a vote, if a consent in writing,
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setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing and who, if the
action had been taken at a meeting would have been entitled to notice of the
meeting if the record date for such meeting had been the date that written
consents signed by a sufficient number of holders to take the action were
delivered to the Company. Such written consent shall be filed with the records
of the Company. Notwithstanding the foregoing, however, on and after the date
on which neither Fuji Bank and/or its subsidiaries nor any Class B Transferee
(and/or its subsidiaries) continues to beneficially own a majority of the total
voting power of all outstanding classes of Common Stock of the Company, voting
together as a single class, any corporate action required or permitted to be
taken at any annual meeting of stockholders or special meeting of stockholders
may taken only at a duly called annual meeting of stockholders or special
meeting of stockholders and may not be taken by written consent of the
stockholders in lieu of a meeting.
FOURTEENTH: No director of the Company shall be personally liable to the
Company or to its stockholders for monetary damages arising out of or resulting
from any breach of his fiduciary duty as a director; provided, however, that
this Article FOURTEENTH shall not apply in any case where such liability arises
out of or results from: (a) the breach by such director of his duty of loyalty
to the Company or to its stockholders; (b) any act or omission of such director
not in good faith or which involves intentional misconduct or a knowing
violation of the law; (c) any transaction from which such director derives an
improper personal benefit; or (d) any payment of a dividend or any purchase or
redemption of the capital stock of the Company in violation of the provisions of
Section 174 of the General Corporation Law of the State of Delaware (the
"DGCL"). If the DGCL is amended to authorize the further elimination or
limitation of the liability of directors, then the liability of a director of
the Company existing at the time of such elimination or limitation, in addition
to the limitation on personal liability herein, shall be eliminated or limited
to the fullest extent of the DGCL. Any repeal or modification of this Article
FOURTEENTH by the stockholders of the Company shall be prospective only, and
shall not adversely affect any limitation on the personal liability of a
director of the Company at the time of such repeal or modification. This
Article FOURTEENTH shall be effective as of, and shall apply to any act,
omission or transaction of any director of the Company occurring on or after,
July 1, 1986.
FIFTEENTH: The Company reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by statute and all rights conferred on
officers, directors and stockholders herein are granted subject to this
reservation. Notwithstanding any provisions herein to the contrary and subject
to the rights of any holders of Preferred Stock and Senior Preferred Stock, (1)
the affirmative vote of the holders of at least 66-2/3% of the total voting
power of all classes of outstanding Common Stock entitled to vote generally in
the election of directors, voting together as a single class, shall be required
to amend, repeal or adopt any provision of this Certificate of Incorporation
inconsistent with Article TWELFTH or THIRTEENTH hereof or this Article
FIFTEENTH, and (2) the By-laws of the Company may be adopted, amended or
repealed by the affirmative vote of the members of the Board
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of Directors of the Company constituting not less than a majority of the entire
Board of Directors or by the vote of the holders of at least 66-2/3% of the
total voting power of all outstanding Common Stock, voting together as a single
class.
SIXTEENTH: (a) In anticipation that Fuji Bank will remain a substantial
stockholder of the Company and in anticipation that the Company and Fuji Bank
may engage in the same or similar activities or lines of business and have an
interest in the same areas of corporate opportunities, and in recognition of the
benefits to be derived by the Company through its continued contractual,
corporate and business relations with Fuji Bank (including possible service of
directors and officers and other employees of Fuji Bank as directors or officers
or other employees of the Company), the provisions of this Article Sixteenth
are set forth to regulate and define the conduct of certain affairs of the
Company as they may involve Fuji Bank and its directors and officers and other
employees, and the powers, rights, duties and liabilities of this Company and
its directors, officers and other employees and stockholders in connection
therewith.
(b) Fuji Bank shall have no duty to refrain from engaging in the same or
similar activities or lines of business as the Company, and neither Fuji Bank
nor any director or officer or other employee thereof (except as provided in
subsection (c) below) shall be liable to the Company or its stockholders for
breach of any fiduciary duty by reason of any such activities of Fuji Bank. In
the event that Fuji Bank acquires knowledge of a potential transaction or matter
which may be a corporate opportunity for both Fuji Bank and the Company, Fuji
Bank shall have no duty to communicate or offer such corporate opportunity to
the Company and shall not be liable to the Company or its stockholders for
breach of any fiduciary duty as a stockholder of the Company by reason of the
fact that Fuji Bank pursues or acquires such corporate opportunity for itself,
directs such corporate opportunity to another person or does not communicate
information regarding such corporate opportunity to the Company.
(c) In the event that a director or officer or other employee of the
Company who is also a director or officer or other employee of Fuji Bank
acquires knowledge of a potential transaction or matter which may be a corporate
opportunity for both the Company and Fuji Bank, such director or officer or
other employee of the Company shall have fully satisfied and fulfilled his
fiduciary duty to the Company and its stockholders with respect to such
corporate opportunity, if such person acts in a manner consistent with the
following policy:
(1) a corporate opportunity offered to any person who is an officer or
employee of the Company, and who is also a director but not an officer or
employee of Fuji Bank, shall belong to the Company; (2) a corporate opportunity
offered to any person who is a director but not an officer or employee of the
Company, and who is also a director or officer or other employee of Fuji Bank
shall belong to the Company if such opportunity is expressly offered to such
person in writing solely in his capacity as a director of the Company, and
otherwise shall belong to Fuji Bank; and (3) a corporate opportunity offered to
any person who is an officer or other employee of both the Company and Fuji
Bank, or an officer of one and a non-officer employee of the other, shall belong
to the Company if such opportunity is expressly offered to such person in
writing solely in his capacity as an officer or employee of the Company, and
otherwise shall belong to Fuji Bank.
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(d) For purposes of this Article SIXTEENTH only:
(1) A director of the Company who is Chairman of the Board of Directors
of the Company or of a committee thereof shall not be deemed to be an officer
or employee of the Company by reason of holding such position (without regard
to whether such position is deemed an officer of the Company under the By-Laws
of the Company), unless such person is a full-time employee of the Company;
and
(2)(i) The term "Company" shall mean the Company and all corporations,
partnerships, joint ventures, associations and other entities which are
controlled by the Company (directly or indirectly) through the ownership of the
outstanding voting power of such corporation, partnership, joint venture,
association or other entity or otherwise and (ii) the term "Fuji Bank" shall
mean Fuji Bank and all corporations, partnerships, joint ventures, associations
and other entities (other than the Company, defined in accordance with the
foregoing subsection (i)) which are controlled by Fuji Bank (directly or
indirectly) through the ownership of the outstanding voting power of such
corporation, partnership, joint venture, association or other entity or
otherwise.
(e) Notwithstanding anything in this Certificate of Incorporation to the
contrary, the foregoing provisions of this Article SIXTEENTH shall expire on the
date that Fuji Bank ceases to own beneficially Common Stock representing at
least 30% of the total voting power of all classes of outstanding Common Stock
of the Company and no person who is a director or officer or other employee of
the Company is also a director or officer or other employee of Fuji Bank.
Neither the alteration, amendment or repeal of this Article SIXTEENTH nor the
adoption of any provision of this Certificate of Incorporation inconsistent with
this Article shall eliminate or reduce the effect of this Article in respect of
any matter occurring, or any cause of action, suit or claim that, but for this
Article SIXTEENTH, would accrue or arise, prior to such alteration, amendment,
repeal or adoption.
[signature page follows]
37
<PAGE>
IN WITNESS WHEREOF, Heller Financial, Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by its Executive Vice
President and attested by its Assistant Secretary and has caused its corporate
seal to be hereunto affixed, this __ day of April, 1998.
HELLER FINANCIAL, INC.
Seal By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
Attest:
- -----------------------------
Assistant Secretary
38
<PAGE>
EXHIBIT 3.2
================================================================================
AMENDED AND RESTATED
BY-LAWS
OF
HELLER FINANCIAL, INC.
(a Delaware corporation)
ADOPTED:
________, 1998
================================================================================
<PAGE>
BY-LAWS OF
HELLER FINANCIAL, INC.
----------------------
ARTICLE I: IDENTIFICATION; OFFICES
Section 1.01. Name. The name of the corporation is Heller Financial, Inc. (the
"Corporation").
Section 1.02. Registered Office; Other Offices; Books and Records. The
registered office of the Corporation in the State of Delaware shall be
established and maintained at the office of The Corporation Trust Company in the
City of Wilmington, County of New Castle, and The Corporation Trust Company
shall be the Registered Agent of the Corporation in charge thereof. The
Corporation may have such other offices at such other place or places, within or
without the State of Delaware, as the business of the Corporation may from time
to time require. The books and records of the Corporation may be kept (subject
to the provisions of the laws of the State of Delaware) at any place, either
inside or outside of the State of Delaware, as from time to time may be
determined by the Board of Directors or as may be required for the conducting of
business by the Corporation.
ARTICLE II: MEETINGS OF STOCKHOLDERS
Section 2.01. Date, Place and Time of Annual Meetings. An annual meeting of the
stockholders of the Corporation (an "Annual Meeting of Stockholders") for the
purpose of electing directors and for the transaction of such other business as
may properly be brought before such meeting shall be held on the date during the
month of May of each year, or on a date during such other month, and at the time
and place, within or outside the State of Delaware, designated by the Chairman
of the Board of Directors by notice to the Stockholders entitled to vote. In the
event the Chairman of the Board fails to so designate, the Annual Meeting of
Stockholders shall be held on the first Wednesday of May of each year, at the
principal business office of the Corporation at the hour of 9:00 a.m., unless
that date is a legal holiday, in which event the Annual Meeting of Stockholders
shall be held on the next succeeding day not a legal holiday. The Chairman of
the Board may, upon notice to the stockholders pursuant to Section 2.04, change
the date to a different date, along with the place and time of the Annual
Meeting of Stockholders.
Section 2.02. Special Meetings of Stockholders. A special meeting of
stockholders (a "Special Meeting of Stockholders") may be called at any time by
(i) the Chairman of the Board, the Vice Chairman or the President or (ii) by the
Secretary at the request of a majority of the total number of members of the
Board of Directors.
Section 2.03. Place of Special Meetings of Stockholders. A Special Meeting of
Stockholders shall be held at such place, within or outside the State of
Delaware, as may be fixed from time to time by the person or persons calling
such meetings, or, if not so fixed, at the principal business office of the
Corporation in the State of Illinois.
<PAGE>
Section 2.04. Notice of Meetings.
a. Except as otherwise permitted by statute, written notice stating the
place, date and hour of each Annual or Special Meeting of Stockholders shall be
given personally or by first-class mail (airmail in the case of international
communications) or by courier, telecopy or other electronic transmission to each
stockholder entitled to vote thereat, not less than 10 and not more than 60 days
prior to the meeting. The notice of any Special Meeting of Stockholders shall
also state the purpose or purposes for which the meeting is called and indicate
that it is being issued by or upon the request of the person or persons calling
the meeting. Such notice is given, if mailed, when deposited in the United
States mail, postage prepaid, and if by courier, telecopy or other electronic
transmission, when delivered, to the stockholder at his address as it appears on
the records of the Corporation or of its stock transfer agent.
b. Notice of a Special Meeting of Stockholders may be given by the person
or persons calling the meeting, or upon the written request of such person or
persons, such notice shall be given by the Secretary on behalf of such person or
persons. If the person or persons calling a Special Meeting of Stockholders give
notice thereof, they shall forward a copy thereof to the Secretary. Every
request to the Secretary for the giving of notice of a Special Meeting of
Stockholders shall state the purpose or purposes of such meeting.
c. (1) Nominations of persons for election to the Board of Directors and
the proposal of business to be considered by the stockholders may be made at an
Annual Meeting of Stockholders (x) pursuant to the Corporation's notice of
meeting delivered pursuant to this Section 2.04, (y) by or at the direction of
the Board of Directors or (z) by any stockholder of the Corporation who is
entitled to vote at the meeting who has complied with the notice procedures set
forth in this Article II and who was a stockholder of record at the time such
notice was delivered to the Secretary of the Corporation.
(2) For nominations or other business to be properly brought before
an Annual Meeting of Stockholders by a stockholder pursuant to Section
2.04(c)(1)(z), the stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation and such business must be a proper subject
for stockholder action under the Delaware General Corporation Law. To be timely,
a stockholder's notice must be delivered to the Secretary at the principal
executive office of the Corporation not less than 90 days prior to the first
anniversary of the date of the preceding year's Annual Meeting of Stockholders;
provided, however, that in the event that the date of the Annual Meeting of
Stockholders is advanced by more than 30 days or delayed by more than 60 days
from such anniversary date, notice by the stockholder, to be timely, must be so
delivered not later than the close of business on the later of the 60th day
prior to such Annual Meeting of Stockholders or the 10th day following the day
on which public announcement of the date of such meeting is first made.
Notwithstanding the foregoing, in the event that the number of directors to be
elected to the Board of Directors is increased and the names of all of the
nominees for director position are not disclosed by a public announcement by the
Corporation at least 70 days prior to the date of the first anniversary of the
date of the preceding year's Annual Meeting of Stockholders, a stockholder's
notice pursuant to this Section shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it shall
be delivered to, or
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<PAGE>
mailed and received by, the Secretary not later than the close of business on
the 10th day following the day on which such names have been first disclosed by
a public announcement by the Corporation. Such stockholder's notice shall set
forth (A) as to each person to whom the stockholder proposes to nominate for
election or re-election as a director, all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected) pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or otherwise; (B) as to any other business that the stockholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (C) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made, (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner, and (ii) the class and number of shares of the
Corporation which are owned beneficially and of record by such stockholder and
such beneficial owner. If the stockholder or beneficial owner intends to solicit
proxies in support of any such nomination or proposal, such stockholder's notice
shall also include a representation to that effect.
(3) Nominations of persons for election to the Board of Directors may
be made at a Special Meeting of Stockholders at which directors are to be
elected pursuant to the Corporation's notice of meeting (x) by or at the
direction of the Board of Directors or (y) by any stockholder of the Corporation
who is entitled to vote at the meeting, who complies with the notice procedures
set forth in this subsection (3) and who is a stockholder of record at the time
such notice is delivered to the Secretary of the Corporation. Nominations by
stockholders of persons for election to the Board of Directors may be made at
such a Special Meeting of Stockholders if the stockholder's notice required by
Section 2.04(c)(2) shall be delivered to the Secretary at the principal
executive office of the Corporation later than the close of business on the
later of the 60th day prior to such Special Meeting of Stockholders or the 10th
day following the day on which public announcement is first made of the date of
the Special Meeting of Stockholders and of the nominees proposed by the Board of
Directors to be elected at such meeting.
(4) Except as otherwise set forth in Section 3.06, only persons who
are nominated in accordance with the procedures set forth in this Section 2.04
shall be eligible to serves as directors and only such business shall be
conducted at a meeting of stockholders as shall have been brought before the
meeting in accordance with the procedures set forth in this Section 2.04. Except
as otherwise provided by law, the Certificate of Incorporation, as amended from
time to time, of the Corporation (the "Certificate of Incorporation"), or these
By-Laws, the Chairman of the Board shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made in accordance with this Section 2.04 and, if any proposed nomination or
business is not in compliance with this Section 2.04, or if a stockholder or
beneficial owner solicits proxies in support of a nomination or proposal without
having made the representation require in Section 2.04(c)(2), to declare that
such proposal or nomination shall be disregarded.
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<PAGE>
(5) For purposes of this Section 2.04, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(6) Notwithstanding the foregoing provisions of this Section 3, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 2.04. Nothing in this Section 2.04 shall be deemed to
affect any rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 2.05. Adjournments. When a meeting is adjourned to another date, hour or
place, notice need not be given of the adjourned meeting if the date, hour and
place thereof are announced at the meeting at which the adjournment is taken. If
the adjournment is for more than 30 days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
adjourned meeting. At the adjourned meeting any business may be transacted which
might have been transacted at the original meeting.
Section 2.06. Waiver of Notice. Notice of meeting need not be given to any
stockholder who submits a written waiver of notice, signed in person or by
proxy, whether before or after the meeting. Neither the business to be
transacted at, nor the purpose of, any meeting of stockholders need be specified
in any written waiver of notice. Attendance of a stockholder at a meeting, in
person or by proxy, shall constitute a waiver of notice of such meeting, except
when the stockholder attends a meeting for the express purpose of objecting, at
the beginning of such meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
Section 2.07. Quorum. At all meetings of stockholders, except as otherwise
required by statute, the presence of holders of a majority of the shares
entitled to vote thereat, present in person or by proxy, shall be requisite and
constitute a quorum for the transaction of business. If, however, such quorum
shall not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat may adjourn such meeting from time to time
in accordance with Section 2.05 of these By-laws until the number of votes
requisite to constitute a quorum shall be present.
Section 2.08. Vote of Stockholders. When a quorum is present or represented at
any meeting, the vote of the holders of a majority of the outstanding voting
power of the shares issued and outstanding and entitled to vote thereat in
person or by proxy shall decide any question brought before such meeting, unless
the question is one upon which a vote of a different percentage is required by
statute, these By-laws or the Certificate of Incorporation, as amended from time
to time, of the Corporation, in which case the vote of such different percentage
shall be required. Each stockholder of record on the applicable record date
shall be entitled at every meeting of stockholders to one vote for every share
(unless the Certificate of Incorporation shall provide for a greater number of
votes for such
4
<PAGE>
share) standing in his name on the record of stockholders. Voting at meetings of
stockholders need not be by written ballot, unless the holders of a majority of
the shares entitled to vote thereat shall so determine.
Section 2.09. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy. Every proxy must be in writing and signed by the stockholder or his
attorney-in-fact. No proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. A duly executed proxy
shall be irrevocable for the period stated therein if the proxy states that it
is irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may remain
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the Corporation generally.
Section 2.10. Action Without a Meeting. Any action required or permitted to be
taken at any Annual or Special Meeting of Stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing and who, if the
action had been taken at a meeting would have been entitled to notice of the
meeting if the record date for such meeting had been the date that written
consents signed by a sufficient number of holders to take the action were
delivered to the Corporation. Such written consent shall be filed with the
records of the Corporation. Notwithstanding the foregoing, however, on and after
the date on which neither The Fuji Bank, Limited and/or its subsidiaries ("Fuji
Bank") nor any one person or entity (and/or its subsidiaries) unaffiliated to
Fuji Bank to whom shares of Class B Common Stock of the Corporation representing
more than a 50% voting interest in the then outstanding shares of Common Stock
of the Corporation taken as a whole continues to beneficially own a majority of
the total voting power of all outstanding classes of Common Stock of the
Corporation, voting together as a single class, any corporate action required or
permitted to be taken at any Annual Meeting of Stockholders or Special Meeting
of Stockholders may taken only at a duly called Annual Meeting of Stockholders
or Special Meeting of Stockholders and may not be taken by written consent of
the stockholders in lieu of a meeting.
Section 2.11. Chairman and Secretary of the Meeting. Meetings of the
stockholders shall be presided over by the Chairman of the Board or, if the
Chairman of the Board is not present, any officer of the Corporation designated
by the Chairman to act as chairman or, if the Chairman of the Board is not
present and has not designated a chairman, by a chairman to be chosen at the
meeting. The Secretary of the Corporation or, in his or her absence, any person
appointed by the chairman of the meeting, shall act as secretary of the meeting
and shall keep the minutes thereof. The order of business at all meetings of the
stockholders and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion, shall be as determined by the
chairman of the meeting.
5
<PAGE>
Section 2.12. Record Date. For the purpose of determining the stockholders
entitled to notice of or to vote any Annual Meeting of Stockholders or Special
Meeting of Stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or for the purpose of determining
stockholders entitled to receive payment of any dividend or other distribution
or the allotment of any rights, or for the purpose of any other action, the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which record date shall not be more than 60 nor less
than 10 days before the date of any such meeting and shall not be more than 60
days prior to any other action. A determination of stockholders of record
entitled to notice of, or to vote at, a meeting of stockholders shall apply to
any adjournment of the meeting, provided, however, that the Board of Directors
may fix a new record date for any adjourned meeting.
Section 2.13. List of Stockholders. For a period of at least 10 days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting arranged in alphabetical order for each class of stock, and
showing their addresses and their record holdings as of the record date shall be
open for examination by any stockholder, for any purpose germane to the meeting,
during ordinary business hours, at a place within the city where the meeting is
to be held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. The list also
shall be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present. The list
shall presumptively determine the identity of the stockholders entitled to vote
at the meeting and the number of shares hold by each of them.
Section 2.14. Ratification. Any transaction questioned in any stockholders
derivative suit, or any other suit to enforce alleged rights of the Corporation
or any of its stockholders, on the ground of lack of authority, defective or
irregular execution, adverse interest of any director, officer or stockholder,
nondisclosure, miscomputation or the application of improper principles or
practices of accounting may be approved, ratified and confirmed before or after
judgment by the Board of Directors or by the holders of Common Stock, voting as
provided in the Certificate of Incorporation, and, if so approved, ratified or
confirmed, shall have the same force and effect as if the questioned transaction
had been originally duly authorized, and said approval, ratification or
confirmation shall be binding upon the Corporation and all of its stockholders
and shall constitute a bar to any claim or execution of any judgment in respect
of such questioned transaction.
Section 2.15. Inspectors. The Board of Directors may, and to the extent required
by law shall, in advance of any Annual Meeting of Stockholders or Special
Meeting of Stockholders, appoint one or more inspectors to act at the meeting,
decide upon the qualification of voters, count the votes, decide the results and
make a written report thereof. The Board of Directors may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at an Annual Meeting of Stockholders or a
Special Meeting of Stockholders, the chairman of the meeting may, and to the
extent required by law shall, appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the
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discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his or her ability.
Section 2.16. Conducting Meetings. Meetings of the stockholders shall be
conducted in a fair manner but need not be governed by any prescribed rules of
order. The presiding officer of the meeting shall establish an agenda for the
meeting. The presiding officer's ruling on procedural matters shall be final.
The presiding officer is authorized to impose reasonable time limits on the
remarks of individual stockholders and may take such steps as such officer may
deem necessary or appropriate to assure that the business of the meeting is
conducted in a fair and orderly manner.
ARTICLE III: BOARD OF DIRECTORS
Section 3.01. Powers. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors, which may exercise
all the powers of the Corporation and do all lawful acts and things which are
not expressly reserved to the stockholders by law, by the Certificate of
Incorporation or by these By-laws.
Section 3.02. Number and Term of Office. Except as hereinafter provided,
directors shall be elected at the Annual Meeting of the Stockholders; each
director so elected shall serve for one year and until his successor is elected
and qualified. Subject to the rights of holders of Preferred Stock or Senior
Preferred Stock (each as defined in the Certificate of Incorporation) of the
Corporation, the number of directors shall be not less than eight (8) nor more
than sixteen (16), the exact number from time to time to be established by the
Board of Directors by resolution.
Section 3.03. Election. At each meeting of the stockholders for the election of
directors, at which a quorum is present, the persons receiving a plurality of
the votes cast by the holders of shares entitled to vote in the election shall
be elected as directors.
Section 3.04. Resignation. Any director may at any time resign from the Board of
Directors by delivering a written notice to the Board of Directors, the Chairman
of the Board, the President or the Secretary. Such resignation shall take effect
at the time specified therein, or, if not so specified, upon receipt of such
notice by the Board of Directors, the Chairman of the Board, the President or
the Secretary. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 3.05. Removal. Any director or directors may be removed, with or without
cause, by vote of the holders of a majority of the voting power of the shares
then entitled to vote at an election of directors at any Special Meeting of the
Stockholders or without a meeting pursuant to Section 2.10.
Section 3.06. Vacancies. Subject to any rights of holders of Preferred Stock or
Senior Preferred Stock of the Corporation, if one or more vacancies occur in the
Board of Directors by reason of death, resignation, expansion of the Board of
Directors or otherwise, except insofar as otherwise provided by statute in the
case of a vacancy or vacancies occurring by reason of removal by the
stockholders, the remaining directors, although
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less than a quorum, or the sole remaining director, may elect, by a majority
vote (if there be more than one remaining director), a successor or successors
for the unexpired term or terms.
Section 3.07. Annual Meetings. A newly elected Board of Directors shall meet in
order to organize, to designate the Chairman of the Board, to elect officers and
to transact such other business as may properly come before it. Such annual
meeting of the Board of Directors may be held without notice if it shall be held
on or within two business days following the day fixed for the Annual Meeting of
Stockholders. If such annual meeting of the Board of Directors shall not be held
at such date, hour and place, it shall be held whenever called by the Chairman
of the Board or by any two directors at such place, within or without the State
of Delaware, and at such time as shall be determined by the person or persons
calling such meeting.
Section 3.08. Regular Meetings.
a. Board of Directors. Regular meetings of the Board of Directors shall,
unless otherwise specified by written notice to each director, be held at the
office of the Corporation in Chicago, Illinois on such dates as the Chairman of
the Board shall establish by promulgation of the corporate calendar and
amendments thereto.
b. Executive Committee. Regular meetings of the Executive Committee of
the Board of Directors shall be held at the office of the Corporation in
Chicago, Illinois, on such dates as the Chairman of the Board of the Executive
Committee may establish by notice to the members of the Executive Committee or
as the Chairman of the Board may establish by promulgation of the corporate
calendar.
Section 3.09. Special Meetings.
a. Board of Directors. Special meetings of the Board of Directors shall
be held whenever called by the Chairman of the Board, by the President or by any
two directors at such place, within or without the State of Delaware, and at
such time as shall be determined by the person or persons calling such meeting.
b. Executive Committee. Special meetings of the Executive Committee of
the Board of Directors shall be held whenever called by the Chairman of the
Executive Committee or by any two directors who are members of the Executive
Committee at such place, within or without the State of Delaware, and at such
time as shall be determined by the person or persons calling such meeting.
Section 3.10. Notice of Certain Annual and Special Meetings. Notice of any
special meeting and of any annual meeting of the Board of Directors which does
not take place within two business days after the day fixed for the Annual
Meeting of Stockholders shall be given by first-class mail (airmail in the case
of international communications) to each director, addressed to him at his
residence or usual place of business, not later than the fifth day before the
day on which such meeting is to be held, or shall be sent to him at such place
by overnight courier or telecopy, or be delivered personally or by telephone,
not later than the third day before the day on which such meeting is to be held.
Such
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notice shall state the place, date and hour of the meeting, and promulgation and
delivery of the corporate calendar shall constitute notice to the directors
hereunder.
Section 3.11. Waiver of Notice. Notice of a meeting need not be given to any
director who submits a written waiver of such notice, signed by him, whether
before or after such meeting. Neither the business to be transacted at, nor the
purpose of, any meeting of the directors need be specified in any notice or any
written waiver of notice with respect to such meeting. Attendance of a director
at a meeting shall constitute a waiver of notice of such meeting, except when
the director attends such meeting for the express purpose of objecting, at the
beginning of such meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
Section 3.12. Quorum and Manner of Acting. At any meeting of the Board of
Directors, the presence of a majority of the total number of directors shall be
requisite and constitute a quorum for the transaction of business. The vote of
the majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors, except as required by law or the
Certificate of Incorporation. A majority of the directors present, whether or
not a quorum is present, may adjourn any meeting to another time and place.
Notice in accordance with Section 3.10 of these By-laws of any adjournment of
any meeting of the Board of Directors to another time or place shall be given to
the directors who were not present at the time of such adjournment and, unless
such time and place are announced at the meeting, to the other directors.
Section 3.13. Action Without a Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
the committee, as the case may be.
Section 3.14. Telephonic Meetings. Members of the Board of Directors or any
committee thereof may participate in a meeting of the Board of Directors or
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at such meeting.
Section 3.15. Committees.
a. Executive Committee. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate from among its members an Executive
Committee to consist of one or more directors and may designate one or more
directors as alternate members of such committee, who may replace any absent or
disqualified member at any meeting thereof. In the absence or disqualification
of a member of the Executive Committee, the member or members thereof present at
any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. The Executive Committee, to the extent permitted by law, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, including without
limitation the power to authorize the borrowing of money by the
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Corporation (pursuant to loan agreements, the issuance of bonds or notes or
otherwise) and the giving of collateral therefor, and may authorize the seal of
the Corporation to be affixed to all papers which may require it. Specifically,
but not by way of limitation, the Executive Committee shall have the power and
authority to declare dividends, to authorize the issuance of stock and to adopt
certificates of ownership and merger pursuant to Section 253 of the Delaware
Corporation Law. The Executive Committee shall designate from its members a
Chairman of the Executive Committee. The Chairman of the Executive Committee may
be removed, with or without cause, by vote of the majority of the Executive
Committee. The Executive Committee shall record minutes of each meeting of the
Executive Committee and shall submit the same to the Board of Directors at the
next meeting of the Board of Directors following such meeting of the Executive
Committee. At all meetings of the Executive Committee, a majority of the total
number of the members thereof shall constitute a quorum for the transaction of
business. The vote of the majority of the members of the Executive Committee
present at a meeting at which a quorum is present shall be the act of the
Executive Committee. Meetings of the Executive Committee shall, unless otherwise
by written notice to the members of the Executive Committee, either personally,
or by mail or telecopy, be held on such dates and times and at such places as
set forth in the corporate calendar, and amendments thereto, as promulgated by
the Chairman of the Board.
b. Compensation Committee. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate from among its members a
Compensation Committee to consist of one or more directors and may designate one
or more directors as alternate members of such committee, who may replace any
absent or disqualified member at any meeting thereof. In the absence or
disqualification of a member of the Compensation Committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not such member or members constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. The Compensation Committee shall have
the power and authority to set and determine (and to delegate the authority to
set and determine) all matters relating to employees' compensation and benefits
including, without limitation, matters of corporate policy over salary, bonuses,
benefits, perquisites, and the like, and to establish and amend (and to delegate
the authority to establish and amend) the compensation of all officers of the
Corporation. The Compensation Committee shall designate from its members a
Chairman of the Compensation Committee. The Chairman of the Compensation
Committee may be removed, with or without cause, by vote of the majority of the
Compensation Committee. The Compensation Committee shall record minutes of each
meeting of the Compensation Committee. At all meetings of the Compensation
Committee, a majority of the total number of the members thereof shall
constitute a quorum for the transaction of business. The vote of the majority of
the members of the Compensation Committee present at a meeting at which a quorum
is present shall be the act of the Compensation Committee. Meetings of the
Compensation Committee shall, unless otherwise by written notice to the members
of the Compensation Committee, either personally, or by mail or telecopy, be
held on such dates and times and at such places as set forth in the corporate
calendar, and amendments thereto, as promulgated by the Chairman of the Board.
c. Audit Committee. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate from among its members an Audit Committee
to
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consist of one or more directors and may designate one or more directors as
alternate members of such committee, who may replace any absent or disqualified
member at any meeting thereof. In the absence or disqualification of a member of
the Audit Committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. The Audit
Committee shall have such duties, power and authority with respect to the choice
of the Corporation's auditors and reviews of the Corporation's financial
statements as may, by resolution, be delegated by the Board of Directors from
time to time. The Audit Committee shall designate from its members a Chairman of
the Audit Committee. The Chairman of the Audit Committee may be removed, with or
without cause, by vote of the majority of the Audit Committee. The Audit
Committee shall record minutes of each meeting of the Audit Committee and shall
submit the same to the Board of Directors at the next meeting of the Board of
Directors following such meeting of the Audit Committee. At all meetings of the
Audit Committee, a majority of the total number of the members thereof shall
constitute a quorum for the transaction of business. The vote of the majority of
the members of the Audit Committee present at a meeting at which a quorum is
present shall be the act of the Audit Committee. Meetings of the Audit Committee
shall, unless otherwise by written notice to the members of the Audit Committee,
either personally, or by mail or telecopy, be held on such dates and times and
at such places as set forth in the corporate calendar, and amendments thereto,
as promulgated by the Chairman of the Board.
d. Miscellaneous Committees. The Board of Directors shall have the power
to appoint or provide for from time to time any such other committees consisting
of such directors, officers or other persons and having such powers and
functions in the management of the Corporation as may be provided by the Board
of Directors and as may be permitted by law, and from time to time to suspend or
discontinue the powers and duties of such committees. If the members of any such
committee consist of directors, the resolution of the Board of Directors
designating such members shall be adopted by a majority of the entire Board of
Directors.
e. Removal. Any member of the Executive Committee or any other committee
appointed or provided for by the Board of Directors, or the entire membership of
the Executive Committee or of such other committee may be removed, with or
without cause, by the vote of the majority of the Board of Directors.
Section 3.16. Directors' Fees. The fees and compensation of the directors of the
Corporation shall be determined by the resolution of the Board of Directors and
in the discretion of the Board of Directors the directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors or an
authorized committee thereof.
ARTICLE IV: OFFICERS
Section 4.01. Elected Officers. The elected officers of the Corporation shall
consist of the Chairman of the Board, who shall be termed "Chairman of the Board
of Directors" (and is sometimes referred to as "Chairman of the Board"); if
elected by the Board of Directors, one or more Vice Chairmen of the Board of
Directors (sometimes individually
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referred to as a "Vice Chairman of the Board"); one or more Presidents; one or
more Executive Vice Presidents; one or more Senior Vice Presidents; a Treasurer;
a Secretary; a Controller; a Director of Taxes; a General Counsel; and one or
more Deputy General Counsels.
Section 4.02. Election. The Board of Directors at the first meeting after each
Annual Meeting of the Stockholders (a) shall elect by ballot a Chairman of the
Board from among the members of the Board, and a Secretary, Controller, General
Counsel and Treasurer, and (b) may elect (i) one or more Vice Chairmen from
among the members of the Board and (ii) one or more Presidents including Senior
Group Presidents or Group Presidents; one or more Executive Vice Presidents; one
or more Senior Vice Presidents; and one or more Deputy General Counsels who need
not be members of the Board.
Section 4.03. Term and Removal. The term of office of each officer elected
pursuant to Section 4.02 or appointed pursuant to Section 4.06 of this Article
shall expire on the day of the next annual election. Any officer may be removed
from office, either with or without cause or hearing, at any time by the
affirmative vote of a majority of the members of the Board of Directors then in
office. A vacancy in any office arising from any cause may be filled for the
unexpired portion of the term by the Board of Directors.
Section 4.04. Compensation. The compensation of the officers of the Corporation
shall be fixed by the Board of Directors; provided, however, that the
Compensation Committee of the Board of Directors shall have the authority to fix
the compensation of any or all officers as and to the extent set forth in
Section 3.15.
Section 4.05. Powers and Duties. The powers and duties of the respective
officers of the Corporation are as follows:
a. Chairman of the Board. The Chairman of the Board, unless the Board of
Directors shall otherwise provide by resolution, shall be the chief executive
officer of the Corporation. The Chairman of the Board shall preside at all
meetings whether of the stockholders or the Board of Directors. In the absence
of the Chairman of the Board, or in the event of his or her inability or refusal
to act, the Board of Directors may by vote designate a Vice Chairman to preside
at any such meeting, whether of the stockholders or of the Board of Directors.
In the absence of any Vice Chairman, or in the event of his or her inability or
refusal to act, the Board of Directors may by vote designate from among its
members a director to preside at any such meeting, whether of the stockholders
or of the Board of Directors. The Chairman of the Board, subject to the power of
the Board of Directors to manage the business and affairs of the Corporation or
to delegate such power to other officers or employees, shall have general and
active supervision over and direction of the business, property and affairs of
the Corporation and shall see that resolutions of the Board of Directors are
carried into effect. The Chairman of the Board shall have the authority to
execute certificates, contracts, bonds, mortgages, notes, guaranties and other
agreements, instruments and documents for and on behalf of the Corporation and
under the seal of the Corporation where so required. He or she shall have the
authority to cause the employment of such employees of the Corporation, other
than officers elected by the Board of Directors, as the conduct of the business
of the Corporation may require, and to fix their compensation and the
compensation of all appointed Officers of the Corporation; to remove or suspend
any
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employee who shall not have been elected by the Board of Directors; and to
suspend for cause, pending final action by the Board of Directors, any officer
who shall have been elected by the Board of Directors. The Chairman of the Board
shall make reports to the Board of Directors as well as the stockholders and
shall perform all other duties and exercise all other powers usually pertaining
to the offices of Chairman of the Board and chief executive officer of a
corporation, and shall perform such further duties and exercise such further
powers as may be assigned to him from time to time by the Board of Directors. If
there shall be a vacancy in the position of Chairman of the Board, such vacancy
may be filled by the Board of Directors. The Chairman of the Board may be
removed, with or without cause, by vote of the majority of the Board of
Directors.
b. Vice Chairmen. There may be one or more Vice Chairmen of the
Corporation, if elected by the Board of Directors. The Vice Chairmen shall have
the authority to execute certificates, contracts, bonds, mortgages, notes,
guaranties and other agreements, instruments and documents for and on behalf of
the Corporation and under the seal of the Corporation where so required. In the
absence of the Chairman of the Board or in the event of his or her inability to
act or refusal to act, his or her duties shall be performed and his or her
powers may be exercised by such Vice Chairman of the Board as shall be
designated by the Board of Directors or, failing such designation, by the Vice
Chairmen in order of their election to that office.
c. President. Unless the Board of Directors otherwise provides by
resolution, the President shall be the chief operating officer of the
Corporation. The President shall, in the absence of the Chairman of the Board
and any Vice Chairmen of the Board, or in the event of their inability or
refusal to act, perform the duties and exercise the powers of the Chairman of
the Board described in Section 4.06 hereof. The President has the same power as
the Chairman of the Board to execute certificates, contracts, bonds, mortgages,
notes, guaranties and other agreements, instruments and documents for and on
behalf of the Corporation and under the seal of the Corporation where so
required. The President shall make reports to the Board of Directors as well as
the stockholders and shall perform such other duties as are incidental to the
office of President or are properly required of the President by the Chairman of
the Board, any Vice Chairman or the Board of Directors.
d. Group Presidents. The Group Presidents of the several operating groups
of the Corporation shall have and exercise general supervision over and
direction of the operations of their respective groups, in all cases under the
direction of the President, and shall have the power to execute certificates,
contracts, bonds, mortgages, notes, guaranties and other agreements, instruments
and documents for and on behalf of the Corporation and under the seal of the
Corporation and shall perform such other duties as required of them by the
Chairman, any Vice Chairman, the President or the Board of Directors. Presidents
of divisions of a group of the Corporation shall have the same duties and
authorities as the Executive Vice Presidents of the Corporation.
e. Executive Vice Presidents. The Executive Vice Presidents shall be
authorized to execute certificates, contracts, bonds, mortgages, notes,
guaranties and other agreements, instruments and documents for and on behalf of
the Corporation and under the seal of the Corporation where so required. They
shall also be authorized to perform all duties that from time to time may be
prescribed by the Directors, the
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Chairman of the Board, any Vice Chairman, the President or the Group President
for their respective operating group.
f. Senior Vice Presidents. The Senior Vice Presidents shall be authorized
to execute certificates, contracts, bonds, mortgages, notes, guaranties and
other agreements, instruments and documents for and on behalf of the Corporation
and under the seal of the Corporation where so required. They shall also be
authorized to perform all duties that from time to time may be prescribed by the
Board of Directors, the Chairman of the Board, any Vice Chairman, the President
or the Group President for their respective operating group.
g. Controller. The Controller shall have the responsibility for
supervision and management of all accounting and bookkeeping functions of the
Corporation and of all of its subsidiaries; shall keep or cause to be kept, such
books of record of all the income, expenses, losses, gains, assets and
liabilities of the Corporation; shall have custody of the accounting records of
the Corporation; shall render to the Chairman of the Board, the President and
the Board of Directors at meetings of the Board of Directors or whenever else it
may be required, an account of all transactions and the financial condition of
the Corporation, and shall perform all other duties and exercise all other
powers usually pertaining to the office of controller of a corporation and shall
perform such other duties and exercise such other powers as may be assigned by
the Board of Directors, the Chairman of the Board, any Vice Chairman or the
President. The Controller shall be authorized to appoint, pursuant to Section
4.06, one or more Assistant Controllers who shall perform such duties and
exercise such powers as may be assigned to them from time to time by the Board
of Directors, the Chairman of the Board, any Vice Chairman, the President or the
Controller. In the absence of the Controller or in the event of his inability or
refusal to act, his duties shall be performed and his powers may be exercised by
such Assistant Controller as shall be designated by the Chairman of the Board
or, failing such designation, by any Controller. If there shall be a vacancy in
the office of Assistant Controller, such person as shall be designated by the
Chairman of the Board shall perform the duties and exercise the powers of
Assistant Controller.
h. Treasurer. The Treasurer has custody of the corporate funds and
securities and shall deposit all monies and other valuable effects in the name
and to the credit of the Corporation in any depositories that are authorized by
the Board of Directors; shall disburse the funds of the Corporation as may be
directed by the Board of Directors; shall keep a full and accurate account of
all monies received and paid on account of the Corporation; and shall render to
the Chairman of the Board, any Vice Chairman, the President and the Board of
Directors an account of all such transactions at meetings of the Board of
Directors or whenever it shall be required. The Treasurer shall perform all
other duties and exercise all other powers usually pertaining to the office of
the treasurer of a corporation and shall perform such other duties and exercise
such other powers as may be assigned to him or her from time to time by the
Board of Directors, the Chairman of the Board, any Vice Chairman or the
President. The Treasurer shall appoint, pursuant to Section 4.06, one or more
Assistant Treasurers who shall perform such duties and exercise such powers as
may be assigned to them from time to time by the Board of Directors, the
Chairman of the Board, any Vice Chairman, the President or the Treasurer. In the
absence of the Treasurer or in the event of his or her inability or refusal to
act, his or her duties shall be performed and his or her powers may be exercised
by such Assistant Treasurer as shall be designated by the Chairman of the
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Board or, failing such designation, by any Assistant Treasurer. If there shall
be a vacancy in the office of Assistant Treasurer, such person as shall be
designated by the Chairman of the Board shall perform the duties and exercise
the powers of Assistant Treasurer.
i. Secretary. The Secretary shall attend meetings of the stockholders and
Board of Directors, and act as clerk thereof, and record all votes and minutes
of all proceedings in a book to be kept for that purpose and shall, when
requested, perform like duties for all committees of the Board of Directors. The
Secretary shall give, or cause to be given, notice of meetings of the
stockholders and meetings of the Board of Directors and committees thereof if
such notice is required by law or pursuant to these By-laws or the rules of
procedure of any such committee. The Secretary shall keep in safe custody the
seal of the Corporation, and shall have authority to affix the same to any
instrument and to attest the same. He or she shall keep and account for all
books, documents, papers and records of the Corporation, except those for which
some other officer is properly accountable. He or she shall generally perform
such duties and exercise such powers usually pertaining to the office of
secretary of a corporation. He or she shall perform such further duties and
exercise such further powers as may be assigned to him from time to time by the
Board of Directors, the Chairman of the Board, any Vice Chairman, or the
President. The Secretary shall appoint, pursuant to Section 4.06, one or more
Assistant Secretaries who shall perform such duties and exercise such powers as
may be assigned to them from time to time by the Board of Directors, the
Chairman of the Board, any Vice Chairman, the President or the Secretary. The
Secretary and Assistant Secretaries, in addition to their other powers and
duties, shall have the authority to execute powers of attorney on behalf of the
Corporation. In the absence of the Secretary or in the event of his or her
inability or refusal to act, his or her duties shall be performed and his or her
powers may be exercised by such Assistant Secretary as shall be designated by
the Chairman of the Board or, failing such designation, by any Assistant
Secretary. If there shall be a vacancy in the office of Assistant Secretary,
such person as shall be designated by the Chairman of the Board shall perform
the duties and exercise the powers of Assistant Secretary.
j. Director of Taxes. The Director of Taxes shall have the responsibility
of supervision of the tax department of the Corporation and shall advise and
consult with the Chairman of the Board, any Vice Chairman, the President, the
Chief Financial Officer and the General Counsel on all tax matters affecting the
Corporation and its subsidiaries and on matters of corporate tax policy; cause
compliance with laws and regulations in respect of taxes due; shall select
counsel to represent the Corporation in, and shall manage administrative appeals
and tax litigation involving, the Corporation; shall render to the Chairman of
the Board, any Vice Chairman, the President, the Chief Financial Officer, the
General Counsel and the Board of Directors an account of all tax matters
affecting the Corporation; and shall perform all other duties and exercise all
other powers usually pertaining to the office of director of taxes of a
corporation including the signing of all returns, waivers, consents and any
other tax forms on behalf of the Corporation and all its subsidiaries, and shall
perform such other duties and exercise such other powers as may be assigned by
the Board of Directors, the Chairman of the Board, the Vice Chairman, the
President, the Chief Financial Officer or the General Counsel.
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k. General Counsel and Deputy General Counsels. The General Counsel shall
have the responsibility for supervision and management of all legal functions of
the Corporation and all its subsidiaries; shall select attorneys to represent
the Corporation in such matters as he or she shall determine and shall manage
their services; shall cause to be negotiated and documented all transactions
entered into or involving the Corporation; shall render to the Chairman of the
Board, any Vice Chairman, the President and the Board of Directors at meetings
of the Board of Directors or whenever else it may be required, an account of all
legal matters of or affecting the Corporation and shall perform all other duties
and exercise all other powers usually pertaining to the office of general
counsel of a corporation and shall perform such other duties and exercise such
other powers as may be assigned by the Board of Directors, the Chairman of the
Board, any Vice Chairman or the President. Deputy General Counsels shall
supervise and manage the legal functions of the operating division, office or
branch of the Corporation designated by and under the direction of the General
Counsel, and the Deputy General Counsels shall perform such duties and exercise
such powers as may be assigned to them from time to time by the Board of
Directors, the Chairman of the Board, any Vice Chairman, the President, or the
General Counsel. In the absence of the General Counsel or in the event of his or
her inability or refusal to act, his or her duties shall be performed and his or
her powers may be exercised by such Deputy General Counsel as shall be
designated by the Chairman of the Board or, failing such designation, by any
Deputy General Counsel. If there shall be a vacancy in the office of General
Counsel, such person as shall be designated by the Chairman of the Board shall
perform the duties and exercise the powers of General Counsel.
Section 4.06. Appointed Officers. The Chairman of the Board, any Vice Chairman,
the President, each of the Group Presidents, the General Counsel and each
manager of a business unit or corporate staff department may appoint, without
further approval by the Board of Directors, vice presidents, assistant vice
presidents, associate general counsels, senior counsels, counsels, attorneys,
assistant controllers, assistant treasurers, assistant secretaries and other
appropriate titled officers to assist them in their respective duties. The
powers and duties of the appointed officers shall be as follows:
a. Vice Presidents and Assistant Vice Presidents. Vice Presidents and
Assistant Vice Presidents shall have the power and authority to execute
certificates, contracts, bonds, mortgages, notes, guaranties and other
instruments and documents for and on behalf of the Corporation and under the
seal of the Corporation where so required. They shall also be authorized to
perform all duties that from time to time may be prescribed by the Board of
Directors, the Chairman of the Board, any Vice Chairman, the President or their
Group President.
b. Associate General Counsels, Senior Counsels, Counsels and Attorneys.
Associate General Counsels shall have the power and authority to supervise and
manage the legal function of any group, branch or office of the Corporation
designated by and under the direction of a Deputy General Counsel for and on
behalf of the Corporation and under the seal of the Corporation where so
required, and shall, in addition, perform duties that from time to time may be
prescribed by the Board of Directors, the Chairman of the Board, any Vice
Chairman, the President, the General Counsel or a Deputy General Counsel. Senior
Counsels, Counsels and Attorneys shall perform duties that
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from time to time may be prescribed by the the General Counsel or a Deputy
General Counsel.
c. Assistant Controllers. Assistant Controllers shall perform such duties
and exercise such powers as may be assigned to them from time to time by the
Board of Directors, the Chairman of the Board, the President or the Controller.
In the absence of the Controller or in the event of his or her inability or
refusal to act, his or her duties shall be performed and his or her powers may
be exercised by such Assistant Controller as shall be designated by the Chairman
of the Board or, failing such designation, by the Assistant Controllers in order
of their election to that office. If there shall be a vacancy in the office of
Assistant Controller, such person as shall be designated by the Chairman of the
Board shall perform the duties and exercise the powers of Assistant Controller.
d. Assistant Treasurers. Assistant Treasurers shall perform such duties
and exercise such powers as may be assigned to them from time to time by the
Board of Directors, the Chairman of the Board, the President or the Treasurer.
In the absence of the Treasurer or in the event of his or her inability or
refusal to act, his or her duties shall be performed and his or her powers may
be exercised by such Assistant Treasurer as shall be designated by the Chairman
of the Board or, failing such designation, by the Assistant Treasurers in the
order of their election to that office. If there shall be a vacancy in the
office of Assistant Treasurer, such person as shall be designated by the
Chairman of the Board shall perform the duties and exercise the powers of
Assistant Treasurer.
e. Assistant Secretaries. Assistant Secretaries shall have the power and
authority to execute any and all documents required to be signed by the
Secretary, including without limitation powers of attorney, which relate to the
consummation of transactions of their respective business units, for and on
behalf of the Corporation and under the seal of the Corporation where so
required, and shall, in addition, perform duties that from time to time may be
prescribed by the Board of Directors, the Chairman of the Board, the President
or the Secretary. In the absence of the Secretary or in the event of his or her
inability or refusal to act, his or her duties shall be performed and his or her
powers may be exercised by such Assistant Secretary as shall be designated by
the Chairman of the Board or, failing such designation, by the Assistant
Secretaries in the order of their election to that office. If there shall be a
vacancy in the office of Assistant Secretary, such person as shall be designated
by the Chairman of the Board shall perform the duties and exercise the powers of
Assistant Secretary.
Section 4.07. Group/Divisional Officers. Officers of the Corporation, appointed,
pursuant to Section 4.06 above, may be designated as officers of a particular
group or division of the Corporation. When officers are so designated, their
powers and duties shall be those of an officer with the same title as described
in Section 4.06 above, as the case may be, but such powers and duties shall be
limited to the activities of their respective group or division.
Section 4.08. Voting Corporation's Securities. Unless otherwise ordered by the
Board of Directors, the Chairman of the Board or the Chairman of the Board's
designee for this specific purpose has full power and authority on behalf of the
Corporation to attend and to act and to vote at all meetings of security holders
of the corporations in which the
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Corporation may hold securities, and at those meetings, the Chairman of the
Board or the Chairman of the Board's designee shall possess and may exercise any
and all rights and powers incident to the ownership of the securities, and which
as the owner thereof, the Corporation may have possessed and exercised, if
present. The Board of Directors or the Executive Committee by resolution from
time to time may confer powers upon any other person or persons.
ARTICLE V: SHARE CERTIFICATES
Section 5.01. Form; Signature. The shares of the Corporation shall be
represented by certificates; provided that the Board of Directors of the
Corporation may provide by resolution or resolutions that some or all of any or
all classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock represented
by certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the Corporation by
the Chairman of the Board or Vice Chairman of the Board, Chief Executive
Officer, or the President or Vice President, and by the Treasurer or an
Assistant Treasurer, or the Secretary of an Assistant Secretary of the
Corporation representing the number of shares registered in certificate form.
Any or all the signatures on the certificate may be a facsimile.
Section 5.02. Signatures of Former Officer, Transfer Agent or Registrar. In case
any officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if such person or entity
were such officer, transfer agent or registrar at the date of issue.
Section 5.03. Transfers of Shares. All transfers of shares of the stock of the
Corporation are subject to the terms conditions and restrictions, if any, of the
Certificate of Incorporation. Transfers of shares of the capital stock of the
Corporation shall be made on the books of the Corporation by the registered
holder thereof, or by his attorney thereunder authorized by power of attorney
duly executed and filed with the Secretary of the Corporation, or with a
Transfer Clerk or a Transfer Agent appointed as in Section 5.06 of this Article,
and, if certificated shares, on surrender of the certificate or certificates for
the shares properly endorsed and the payment of all taxes thereon. The person in
whose name shares of stock are registered on the books of the Corporation shall
be considered the owner thereof for all purposes as regards the Corporation; but
whenever any transfer of shares is made for collateral security, and not
absolutely, that fact, if known, to the Secretary, shall be stated in the entry
of transfer. The Board may, from time to time, make any additional rules and
regulations as it may deem expedient, not inconsistent with these By laws,
concerning the issue, transfer and registration of certificates for shares of
the stock of the Corporation.
Section 5.04. Lost, Stolen or Destroyed Stock Certificates; Issuance of New
Certificates. The Corporation may issue a new certificate of stock in the place
of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the
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Corporation may require the owner of the lost, stolen or destroyed certificate,
or his legal representative, to give the Corporation a bond sufficient to
indemnify it against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
Section 5.05. Transfer Agent and Registrar. The Board of Directors may appoint
one or more Transfer Clerks or one or more Transfer Agents and one or more
Registrars.
Section 5.06. Registered Stock. The Corporation shall be protected in treating
the persons in whose names shares stand on the record of stockholders as the
owners thereof for all purposes; and the Corporation shall not be bound to
recognize any equitable or other claim to or interest in such shares on the part
of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by law.
ARTICLE VI: INDEMNIFICATION OF OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS; INSURANCE
Section 6.01. Third Party Proceedings. The Corporation shall, in accordance with
Section 6.03 or 6.04 of these bylaws, indemnify, to the fullest extent permitted
by the General Corporation Law of Delaware (the "DGCL") any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he or she is or was a director, officer, employee,
attorney or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, attorney or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if he or she acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
or she reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, have
reasonable cause to believe that his or her conduct was unlawful.
Section 6.02 Derivative Stockholder Liability. The Corporation shall, in
accordance with Section 6.03 or 6.04 of these bylaws, indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he or she is or was a director,
officer, employee, attorney or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee, attorney or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not
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<PAGE>
opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 6.03 Indemnification Upon Success on the Merits. To the extent that a
present or previous director, officer, employee, attorney or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 6.01 and 6.02, or in the
defense of any claim, issue or matter therein, he or she shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
Section 6.04 Indemnification in Other Circumstances. Any indemnification under
Sections 6.01 and 6.02 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee, attorney or agent is proper
in the circumstances because he has met the applicable standard of conduct set
forth in Sections 6.01 and 6.02. Such determination shall be made (1) by the
Board of Directors of the Corporation, or its Executive Committee, by a majority
vote, even if less than a quorum, of directors who were not parties to such
action, suit or proceeding, or (2) there are no directors or if such directors
so direct, by independent legal counsel in a written opinion, or (3) by the
stockholders of the Corporation. Nothing contained herein shall be deemed a
limitation on the Corporation's ability to provide indemnifications in the
ordinary course of its business.
Section 6.05 Payment of Defense Expenses in Advance. The Corporation shall pay
or reimburse the reasonable expenses incurred by a director, officer, employee,
attorney or agent who is a party or threatened to be made a party to an action,
suit, or proceeding in advance of final disposition of the proceeding if all of
the following apply:
a. The person furnishes the Corporation a written affirmation of his or
her good faith belief that he or she has met the applicable standard of conduct
set forth in Section 6.01 and 6.02.
b. The person furnishes the Corporation a written undertaking, executed
personally or on his or her behalf, to repay the advance if it shall ultimately
be determined by the Board or the Executive Committee thereof, or by a court of
competent jurisdiction, that he or she is not entitled to be indemnified by the
Corporation as authorized by these By-laws.
c. No determination is made by the Board or the Executive Committee
thereof, or by a court of competent jurisdiction, that the person is precluded
from obtaining indemnification under this Section or the Delaware General
Corporation Law.
d. Notwithstanding anything to the contrary in this Article VI, (i) the
Company shall not be obligated to indemnify a director, officer or employee or
pay
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<PAGE>
expenses incurred by a director, officer or employee with respect to any
threatened, pending or completed claim, suit or action, whether civil, criminal,
administrative, investigative or otherwise ("Proceedings") initiated or brought
voluntarily by a director, officer or employee and not be way of defense (other
than Proceedings brought to establish or enforce a right to indemnification
under the provisions of this Article VI unless a court of competent jurisdiction
determines that each of the material assertions made by the director, officer or
employee in such Proceedings were not made in good faith or were frivolous) and
(ii) the Company shall not be obligated to indemnify a director, officer or
employee for any amount paid in settlement of a Proceeding covered hereby
without the prior written consent of the Company to such settlement.
Section 6.06 Insurance. The Corporation has the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
attorney or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, attorney or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation has the power
to indemnify him against such liability under the provisions of these By-laws.
Section 6.07 No Waiver of Rights. The indemnification provided for in this
Article shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee, attorney or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE VII. DIVIDENDS
Section 7. Dividends. The Board of Directors of the Corporation may declare and
pay dividends upon the shares of the Corporation's capital stock in any form
determined by the Board of Directors, in the manner and upon the terms and
conditions provided by law.
ARTICLE VIII: MISCELLANEOUS
Section 8.01. Fiscal Year. The Fiscal Year of the Corporation shall be the
calendar year.
Section 8.02. Seal. The Corporation shall have a seal in such form as the Board
of Directors shall approve. The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in any other manner reproduced.
Section 8.03. Power to Amend. Subject to the rights of the holders of Preferred
Stock and Senior Preferred Stock of the Company, these By-laws may be adopted,
amended or repealed by the Board of Directors, to the extent provided in the
Certificate of Incorporation, of the
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Corporation, or by the vote of the holders of at least 66-2/3% of the total
voting power of all outstanding Common Stock, voting together as a single
class.
Section 8.04. Promulgation of Corporate Calendar. On or before January 31st of
every calendar year, the Chairman of the Board shall promulgate the corporate
calendar for that calendar year. The calendar shall set forth the dates, places
and times for the Annual Meeting of Stockholders, meetings of the Board of
Directors and meetings of the various committees of the Board of Directors.
Copies of the corporate calendar shall be delivered to each director entitled to
notice of meetings. In the event an individual becomes a director subsequent to
promulgation of the corporate calendar, he or she shall be provided a copy of
the corporate calendar at the time of appointment. The Chairman of the Board may
amend the corporate calendar at any time by giving notice to every individual
entitled to notice of the meeting whose date, place or time is being amended.
ARTICLE IX: EMERGENCY BY-LAWS
Section 9. Emergency By-Laws. The provisions of this Article IX, adopted
pursuant to the authority of Section 109 of the Delaware Corporation Law, shall
become operative during any emergency resulting from an attack on the United
States or on a locality in which the Corporation conducts its business or
customarily holds meetings of its Board of Directors or stockholders, or during
any nuclear or atomic disaster, or during the existence of any catastrophe, or
other similar emergency condition, resulting in the death, disability or
inability to convene or function of a quorum of the Board of Directors. In any
such event, the following procedures shall govern the conduct of the business
and affairs of the Corporation:
a. A meeting of the Board of Directors or of any committee thereof may be
called by any officer or director upon notice to such directors as it may be
feasible to reach at the time and by such means as may be feasible at the time
including publication or radio.
b. The director or directors in attendance at any meeting called as
aforesaid shall constitute a quorum, and may take such action as may, in his or
their judgment, be necessary to carry on the functions of the Board of Directors
during the period the emergency continues.
c. In the event no member of the Board of Directors is present to
constitute a quorum at any meeting of the Board of Directors during the
emergency period, the three senior officers of the Corporation who are present
shall be considered in order or rank, as set forth in paragraph d. hereof, and
within the same rank in order of seniority of appointment, directors for such
meeting.
d. During the emergency period, the duties, powers and functions of any
officer of the Corporation who has died or been disabled, or is unable for any
reason to perform his duties, shall devolve upon and be assumed by the officer
next in rank, in the order of their respective seniority by first election, in
accordance with the following table of sequence:
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Chairman of the Board
Vice Chairmen
President
Executive Vice Presidents
Treasurer
Controller
Senior Vice Presidents
Other Vice Presidents
Assistant Vice Presidents
Secretary
Duties, powers and functions of any division officer similarly unable to perform
shall devolve upon and be assumed by the officer next in rank, in accordance
with the same sequence. New officers may be elected, or the accession of
officers ratified, at the next regular meeting of the Board of Directors, or at
a special meeting called for that purpose. However, as to third persons, the
performance of the duties of an officer by one acting pursuant to this Article
shall be conclusive evidence of his authority to do so.
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Exhibit 4
Description of Specimen Stock Certificate for Class A Common Stock
Face of Certificate:
The front of the specimen stock certificate for the Company's Class A
Common Stock (the "Certificate") contains (i) a picture of a man sitting with
his right arm on a pillar, his right hand holding a piece of paper and books and
a globe next to his left arm and leg, (ii) the name of the Company and the logo
of the Company and (iii) the Common Stock's CUSIP number (4233 28 10 3). The
Certificate is signed by Debra H. Snider, Executive Vice President, Chief
Administrative Officer, General Counsel and Secretary of the Company, and
Richard J. Almeida, Chairman and Chief Executive Officer of the Company. The
Company's corporate seal appears in the middle of the lower edge of the
Certificate. The face of the Certificate states that the Company is
"incorporated under the laws of the State of Delaware" and that the Certificate
is "transferable in New York, New York and Chicago, Illinois." The face of the
Certificate also contains the following language:
This certifies that ____________________ is the owner of ____________ fully
paid and non-assessable shares of the par value of $.25 each of the Class A
Common Stock of Heller Financial, Inc. transferable only on the books of the
Corporation by the holder of record hereof in person, or by duly authorized
attorney, upon surrender of this Certificate properly endorsed. This
Certificate and the shares represented hereby are issued and shall be subject to
all the provisions of the Certificate of Incorporation of the Corporation as now
or hereafter amended, and the holder by accepting this Certificate expressly
assents thereto.
This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
In witness whereof, the Corporation has caused the facsimile signatures of
its duly authorized officers and a facsimile of its corporate seal to be
hereunto affixed.
Reverse of Certificate:
The back of the Certificate contains the following language:
The Corporation will furnish without charge to each stockholder who so
requests, a copy of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof of the Corporation and the qualifications, limitations or restrictions
of such preferences and/or rights. Such request may be made to the Corporation
or the Transfer Agent.
The back of the Certificate also contains standard stock transfer
instructions.
<PAGE>
EXHIBIT 5
April 28, 1998
Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
Re: Registration Statement on Form S-2
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for Heller Financial, Inc., a Delaware corporation
(the "Company"), in connection with the preparation and filing of a registration
statement on Form S-2, as amended (File No. 333-46915) (the "Registration
Statement"), with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Act"). The Registration Statement relates to the
Company's public offering of up to 38,525,000 shares of its Class A Common
Stock, $0.25 par value per share (the "Class A Common Stock"), including up to
5,025,000 shares of Class A Common Stock issuable upon exercise of the
Underwriters' (as defined herein) over-allotment options (collectively, the
"Shares"). This opinion is being furnished in accordance with the requirements
of Item 601(b)(5) of Regulation S-K under the Act.
In connection with this opinion, we have relied as to matters of fact,
without investigation, upon certificates of public officials and others and upon
affidavits, certificates and written statements of directors, officers and
employees of, and the accountants and transfer agent for, the Company. We have
also examined originals or copies, certified or otherwise identified to our
satisfaction, of such instruments, documents and records as we have deemed
relevant and necessary to examine for the purpose of this opinion, including (a)
the Registration Statement, (b) the Company's Restated Certificate of
Incorporation, as amended, and the form of the proposed Amended and Restated
Certificate of Incorporation of the Company, (c) the Company's By-laws and the
form of the proposed Amended and Restated By-Laws of the Company, (d) minutes of
meetings of the Board of Directors of the Company and the Executive Committee
thereof, (e) written consents of the sole stockholder of the Company, (f) the
form of U.S. Underwriting Agreement (the "U.S. Underwriting Agreement") proposed
to be entered into between the Company and Goldman, Sachs & Co., J.P. Morgan
Securities Inc., BT Alex. Brown Incorporated, Lehman Brothers Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as representatives
<PAGE>
Heller Financial, Inc.
April 28, 1998
Page 2
of the several U.S. underwriters named therein (collectively, the "U.S.
Underwriters"), (g) the form of International Underwriting Agreement (with the
U.S. Underwriting Agreement, the "Underwriting Agreements") proposed to be
entered into between the Company and Goldman Sachs International, J.P. Morgan
Securities Ltd., BT Alex. Brown International, A Division of Bankers Trust
International PLC, Lehman Brothers International (Europe) and Merrill Lynch
International, as representatives of the several international underwriters
named therein (with the U.S. Underwriters, collectively, the "Underwriters"),
and (h) a proposed form of specimen certificate representing the Class A Common
Stock.
In connection with this opinion, we have assumed the legal capacity of all
natural persons, the accuracy and completeness of all documents and records that
we have reviewed, the genuineness of all signatures, the authenticity of the
documents submitted to us as originals and the conformity to authentic original
documents of all documents submitted to us as certified, conformed or reproduced
copies.
Based upon and subject to the foregoing, it is our opinion that when
certificates representing the Shares in the form of the specimen certificate
examined by us have been manually signed by an authorized officer of the
transfer agent and registrar for the Class A Common Stock, and such certificates
are delivered to, and the Shares are paid for by, the Underwriters as
contemplated by the Underwriting Agreements, the up to 38,525,000 Shares covered
by the Registration Statement (including the up to 5,025,000 Shares issuable
upon exercise of the Underwriters' over-allotment options), will have been duly
authorized, and such Shares will be validly issued, fully paid and non-
assessable.
Our opinion expressed above is limited to the General Corporation Law of
the State of Delaware, and we do not express any opinion concerning any other
laws. This opinion is given as of the date hereof and we assume no obligation
to advise you of changes that may hereafter be brought to our attention.
<PAGE>
Heller Financial, Inc.
April 28, 1998
Page 3
We hereby consent to use of our name under the heading "Legal Matters" in
the Prospectus forming a part of the Registration Statement and to use of this
opinion for filing as Exhibit 5 to the Registration Statement. In giving this
consent, we do not thereby admit that we are included in the category of persons
whose consent is required under Section 7 of the Act or the related rules and
regulations thereunder.
Very truly yours,
/s/ KATTEN MUCHIN & ZAVIS
KATTEN MUCHIN & ZAVIS
<PAGE>
EXHIBIT 10.1
HELLER FINANCIAL, INC.
1998 STOCK INCENTIVE PLAN
<PAGE>
HELLER FINANCIAL, INC.
1998 STOCK INCENTIVE PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article 1. Establishment, Objectives and Duration........................ 1
Article 2. Definitions................................................... 2
Article 3. Administration................................................ 6
Article 4. Shares Subject to the Plan and Maximum Awards................. 7
Article 5. Eligibility and Participation................................. 8
Article 6. Stock Options................................................. 9
Article 7. Stock Appreciation Rights..................................... 11
Article 8. Restricted Stock.............................................. 12
Article 9. Performance Units and Performance Shares...................... 14
Article 10. Performance Measures.......................................... 16
Article 11. Beneficiary Designation....................................... 17
Article 12. Deferrals..................................................... 17
Article 13. Rights of Employees........................................... 18
Article 14. Initial Public Offering Protections........................... 18
Article 15. Amendment, Modification and Termination....................... 19
Article 16. Withholding................................................... 19
Article 17. Successors.................................................... 20
Article 18. Legal Construction............................................ 20
</TABLE>
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HELLER FINANCIAL, INC.
1998 STOCK INCENTIVE PLAN
Article 1. Establishment, Objectives and Duration
1.1 Establishment of the Plan. Heller Financial, Inc., a Delaware
corporation, hereby establishes a long-term incentive compensation plan to be
known as the "Heller Financial, Inc. 1998 Stock Incentive Plan," as set forth in
this document. Capitalized terms used but not otherwise defined herein will
have the meanings given to them in Article 2. The Plan permits the grant of
Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights,
Restricted Stock, Performance Shares and Performance Units. In addition, the
Plan provides the opportunity for the deferral of the payment of salary, bonuses
and other forms of incentive compensation.
Subject to the approval of the Company's stockholders, the Plan will become
effective as of April 1, 1998 and will remain in effect as provided in Section
1.3 hereof.
1.2 Objectives of the Plan. The objectives of the Plan are to optimize the
profitability and growth of the Company through long-term incentives which are
consistent with the Company's objectives and which link the interests of
Participants to those of the Company's stockholders; to provide Participants
with an incentive for excellence in individual performance; to promote teamwork
among Participants; and to give the Company a significant advantage in
attracting and retaining officers, key employees and directors.
The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract and retain the services of Participants who make
significant contributions to the Company's success and to allow Participants to
share in the success of the Company.
1.3 Duration of the Plan. The Plan will commence on the Effective Date, as
described in Section 1.1, and will remain in effect, subject to the right of the
Board of Directors to amend or terminate the Plan at any time pursuant to
Article 15, until all Shares subject to it pursuant to Article 4 have been
issued or transferred according to the Plan's provisions. In no event may an
Award be granted under the Plan on or after March 31, 2008.
<PAGE>
Article 2. Definitions
Whenever used in the Plan, the following terms have the meanings set forth
below, and when the meaning is intended, the initial letter of the word will be
capitalized:
"Award" means, individually or collectively, a grant under this Plan to a
Participant of Nonqualified Stock Options, Incentive Stock Options, Stock
Appreciation Rights, Restricted Stock, Performance Shares or Performance Units.
"Award Agreement" means an agreement entered into by the Company and a
Participant setting forth the terms and provisions applicable to an Award or
Awards granted to the Participant or the terms and provisions applicable to an
election to defer compensation under Section 8.2.
"Beneficial Owner" or "Beneficial Ownership" has the meaning ascribed to
that term in Rule 13d-3 of the General Rules and Regulations under the Exchange
Act.
"Board" or "Board of Directors" means the Board of Directors of the
Company.
"Cause" means:
(a) an employee's fraud or criminal misconduct; or
(b) the material and willful breach by an employee of his or her
responsibilities or willful failure to comply with reasonable
directives or policies of the Company's Board of Directors; but only
if the Company has given the employee written notice specifying the
breach or failure to comply, demanding that the employee remedy the
breach or failure to comply and giving the employee an opportunity to
be heard in connection with the breach or failure to comply, and the
employee either failed to remedy the alleged breach or failed to
comply within thirty days after receipt of the written notice or
failed to take all reasonable steps to that end during the thirty days
after her or she received the notice.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means, as specified in Article 3, the Compensation Committee of
the Board or such other committee as may be appointed by the Board to administer
the Plan.
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<PAGE>
"Company" means Heller Financial, Inc., a Delaware corporation, and any
successor thereto as provided in Article 17.
"Director" means any individual who is a member of the Board of Directors.
"Disability" means (i) long-term disability as defined under the long-term
disability plan of the Company or a Subsidiary that covers that individual, or
(ii) if the individual is not covered by such a long-term disability plan,
disability as defined for purposes of eligibility for a disability award under
the Social Security Act.
"Effective Date" means April 1, 1998.
"Eligible Employee" means any employee of the Company or any of its
Subsidiaries. Directors who are not employed by the Company or its Subsidiaries
will be considered Eligible Employees under this Plan, but only for purposes of
Awards of Nonqualified Stock Options.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor act thereto.
"Exercise Price" means the price at which a Share may be purchased by a
Participant pursuant to an Option.
"Fair Market Value" means:
(a) the average of the high and low trading prices of the Shares on the
New York Stock Exchange (or, if the Shares are not traded on the New
York Stock Exchange, on any other exchange on which they are traded);
if the Shares are not traded on any exchange, the fair market value of
the Shares as determined by the Board or, at the discretion of the
Board, by an independent appraiser selected by the Board; but
(b) notwithstanding the foregoing, for Options granted in connection with,
and as of the date of, the initial public offering of the Shares, the
initial public offering price of the Shares.
"Freestanding SAR" means an SAR that is granted independently of any
Options, as described in Article 7.
3
<PAGE>
"Good Reason" exists if, without an Eligible Employee's express written
consent, any of the following events occur within three years after the
Company's initial public offering of the Shares:
(a) the Company or a Subsidiary significantly diminishes the Eligible
Employee's assigned duties and responsibilities from the level or
extent at which they existed before the effective date of the initial
public offering including, without limitation, if the Company or
Subsidiary removes the Eligible Employee's title(s) or materially
diminishes the powers associated with the Eligible Employee's
title(s). For Good Reason to exist, the Eligible Employee must
deliver written notice to the Company or Subsidiary specifying the
diminution in assigned duties and responsibilities that he or she
believes constitutes Good Reason, and the Company or Subsidiary must
fail to reverse the same or to take all reasonable steps to that end
within thirty days after receiving the notice;
(b) the Company or a Subsidiary reduces the Eligible Employee's base
salary below the greater of that in effect as of the date of the
Eligible Employee's Award Agreement and that in effect as of the
effective date of the initial public offering;
(c) the Company or Subsidiary requires the Eligible Employee to, or
assigns duties to the eligible Employee which would reasonably require
him or her to, relocate his or her principal business office or his or
her principal place of residence outside the Standard Metropolitan
Statistical Area where the Eligible Employee was located on the
effective date of the initial public offering (the "Geographical
Employment Area");
(d) the Company or a Subsidiary requires the Eligible Employee to, or
assigns duties to the Eligible Employee which would reasonably require
him or her to, spend more than one hundred normal working days away
from the Geographical Employment Area during any consecutive twelve-
month period; or
(e) the Company or a Subsidiary fails to continue in effect any cash or
stock-based incentive or bonus plan, retirement plan, welfare benefit
plan, or other benefit plan, program or arrangement that applied to
the Eligible Employee on the effective date of the initial public
offering, unless the aggregate value (as computed by an independent
employee benefits consultant selected by the Company) of all such
compensation, retirement and benefit plans, programs and arrangements
provided to
4
<PAGE>
the Eligible Employee is not materially less than the greater of their
aggregate value as of the date of the Eligible Employee's Award
Agreement, or their aggregate value as of the effective date of the
initial public offering.
"Incentive Stock Option" or "ISO" means an option to purchase Shares
granted under Article 6 that is designated as an Incentive Stock Option and that
is intended to meet the requirements of Code Section 422.
"Nonqualified Stock Option" or "NQSO" means an option to purchase Shares
granted under Article 6 that is not intended to meet the requirements of Code
Section 422.
"Option" means an Incentive Stock Option or a Nonqualified Stock Option, as
described in Article 6.
"Participant" means an Eligible Employee who has been selected by the
Committee to participate in the Plan pursuant to Section 5.2 and who has
outstanding an Award granted under the Plan. The term "Participant" will
include Directors who are not employees of the Company or a Subsidiary only if
they are chosen to receive Awards of Nonqualified Stock Options, and only for
purposes of Nonqualified Stock Options.
"Performance-Based Exception" means the performance-based exception from
the tax deductibility limitations of Code Section 162(m) and any regulations
promulgated thereunder.
"Performance Period" means the time period during which performance
objectives must be met in order for a Participant to earn Performance
Units/Shares granted under Article 9.
"Performance Share" means an Award with an initial value equal to the Fair
Market Value on the date of grant which is based on the Participant's attainment
of performance objectives, as described in Article 9.
"Performance Unit" means an Award with an initial value established by the
Committee at the time of grant which is based on the Participant's attainment of
performance objectives, as described in Article 9.
"Person" has the meaning ascribed to that term in Section 3(a)(9) of the
Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group"
as defined in Section 13(d) thereof.
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"Plan" means the Heller Financial, Inc. 1998 Stock Incentive Plan, as set
forth in this document.
"Restriction Period" means the period during which the transfer of Shares
of Restricted Stock is limited in some way (based on the passage of time, the
achievement of performance objectives, or the occurrence of other events as
determined by the Committee, at its discretion), and/or the Restricted Stock is
not vested.
"Restricted Stock" means a contingent grant of stock awarded to a
Participant pursuant to Article 8.
"Retirement" means termination of employment on or after reaching the age
established by the Company as the normal retirement age in any unexpired
employment agreement between the Participant and the Company and/or a
Subsidiary, or, if different, the normal retirement age under the Heller
Financial, Inc. Retirement Plan.
"Shares" means the shares of Class A Common Stock, $0.25 par value, of the
Company.
"Stock Appreciation Right" or "SAR" means an Award, granted alone or in
connection with a related Option, designated as an SAR pursuant to the terms of
Article 7.
"Subsidiaries" means the Company's Subsidiaries within the meaning of Code
Section 424(f).
"Tandem SAR" means an SAR that is granted in connection with a related
Option pursuant to Article 7, the exercise of which requires forfeiture of the
right to purchase a Share under the related Option (and when a Share is
purchased under the Option, the Tandem SAR will similarly be canceled).
Article 3. Administration
3.1 The Committee. The Plan will be administered by the Compensation
Committee of the Board, or by any other Committee appointed by the Board, which
Committee (unless otherwise determined by the Board) will satisfy the
"nonemployee director" requirements of Rule 16b-3 under the Exchange Act and the
regulations of Rule 16b-3 under the Exchange Act and the "outside director"
provisions of Code Section 162(m), or any successor regulations or provisions.
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The members of the Committee will be appointed from time to time by, and serve
at the discretion of, the Board of Directors. The Committee will act by a
majority of its members at the time in office and eligible to vote on any
particular matter, and Committee action may be taken either by a vote at a
meeting or in writing without a meeting.
3.2 Authority of the Committee. Except as limited by law and subject to
the provisions of this Plan, the Committee will have full power to: select
Eligible Employees to participate in the Plan; determine the sizes and types of
Awards; determine the terms and conditions of Awards in a manner consistent with
the Plan; construe and interpret the Plan and any agreement or instrument
entered into under the Plan; establish, amend or waive rules and regulations for
the Plan's administration; and (subject to the provisions of Article 15) amend
the terms and conditions of any outstanding Award to the extent they are within
the discretion of the Committee as provided in the Plan. Further, the Committee
will make all other determinations that may be necessary or advisable to
administer the Plan. As permitted by law and consistent with Section 3.1, the
Committee may delegate some or all of its authority under the Plan.
3.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan will be final, conclusive and
binding on all persons, including, without limitation, the Company, its Board of
Directors, its stockholders, all Subsidiaries, employees, Participants and their
estates and beneficiaries.
Article 4. Shares Subject to the Plan and Maximum Awards
4.1 Number of Shares Available for Grants. Subject to adjustment as
provided in Section 4.3, the number of Shares that may be issued or transferred
to Participants under the Plan is 7.5% of the Shares outstanding upon
consummation of the Company's initial public offering (4,593,088 Shares, plus up
to 376,875 additional Shares if certain underwriters' overallotment options are
exercised). The maximum numbers of Shares that may be issued or transferred
during any calendar year to the Participants as Performance Units is 500,000.
The maximum number of Shares and Share equivalent units that may be granted
during any calendar year to any one Participant under Options, Freestanding
SARs, Restricted Stock or Performance Shares is 500,000, which limit will apply
regardless of whether the compensation is paid in Shares or in cash.
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4.2 Lapsed Awards. If any Award granted under this Plan is canceled,
terminates, expires or lapses for any reason, any Shares subject to the Award
will again be available for the grant of an Award under the Plan.
4.3 Adjustments in Authorized Shares.
(a) If the Shares, as currently constituted, are changed into or exchanged
for a different number or kind of shares of stock or other securities
of the Company or of another corporation (whether because of merger,
consolidation, recapitalization, reclassification, split, reverse
split, combination of shares, or otherwise) or if the number of Shares
is increased through the payment of a stock dividend, then the
Committee will substitute for or add to each Share previously
appropriated, later subject to, or which may become subject to, an
Award, the number and kind of shares of stock or other securities into
which each outstanding Share was changed for which each such Share was
exchanged, or to which each such Share is entitled, as the case may
be. The Committee will also appropriately amend outstanding Awards as
to price and other terms, to the extent necessary to reflect the
events described above. If there is any other change in the number or
kind of the outstanding Shares, of any stock or other securities into
which the outstanding Shares have been changed, or for which they have
been exchanged, the Committee may, in its sole discretion,
appropriately adjust any Award already granted or which may be
afterward granted.
(b) Fractional Shares resulting from any adjustment in Awards pursuant to
this section may be settled in cash or otherwise as the Committee
determines. The Company will give notice of any adjustment to each
Participant who holds an Award that has been adjusted and the
adjustment (whether or not such notice is given) will be effective and
binding for all Plan purposes.
Article 5. Eligibility and Participation
5.1 Eligibility. All Eligible Employees, including Eligible Employees who
are members of the Board, are eligible to participate in this Plan.
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5.2 Actual Participation. Subject to the provisions of the Plan, the
Committee will, from time to time, select those Eligible Employees to whom
Awards will be granted, and will determine the nature and amount of each Award.
Article 6. Stock Options
6.1 Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to Eligible Employees in the number, and upon the terms,
and at any time and from time to time, as determined by the Committee.
6.2 Award Agreement. Each Option grant will be evidenced by an Award
Agreement that specifies the Exercise Price, the duration of the Option, the
number of Shares to which the Option pertains, the manner, time and rate of
exercise or vesting of the Option, and such other provisions as the Committee
determines. The Award Agreement will also specify whether the Option is
intended to be an ISO or an NQSO, and whether reload options will be granted.
6.3 Exercise Price. The Exercise Price for each share subject to an
Option will be at least one hundred percent of the Fair Market Value on the date
the Option is granted.
6.4 Duration of Options. Each Option will expire at the time determined
by the Committee at the time of grant, but no later than the tenth anniversary
of the date of its grant.
6.5 Dividend Equivalents. The Committee may, but shall not be required
to, grant payments in connection with Options that are equivalent to dividends
declared and paid on the Shares underlying the Options. Such dividend
equivalent payments may be made in cash or in Shares, upon such terms as the
Committee, in its sole discretion, deems appropriate.
6.6 Exercise of Options. Options will be exercisable at such times and be
subject to such restrictions and conditions as the Committee in each instance
approves, which need not be the same for each Award or for each Participant.
6.7 Payment. The holder of an Option may exercise the Option only by
delivering a written notice of exercise to the Company setting forth the number
of Shares as to which the Option is to be exercised, together with full payment
at the Exercise Price for the Shares and any withholding tax relating to the
exercise of the Option.
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The Exercise Price and any related withholding taxes will be payable to the
Company in full either: (a) in cash, or its equivalent, in United States
dollars; (b) if permitted in the governing Award Agreement, by tendering Shares
owned by the Participant and duly endorsed for transfer to the Company, Shares
issuable to the Participant upon exercise of the Option, or any combination of
cash, certified or cashier's check and Shares described in this clause (b); or
(c) by any other means the Committee determines to be consistent with the Plan's
purposes and applicable law. Cashless exercise must meet the requirements of
the Federal Reserve Board's Regulation T and any applicable securities law
restrictions.
The Committee may provide for reload options in the Award Agreement
evidencing an Option. If such reload options are provided for, they shall be
granted automatically in accordance with the applicable provisions in the Award
Agreement.
6.8 Restrictions on Share Transferability. The Committee may impose such
restrictions on any Shares acquired through exercise of an Option as it deems
necessary or advisable, including, without limitation, restrictions under
applicable federal securities laws, under the requirements of any stock exchange
or market upon which the Shares are then listed and/or traded, and under any
blue sky or state securities laws applicable to the Shares.
6.9 Termination of Employment. Each Option Award Agreement will set forth
the extent to which the Participant has the right to exercise the Option after
his or her termination of employment with the Company and all Subsidiaries.
These terms will be determined by the Committee in its sole discretion, need not
be uniform among all Options, and may reflect, among other things, distinctions
based on the reasons for termination of employment.
6.10 Nontransferability of Options. Except as otherwise provided in a
Participant's Award Agreement, no Option granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, except as
otherwise provided in a Participant's Award Agreement, all Options will be
exercisable during the Participant's lifetime only by the Participant or his or
her guardian or legal representative. The Committee may, in its discretion,
require a Participant's guardian or legal representative to supply it with the
evidence the Committee deems necessary to establish the authority of the
guardian or legal representative to act on behalf of the Participant.
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Article 7. Stock Appreciation Rights
7.1 Grant of SARs. Subject to the terms and conditions of the Plan, SARs
may be granted to Participants at any time and from time to time, as determined
by the Committee. The Committee may grant Freestanding SARs, Tandem SARs or any
combination of the two.
Within the limits of Article 4, the Committee will have sole discretion to
determine the number of SARs granted to each Participant and, consistent with
the provisions of the Plan, to determine the terms and conditions pertaining to
SARs.
The grant price of a Freestanding SAR will equal the Fair Market Value on
the date of grant of the SAR. The grant price of a Tandem SAR will equal the
per Share Exercise Price of the Option to which it relates.
7.2 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part
of the Shares subject to the related Option, upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable.
7.3 Exercise of Freestanding SARs. Freestanding SARs may be exercised
upon whatever terms and conditions the Committee, in its sole discretion,
imposes.
7.4 Award Agreement. Each SAR grant will be evidenced by an Award
Agreement that specifies the grant price, the term of the SAR and such other
provisions as the Committee determines.
7.5 Term of SARS. The term of an SAR will be determined by the Committee,
in its sole discretion, but may not exceed ten years.
7.6 Payment of SAR Amount. Upon exercise of an SAR, a Participant will be
entitled to receive payment from the Company in an amount determined by
multiplying:
(a) the excess (or some portion of the excess as determined at the
time of the grant by the Committee) if any, of the Fair Market
Value on the date of exercise of the SAR over the grant price
specified in the Award Agreement; by
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(b) the number of Shares as to which the SAR is exercised.
At the discretion of the Participant, the payment upon SAR exercise may be
made in cash, in Shares of equivalent Fair Market Value or in some combination
of the two.
7.7 Termination of Employment. Each SAR Award Agreement will set forth
the extent to which the Participant has the right to exercise the SAR after his
or her termination of employment with the Company and all Subsidiaries. These
terms will be determined by the Committee in its sole discretion, need not be
uniform among all SARs issued under the Plan, and may reflect, among other
things, distinctions based on the reasons for termination of employment.
7.8 Nontransferability of SARs. Except as otherwise provided in a
Participant's Award Agreement, no SAR may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution. Further, except as otherwise provided in a
Participant's Award Agreement, all SARs will be exercisable during the
Participant's lifetime only by the Participant or the Participant's guardian or
legal representative. The Committee may, in its discretion, require a
Participant's guardian or legal representative to supply it with evidence the
Committee deems necessary to establish the authority of the guardian or legal
representative to act on behalf of the Participant.
Article 8. Restricted Stock
8.1 Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Committee may, at any time and from time to time, grant Restricted
Stock to Participants in such amounts as it determines.
8.2 Deferral of Compensation into Restricted Stock. Subject to the terms
and provisions of the Plan, the Committee may, at any time and from time to
time, allow (or require, as to bonuses) selected Eligible Employees to defer the
payment of any portion of their salary and/or annual bonuses pursuant to this
section. A Participant's deferral under this section will be credited to the
Participant in the form of Shares of Restricted Stock. The Committee will
establish rules and procedures for the deferrals, as it deems appropriate.
In consideration for forgoing compensation, the dollar amount deferred by a
Participant may be increased by twenty-five percent (or such lesser percentage
as the Committee may determine) for purposes of determining the number of Shares
of Restricted Stock to grant the Participant. If a
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Participant's compensation is deferred under this Section 8.2, he or she will be
credited, as of the date specified in the Award Agreement, with a number of
shares of Restricted Stock equal to the amount of the deferral (increased as
described above) divided by the Fair Market Value on that date.
8.3 Award Agreement. Each Restricted Stock grant will be evidenced by an
Award Agreement that specifies the Restriction Periods, the number of Shares
granted, and such other provisions as the Committee determines.
8.4 Nontransferability. The Restricted Stock granted herein may not be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distributions, until the end of
the applicable Restriction Period as specified in the Award Agreement, or upon
earlier satisfaction of any other conditions specified by the Committee in its
sole discretion and set forth in the Award Agreement. All rights with respect
to Restricted Stock will be available during the Participant's lifetime only to
the Participant or the Participant's guardian or legal representative. The
Committee may, in its discretion, require a Participant's guardian or legal
representative to supply it with evidence the Committee deems necessary to
establish the authority of the guardian or legal representative to act on behalf
of the Participant.
8.5 Other Restrictions. Subject to Article 11, the Committee may impose
such other conditions and/or restrictions on any Restricted Stock as it deems
advisable including, without limitation, restrictions based upon the achievement
of specific performance objectives (Company-wide, business unit, and/or
individual), time-based restrictions on vesting following the attainment of the
performance objectives, and/or restrictions under applicable federal or state
securities laws. The Committee may provide that restrictions established under
this Section 8.5 as to any given Award will lapse all at once or in
installments.
The Company will retain the certificates representing Shares of Restricted
Stock in its possession until all conditions and/or restrictions applicable to
the Shares have been satisfied.
8.6 Payment of Awards. Except as otherwise provided in this Article 8,
Shares covered by each Restricted Stock grant will become freely transferable by
the Participant after the last day of the applicable Restriction Period.
8.7 Voting Rights. During the Restriction Period, Participants holding
Shares of Restricted Stock may exercise full voting rights with respect to those
Shares.
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8.8 Dividends and Other Distributions. During the Restriction Period,
Participants awarded Shares of Restricted Stock hereunder will be credited with
regular cash dividends paid on those Shares. Dividends may be paid currently,
accrued as contingent cash obligations, or converted into additional Shares of
Restricted Stock, upon such terms as the Committee establishes.
The Committee may apply any restrictions it deems advisable to the
crediting and payment of dividends and other distributions. Without limiting
the generality of the preceding sentence, if the grant or vesting of Restricted
Stock is designed to qualify for the Performance-Based Exception, the Committee
may apply any restrictions it deems appropriate to the payment of dividends
declared with respect to the Restricted Stock, so that the dividends and/or the
Restricted Stock continue to be eligible for the Performance-Based Exception.
8.9 Termination of Employment. Each Award Agreement will set forth the
extent to which the Participant has the right to retain unvested Restricted
Stock after his or her termination of employment with the Company or a
Subsidiary. These terms will be determined by the Committee in its sole
discretion, need not be uniform among all Awards of Restricted Stock, and may
reflect, among other things, distinctions based on the reasons for termination
of employment.
Article 9. Performance Units and Performance Shares
9.1 Grant of Performance Units/Shares. Subject to the terms of the Plan,
Performance Units and/or Performance Shares may be granted to Participants in
such amounts and upon such terms, and at any time and from time to time, as the
Committee determines.
9.2 Value of Performance Units/Shares. Each Performance Unit will have an
initial value established by the Committee at the time of grant. Each
Performance Share will have an initial value equal to the Fair Market Value on
the date of grant. The Committee will set performance objectives in its
discretion which, depending on the extent to which they are met, will determine
the number and/or value of Performance Units/Shares that will be paid out to the
Participant. For purposes of this Article 9, the time period during which the
performance objectives must be met will be called a "Performance Period" and
will be set by the Committee in its discretion.
9.3 Earning of Performance Units/Shares. Subject to the terms of this
Plan, after the applicable Performance Period has ended, the holder of
Performance Units/Shares will be entitled to receive payout on the number and
value of Performance Units/Shares earned by the Participant
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over the Performance Period, to be determined as a function of the extent to
which the corresponding performance objectives have been achieved.
9.4 Award Agreement. Each grant of Performance Units and/or Performance
Shares will be evidenced by an Award Agreement specifying the material terms and
conditions of the Award (including the form of payment of earned Performance
Units/Shares), and such other provisions as the Committee determines.
9.5 Form and Timing of Payment of Performance Units/Shares. Except as
provided in Article 12, payment of earned Performance Units/Shares will be made
as soon as practicable after the close of the applicable Performance Period, in
a manner determined by the Committee in its sole discretion. The Committee will
pay earned Performance Units/Shares in the form of cash, in Shares, or in a
combination of cash and Shares, as specified in the Award Agreement.
Performance Shares may be paid subject to any restrictions deemed appropriate by
the Committee.
9.6 Termination of Employment Due to Death or Disability. Unless
determined otherwise by the Committee and set forth in the Participant's Award
Agreement, if a Participant's employment is terminated by reason of death or
Disability during a Performance Period, the Participant will receive a prorated
payout of the Performance Units/Shares, as specified by the Committee in its
discretion in the Award Agreement. Payment of earned Performance Units/Shares
will be made at a time specified by the Committee in its sole discretion and set
forth in the Participant's Award Agreement.
9.7 Termination of Employment for Other Reasons. If a Participant's
employment terminates during a Performance Period for any reason other than
death or Disability, the Participant will forfeit all Performance Units/Shares
to the Company, unless the Participant's Award Agreement provides otherwise.
9.8 Nontransferability. Except as otherwise provided in a Participant's
Award Agreement, Performance Units/Shares may not be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution. Further, except as otherwise provided in a
Participant's Award Agreement, a Participant's rights under the Plan will be
exercisable during the Participant's lifetime only by the Participant or
Participant's guardian or legal representative. The Committee may, in its
discretion, require a Participant's guardian or legal representative to supply
it with evidence the Committee deems necessary to establish the authority of the
guardian or legal representative to act on behalf of the Participant.
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Article 10. Performance Measures
Unless and until the Committee proposes and the Company's stockholders
approve a change in the general performance measures set forth in this Article
10, the performance measure(s) to be used for purposes of Awards designed to
qualify for the Performance-Based Exception will be chosen from among the
following alternatives:
(a) net earnings;
(b) operating earnings or income;
(c) earnings growth;
(d) net income (absolute or competitive growth rates comparative);
(e) net income applicable to Common Stock;
(f) cash flow, including operating cash flow, free cash flow, discounted
cash flow return on investment, and cash flow in excess of cost of
capital;
(g) earnings per Common share;
(h) return on stockholders equity (absolute or peer-group comparative);
(i) stock price (absolute or peer-group comparative);
(j) absolute and/or relative return on common stockholders equity;
(k) absolute and/or relative return on capital;
(l) absolute and/or relative return on assets;
(m) economic value added (income in excess of cost of capital);
(n) customer satisfaction;
(o) expense reduction; and
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(p) ratio of operating expenses to operating revenues.
The Committee will have the discretion to adjust targets set for
preestablished performance objectives; however, Awards designed to qualify for
the Performance-Based Exception may not be adjusted upward, except to the extent
permitted under Code Section 162(m), to reflect accounting changes or other
events.
If Code Section 162(m) or other applicable tax and/or securities laws
change to allow the Committee discretion to change the types performance
measures without obtaining shareholder approval, the Committee will have sole
discretion to make such changes without obtaining stockholder approval. In
addition, if the Committee determines it is advisable to grant Awards that will
not qualify for the Performance-Based Exception, the Committee may grant Awards
that do not so qualify.
Article 11. Beneficiary Designation
Each Participant may, from time to time, name any beneficiary or
beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case the Participant should die before
receiving any or all of his or her Plan benefits. Each beneficiary designation
will revoke all prior designations by the same Participant, must be in a form
prescribed by the Committee, and must be made during the Participant's lifetime.
If the Participant's designated beneficiary predeceases the Participant or no
beneficiary has been designated, benefits remaining unpaid at the Participant's
death will be paid to the Participant's estate or other entity described in the
Participant's Award Agreement.
Article 12. Deferrals
The Committee may permit or require a Participant to defer receipt of cash
or Shares that would otherwise be due to him or her by virtue of an Option or
SAR exercise, the lapse or waiver of restrictions on Restricted Stock, or the
satisfaction of any requirements or objectives with respect to Performance
Units/Shares. If any such deferral election is permitted or required, the
Committee will, in its sole discretion, establish rules and procedures for such
deferrals. Notwithstanding the foregoing, the Committee in its sole discretion
may defer payment of cash or the delivery of Shares that would otherwise be due
to a Participant under the Plan if payment or delivery would result in the
Company's or a Subsidiary's being unable to deduct compensation under Code
Section 162(m).
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Deferral of payment or delivery by the Committee may continue until the Company
or Subsidiary is able to deduct the payment or delivery under the Code.
Article 13. Rights of Employees
13.1 Employment. Nothing in the Plan will interfere with or limit in any
way the right of the Company or any affiliate of the Company (as defined in
federal securities laws) to terminate any Participant's employment at any time,
or confer upon any Participant any right to continue in the employ of the
Company or any Subsidiary.
13.2 Participation. No Eligible Employee will have the right to receive
an Award under this Plan, or, having received any Award, to receive a future
Award.
Article 14. Initial Public Offering Protections. If, within three years after
the Company's initial public offering of the Shares, a Participant's employment
with the Company and all Subsidiaries is terminated for a reason other than
Cause, or the Participant terminates his or her employment with the Company and
all Subsidiaries for Good Reason, unless otherwise specifically prohibited under
applicable law or by applicable rules and regulations of any governmental
agencies or national securities exchanges, upon such termination:
(a) any and all outstanding Options and SARs will become immediately
exercisable, and will remain exercisable throughout their entire term;
(b) any Restriction Periods or restrictions imposed on Restricted Stock
will lapse, but the degree of vesting in Restricted Stock that has
been conditioned upon the achievement of performance conditions under
Section 8.5 will be determined in the manner set forth in Section
14.1(c); and
(c) except as otherwise provided in the Award Agreement, all Performance
Units and Performance Shares will fully vest, and within thirty days
following the Participant's termination of employment, he or she will
be paid in cash a pro rata amount based upon assumed achievement of
all relevant performance objectives at target levels, and upon the
fraction of the total Performance Period completed before the
effective date of the termination in employment.
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Article 15. Amendment, Modification and Termination
15.1 Amendment, Modification and Termination. Subject to Section 14.2, the
Board may at any time and from time to time, alter, amend, modify or terminate
the Plan in whole or in part. Subject to the terms and conditions of the Plan,
the Committee may modify, extend or renew outstanding Awards under the Plan, or
accept the surrender of outstanding Awards (to the extent not already exercised)
and grant new Awards in substitution of them (to the extent not already
exercised). The Committee will not, however, modify any outstanding Incentive
Stock Option so as to specify a lower Exercise Price. Notwithstanding the
foregoing, no modification of an Award will, without the prior written consent
of the Participant, alter or impair any rights or obligations under any Award
already granted under the Plan.
15.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. In recognition of unusual or nonrecurring events
(including, without limitation, the events described in Section 4.3) affecting
the Company or its financial statements, or in recognition of changes in
applicable laws, regulations, or accounting principles, and, whenever the
Committee determines that adjustments are appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, the Committee may, using reasonable care, make
adjustments in the terms and conditions of, and the criteria included in,
Awards. In case of an Award designed to qualify for the Performance-Based
Exception, the Committee will take care not to make an adjustment that would
disqualify the Award.
15.3 Compliance with Code Section 162(m). Awards will comply with the
requirements of Code Section 162(m), unless the Committee determines that such
compliance is not desired with respect to an Award available for grant under the
Plan. In addition, if changes are made to Code Section 162(m) to permit greater
flexibility as to any Award available under the Plan, the Committee may, subject
to this Article 15, make any adjustments it deems appropriate.
Article 16. Withholding
16.1 Tax Withholding. The Company will have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
(either in cash or Shares) sufficient to satisfy federal, state, and local
taxes, domestic or foreign, required by law or regulation to be withheld with
respect to any taxable event arising under this Plan. Each Award Agreement will
specify whether reload options will be granted in connection with payment of tax
withholding by tendering Shares owned by the Participant.
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16.2 Share Withholding. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock,
or upon any other taxable event arising as a result of Awards granted hereunder,
the Company may satisfy the minimum withholding requirement for supplemental
wages, in whole or in part, by withholding Shares having a Fair Market Value
(determined on the date the Participant recognizes taxable income on the Award)
equal to the withholding tax required to be collected on the transaction. The
Participant may elect, subject to the approval of the Committee, to deliver the
necessary funds to satisfy the withholding obligation to the Company, in which
case there will be no reduction in the Shares otherwise distributable to the
Participant.
Article 17. Successors
All obligations of the Company under the Plan or any Award Agreement will
be binding on any successor to the Company, whether the existence of the
successor results from a direct or indirect purchase of all or substantially all
of the business and/or assets of the Company, or a merger, consolidation, or
otherwise.
Article 18. Legal Construction
18.1 Number. Except where otherwise indicated by the context, any plural
term used in this Plan includes the singular and a singular term includes the
plural.
18.2 Severability. If any provision of the Plan is held illegal or
invalid for any reason, the illegality or invalidity will not affect the
remaining parts of the Plan, and the Plan will be construed and enforced as if
the illegal or invalid provision had not been included.
18.3 Requirements of Law. The granting of Awards and the issuance of Share
and/or cash payouts under the Plan will be subject to all applicable laws,
rules, and regulations, and to any approvals by governmental agencies or
national securities exchanges as may be required.
18.4 Securities Law Compliance. As to any individual who is, on the
relevant date, an officer, director or ten percent beneficial owner of any class
of the Company's equity securities that is registered pursuant to Section 12 of
the Exchange Act, all as defined under Section 16 of the Exchange Act,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 under the Exchange Act, or any successor rule. To the
extent any provision of the Plan
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or action by the Committee fails to so comply, it will be deemed null and void,
to the extent permitted by law and deemed advisable by the Committee.
18.5 Awards to Foreign Nationals and Employees Outside the United States.
To the extent the Committee deems it necessary, appropriate or desirable to
comply with foreign law of practice and to further the purposes of this Plan,
the Committee may, without amending the Plan, (i) establish rules applicable to
Awards granted to Participants who are foreign nationals, are employed outside
the United States, or both, including rules that differ from those set forth in
this Plan, and (ii) grant Awards to such Participants in accordance with those
rules.
18.6 Unfunded Status of the Plan. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments or deliveries of Shares not yet made to a Participant by the Company,
the Participant's rights are no greater than those of a general creditor of the
Company. The Committee may authorize the establishment of trusts or other
arrangements to meet the obligations created under the Plan, so long as the
arrangement does not cause the Plan to lose its legal status as an unfunded
plan.
18.7 Governing Law. To the extent not preempted by federal law, the Plan
and all agreements hereunder will be construed in accordance with and governed
by the laws of the State of Delaware.
21
<PAGE>
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into this ____th day of ______, 1998, by and between HELLER FINANCIAL, INC., a
Delaware corporation (the "Company"), and THE FUJI BANK LIMITED, a Japanese
banking corporation (together with its subsidiaries is hereinafter referred to
as "Fuji Bank").
WHEREAS, in connection with the initial public offering of shares of Class
A common stock, $0.25 par value per share, of the Company (the "Class A Common
Stock"), the Company desires to grant to Fuji Bank and a Qualified Transferee
(as defined below) certain registration rights with respect to the Class A
Common Stock held directly or indirectly by Fuji Bank or a Qualified Transferee
or issuable upon conversion of any other security (including shares of the Class
B common stock, $0.25 par value per share, of the Company (the "Class B Common
Stock") held by Fuji Bank or such Qualified Transferee.
WHEREAS, the parties hereto desire to set forth the terms and conditions of
the Company's covenants and agreements in respect of the registration of the
Class A Common Stock with the Securities and Exchange Commission and all
applicable state securities agencies.
NOW, THEREFORE, in consideration of the foregoing and the mutual convents
and agreements herein contained, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
1. Certain Definitions. The following terms, as used herein, have the
-------------------
following meanings:
"Affiliate" of a Holder means a Person who controls, is controlled by
---------
or is under common control with such Holder or the spouse or children (or a
trust exclusively for the benefit of a spouse or children) of such Holder
or, in the case of a Holder that is a partnership, its partners.
"Agreement" has the meaning set forth in the preamble to this
---------
Agreement.
"Class A Common Stock" has the meaning set forth in the preamble to
--------------------
this Agreement.
"Class B Common Stock" has the meaning set forth in the preamble to
--------------------
this Agreement.
"Common Stock" means the Class A Common Stock and the Class B Common
------------
Stock, collectively.
"Company" has the meaning set forth in the preamble to this Agreement.
-------
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
or any similar federal statute, and the rules and regulations of the SEC
thereunder, all as the same shall be in effect at the time.
"Fuji Bank" has the meaning set forth in the preamble to this
---------
Agreement.
"Holder(s)" means Fuji Bank and a Qualified Transferee.
---------
"Initiating Holders" has the meaning set forth in Section 2(a).
------------------
"IPO" means the initial public offering of the Class A Common Stock.
---
"NASD" means the National Association of Securities Dealers, Inc.
----
"Person" means an individual, corporation, partnership, limited
------
liability company, limited partnership, syndicate, person (including,
without limitation, a "person" as defined in Section 13(d)(3) of the
Exchange Act), trust, association or entity or government, political
subdivision, agency or instrumentality of a government.
"Qualified Transferee" means one unrelated person or its subsidiaries
--------------------
to whom shares of Class B Common Stock representing more than 50% of the
combined voting power of all outstanding shares of the Company's voting
stock are transferred by Fuji Bank in a single transaction.
"register," "registered" and "registration" refer to a registration
-------- ---------- ------------
effected by preparing and filing a registration statement or similar
document in compliance with the Securities Act and the declaration or
ordering of effectiveness by the SEC of such registration statement or
document.
"Registrable Stock" means (a) the Class A Common Stock issuable upon
-----------------
the conversion of the Class B Common Stock owned by a Holder immediately
after the IPO, (b) any Class A Common Stock acquired by a Holder in the
open market at a time when such Holder is deemed to be an Affiliate of the
Company, so long as (i) such Class A Common Stock is owned by such Holder
and (ii) such Holder continues to be deemed an Affiliate of the Company,
and (c) any shares of Class A Common Stock issued or issuable with respect
to any such shares of Registrable Stock referred to in clauses (a) and (b)
above by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise. For purposes of this Agreement, any
Registrable Stock shall cease to be Registrable Stock when (1) a
registration statement covering such Registrable Stock has been declared
effective and such Registrable Stock has been disposed of pursuant to such
effective registration statement, (2) such Registrable Stock is sold or
otherwise transferred by a Person in a transaction in which the rights
under the provisions of this Agreement are not assigned or (3) such
Registrable Stock is sold pursuant to Rule 144
-2-
<PAGE>
(including Rule 144(k)) (or any similar provision then in force under the
Securities Act) without registration under the Securities Act.
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal statute, as the same shall be in effect at the time.
2. Demand for Registration.
-----------------------
(a) On and after the date that is six (6) months from the date of the
final prospectus (as included in a registration statement filed under the
Securities Act and declared effective by the SEC) covering the shares of
Class A Common Stock sold by the Company in the IPO, the Holders of the
Registrable Stock (the "Initiating Holders") may demand in a written notice
------------------
that the Company file a registration statement under the Securities Act
covering the registration of any or all Registrable Stock held by such
Initiating Holders in the manner specified in such notice. Following
receipt of any notice under this Section 2 the Company shall (i) within
twenty (20) days notify all other Holders, if any, of such request in
writing and (ii) use its reasonable efforts to effect the registration (as
set forth in Section 4) of all Registrable Stock that the Initiating
Holders and such other Holders have demanded, within ten (10) days after
the Company has given such notice, be registered in accordance with the
manner of disposition specified in such notice by the Initiating Holders.
(b) If the Initiating Holders have set forth in their written demand
for registration that they intend to have the Registrable Stock distributed
by means of an underwritten offering, the Company shall include such
information in the written notice referred to in clause (i) of Section
2(a). In such event, the right of any Holder to include its Registrable
Stock in such registration shall be conditioned upon such Holder's
participation in such underwritten offering and the inclusion of such
Holder's Registrable Stock in the underwritten offering (unless otherwise
mutually agreed by a majority in interest of the Initiating Holders and
such Holder) on the terms provided below. All Holders proposing to
distribute Registrable Stock through such underwritten offering shall enter
into an underwriting agreement in customary form with the underwriter or
underwriters. Such underwriter or underwriters shall be selected by a
majority in interest of the Initiating Holders and shall be approved by the
Company, which approval shall not be unreasonably withheld, provided, that
--------
(i) all of the representations and warranties by, and the other agreements
on the part of, the Company to and for the benefit of such underwriters
shall also be made to and for the benefit of such Holders of Registrable
Stock, and (ii) any or all of the conditions precedent to the obligations
of such underwriters under such underwriting agreement shall be conditions
precedent to the obligations of such Holders of Registrable Stock. If
Holder of Registrable Stock disapproves of the terms of the underwriting,
such Holder may elect to withdraw all its Registrable Stock by written
notice to the Company, the managing underwriter or
-3-
<PAGE>
underwriters, and the Initiating Holders. The Registrable Stock so
withdrawn shall also be withdrawn from registration.
(c) Notwithstanding any provision of this Agreement to the contrary:
(i) the Company shall not be required to effect a registration
pursuant to this Section 2 during the period starting with
the date thirty (30) days prior to the filing by the Company
of, and ending on a date one hundred eighty (180) days
following the effective date of, a registration statement
pertaining to a public offering of securities for the
account of the Company or on behalf of selling stockholders
under any other registration rights agreement which the
Holders have been entitled to join pursuant to Section 3;
provided that the Company shall actively employ in good
--------
faith all reasonable efforts to cause such registration
statement to become effective as soon after such period as
possible; and
(ii) if the Company shall determine in good faith that such
registration would require the Company to disclose a
material financing, acquisition or other transaction then
being pursued by the Company and the Company shall determine
in good faith that such disclosure is not in the best
interests of the Company or would interfere with such
transaction, the Company's obligation to use its reasonable
efforts to file a registration statement shall be deferred
for a period not to exceed ninety (90) days.
(d) The Company shall not be obligated to effect or pay for more than
one (1) registration pursuant to this Section 2; provided, that a
--------
registration demanded pursuant to this Section 2 shall not be deemed to
have been effected for purposes of this Section 2(d) unless (i) it has been
declared effective by the SEC, (ii) it has remained effective for the
period set forth in Section 4 and (iii) the offering of Registrable Stock
pursuant to such registration is not subject to any stop order, injunction,
or other order or requirement of the SEC preventing the use of the
registration statement (other than any such stop order, injunction, or
other order or requirement of the SEC prompted by any act or omission of
Holders of Registrable Stock).
3. Participatory Registration. If at any time the Company determines
--------------------------
that it shall file a registration statement under the Securities Act (other than
a registration statement on a Form S-4 or S-8 or any successor forms or filed in
connection with a merger, acquisition, exchange offer or other business
combination transaction or an offering of securities solely to the Company's
existing securityholders or employees) on any form that would also permit the
registration of the Registrable Stock and such filing is to be on its behalf or
on behalf of selling holders of its securities, or on behalf of both, for the
general registration of its Class A Common Stock to be sold for cash, the
Company shall each such time promptly give each Holder written
-4-
<PAGE>
notice of such determination setting forth the date on which the Company
proposes to file such registration statement, which date shall be no earlier
than fifteen (15) days from the date of such notice, and advising each Holder of
its right to request that its Registrable Stock be included in such
registration. Upon the written request of any Holder received by the Company no
later than ten (10) days after the date of receipt of the Company's notice, the
Company shall use its reasonable efforts to effect the registration (as set
forth in Section 4) of all of the Registrable Stock that each such Holder has so
requested to be registered and to cause the managing underwriter or underwriters
of the proposed underwritten offering to permit such Holder to include its
Registrable Stock in such offering on the same terms and conditions as the
shares of Class A Common Stock to be sold by the Company (or, if no shares are
to be sold by the Company, the shares of Class A Common Stock to be sold by
selling stockholders) included therein. If, in the written opinion of the
managing underwriter or underwriters (or, in the case of a non-underwritten
offering, in the reasonable good faith opinion of the Company), the total number
of shares of Class A Common Stock to be so registered, including such
Registrable Stock, will exceed the maximum number of shares of Class A Common
Stock which can be marketed (a) at a price per share reasonably related to the
then current market value per share of the Class A Common Stock, and (b) without
otherwise materially and adversely affecting the entire offering, then the
Company shall be entitled to reduce the number of shares of Registrable Stock to
be registered. Any reduction made pursuant to the immediately preceding
sentence shall be allocated among all such Holders in proportion (as nearly as
practicable) to the amount of Registrable Stock owned by each Holder at the time
of filing the registration statement. The Company shall not be required under
this Section 3 to include shares of Registrable Stock in any underwritten
offering unless the Holders of such shares of Registrable Stock accept the terms
of the underwriting of such offering that have been reasonably agreed upon
between the Company and the underwriters selected by the Company.
4. Registration Procedures. Whenever required under Section 2 or 3 to
-----------------------
use its reasonable efforts to effect the registration of any Registrable Stock,
the Company shall, as expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration statement, signed,
pursuant to Section 6(a) of the Securities Act, by the requisite officers
and directors of the Company, with respect to such Registrable Stock and
use its reasonable efforts to cause such registration statement to become
and remain effective for the period of the distribution contemplated
thereby determined as hereinafter provided;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement, signed, pursuant to Section 6(a) of the
Securities Act, by the requisite officers and directors of the Company, and
the prospectus used in connection therewith as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition
of all Registrable Stock covered by such registration statement;
(c) furnish to the Holders such numbers of copies of the registration
statement and the prospectus included therein (including each preliminary
prospectus and any
-5-
<PAGE>
amendments or supplements thereto in conformity with the requirements of
the Securities Act) and such other documents and information as they may
reasonably request;
(d) use its reasonable efforts to register or qualify the Registrable
Stock covered by such registration statement under such other securities or
blue sky laws of such jurisdictions (if any) within the United States and
Puerto Rico as shall be reasonably appropriate for the distribution of the
Registrable Stock covered by the registration statement; provided, however,
-----------------
that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business in or to file a general consent
to service of process in any jurisdiction wherein it would not but for the
requirements of this paragraph (d) be obligated to do so; and provided,
---------
further, that the Company shall not be required to qualify such Registrable
-------
Stock in any jurisdiction in which the securities regulatory authority
requires that any Holder submit any shares of its Registrable Stock to the
terms, provisions and restrictions of any escrow, lockup or similar
agreement(s) for consent to sell Registrable Stock in such jurisdiction,
unless such Holder agrees to do so;
(e) promptly notify each Holder for whom such Registrable Stock is
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of
the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made, and at
the request of any such Holder promptly prepare and furnish to such Holder
a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an 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 not
misleading in light of the circumstances under which they were made (and
the Holders shall suspend the use of the prospectus until the requisite
changes thereto have been made);
(f) furnish, at the request of any Holder demanding registration of
Registrable Stock pursuant to Section 2, if the method of distribution is
by means of an underwriting, on the date that the shares of Registrable
Stock are delivered to the underwriters for sale pursuant to such
registration, or if such Registrable Stock is not being sold through
underwriters, on the date that the registration statement with respect to
such shares of Registrable Stock becomes effective, (i) a signed opinion,
dated such date, of legal counsel representing the Company for the purpose
of such registration, addressed to the underwriters, if any, and if such
Registrable Stock is not being sold through underwriters, then to the
Holders making such request, as to such matters as such underwritten or the
Holders holding a majority of the Registrable Stock included in such
registration, as the case may be, may reasonably request and as would be
customary in such a transaction; and (ii) letters dated such date and the
date the offering is priced from
-6-
<PAGE>
the independent certified public accountants of the Company, addressed to
the underwriters, if any, and if such Registrable Stock is not being sold
through underwriters, then to the Holders making such request and, if such
accountants refuse to deliver such letters to such Holders, then to the
Company (A) stating that they are independent certified public accountants
within the meaning of the Securities Act and that, in the opinion of such
accountants, the financial statements and other financial data of the
Company included in the registration statement or the prospectus, or any
amendment or supplement thereto, comply as to form in all material respects
with the applicable accounting requirements of the Securities Act and (B)
covering such other financial matters (including information as to the
period ending not more than five (5) business days prior to the date of
such letters) with respect to the registration in respect of which such
letter is being given as such underwriters or the Holders holding a
majority of the Registrable Stock included in such registration, as the
case may be, may reasonably request and as would be customary in such a
transaction;
(g) enter into customary agreements (including if the method of
distribution is by means of an underwriting, an underwriting agreement in
customary form) and take such other actions as are reasonably required in
order to expedite or facilitate the disposition of the Registrable Stock to
be so included in the registration statement;
(h) otherwise use its reasonable efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, but not later than eighteen
(18) months after the effective date of the registration statement, an
earnings statement covering the period of at least twelve (12) months
beginning with the first day of the first full fiscal quarter after the
effective date of such registration statement, which earnings statements
shall satisfy the provisions of Section 11(a) of the Securities Act;
(i) use its reasonable efforts to list the Registrable Stock covered
by such registration statement with any securities exchange on which the
Class A Common Stock is then listed; and
(j) notwithstanding any provision of this Section 4 to the contrary,
the Company shall not be required to amend or supplement a prospectus for a
period not to exceed ninety (90) days if (i) such amendment or supplement
would require the Company to disclose a material financing, acquisition or
other transaction then being pursued by the Company and the Company shall
determine in good faith that such disclosure is not in the best interests
of the Company or would interfere with such transaction or (ii) the Company
shall determine in good faith that there is a valid business purpose or
reason for suspending the use of such prospectus in accordance with Section
4(e) hereof instead of making such amendment or supplement.
For purposes of Sections 4(a) and 4(b), the period of distribution of
Registrable Stock in a firm commitment underwritten public offering shall be
deemed to extend until each
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<PAGE>
underwriter has completed the distribution of all securities purchased by it,
and the period of distribution of Registrable Stock in any other registration
shall be deemed to extend until the earlier of (i) the sale of all Registrable
Stock covered thereby and (ii) six (6) months after the effective date thereof.
5. Information from Holders. It shall be a condition precedent to the
------------------------
obligations of the Company to take any action pursuant to this Agreement that
the Holders shall furnish to the Company such information regarding themselves,
the Registrable Stock held by them, and the intended method of disposition of
such securities as the Company shall reasonably request and as shall be required
in connection with the action to be taken by the Company.
6. Expenses of Registration. All expenses incurred in connection with
------------------------
each registration pursuant to Section 2 and Section 3 of this Agreement,
excluding underwriters' discounts and commissions, but including without
limitation all registration, filing and qualification fees, word processing,
duplicating, printers' and accounting fees (including the expenses of any
special audits or "cold comfort" letters required by or incident to such
performance and compliance), fees of the New York Stock Exchange or other
listing fees, NASD filing fees, messenger and delivery expenses, fees and
expenses of complying with state securities or blue sky laws, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders (which counsel shall be
selected by the Holders holding a majority in interest of the Registrable Stock
being registered), shall be paid by the Company; provided, however, that if a
-----------------
registration request pursuant to Section 2 of this Agreement is subsequently
withdrawn at the request of the Holders, such withdrawing Holders shall bear
such expenses. The Holders shall bear and pay the underwriting commissions and
discounts applicable to securities offered for their account in connection with
any registrations, filings and qualifications made pursuant to this Agreement.
7. Information from the Company. With a view to making
-----------------------------
available the benefits of certain rules and regulations of the SEC which may at
any time permit the sale of the Registrable Stock to the public without
registration, (a) at all times after ninety (90) days after the registration
statement under the Securities Act covering the IPO shall have been declared
effective by the SEC, the Company agrees to:
(i) use its reasonable best efforts to file with the SEC in a
timely manner all reports and other documents required of
the Company under the Securities Act and the Exchange Act,
or otherwise make and keep public information available (as
those terms are understood and defined in Rule 144 under the
Securities Act); and
(ii) furnish to each Holder of Registrable Stock forthwith
upon request a written statement by the Company as to its
compliance with the reporting requirements of the Exchange
Act, a copy of the most recent annual report on Form 10-K or
quarterly report on Form 10-Q of the Company, and such other
reports and documents
-8-
<PAGE>
so filed by the Company as such Holder may reasonably
request in availing itself of any rule or regulation of the
SEC allowing such Holder to sell any Registrable Stock
without registration; and
(b) at all times during which the Company is neither subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, it will
provide, upon the written request of any Holder of Registrable Stock in
written form (as promptly as reasonably practicable and in any event within
15 business days), to any prospective buyer of such stock designated by
such Holder, all information required by Rule 144A(d)(4)(i) of the General
Regulations promulgated by the SEC under the Securities Act.
8. Indemnification. In the event any Registrable Stock is included in a
---------------
registration statement under this Agreement:
(a) The Company shall indemnify and hold harmless each Holder, such
Holder's directors and officers, each underwriter (as defined in the
Securities Act) who participates in the offering of the Registrable Stock,
and each Person who controls such Holder within the meaning of Section 15
of the Securities Act, against any losses, claims, damages or liabilities,
joint or several, which a Holder, any such director or officer, underwriter
or controlling Person may incur under the Securities Act or otherwise,
insofar as such losses, claims, damages, liabilities (or proceedings in
respect thereof) arise out of or are based on any untrue or alleged untrue
statement of any material fact contained in such registration statement on
the effective date thereof (including any preliminary prospectus, final
prospectus or other prospectus filed pursuant to Rule 424 under the
Securities Act or any amendments or supplements to any of the foregoing) or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; and shall reimburse each such
Holder, such Holder's directors and officers, such underwriter or
controlling Person for any legal or other expenses reasonably incurred by
him, her or it (but not in excess of expenses incurred in respect of one
counsel for all of them unless, in the reasonable judgement of an
indemnified party there is a conflict of interest with another indemnified
party, in which case the Company will reimburse the indemnified parties for
one additional counsel) in connection with investigating or defending any
such loss, claim, damage, liability or proceeding; provided, however, that
-------- -------
the indemnity agreement contained in this Section 8(a) shall not apply to
any Holder, such Holder's directors and officers, underwriter or
controlling Person in any such case for any such loss, claim, damage,
liability or proceeding if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld);
provided, further, that the Company shall not be liable to any Holder, such
-------- -------
Holder's directors and officers, underwriter or controlling Person in any
such case for any such loss, claim, damage, liability or expenses to the
extent that it arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in connection
with such registration statement, preliminary
-9-
<PAGE>
prospectus, final prospectus, a prospectus filed under Rule 424 of the
Securities Act or amendments or supplements to any of the foregoing, in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
such Holder's directors and officers, underwriter or controlling Person;
and provided, further that, with respect to any untrue statement or
-------- -------
alleged untrue statement or omission or alleged omission made in any
prospectus (preliminary or otherwise), the foregoing indemnity agreement
shall not inure to the benefit of any underwriter or (in the case of an
offering that is not underwritten) any Holder from whom the person
asserting any such loss, claim, damage, liability or proceeding purchased
the Registrable Stock concerned, or any officer or director of or Person
controlling such underwriter or (in the case of an offering that is not
underwritten) such Holder, to the extent any such loss, claim, damage,
liability or proceeding of such underwriter or Holder results from the fact
that a copy of the final prospectus (or the final prospectus as amended or
supplemented) was not sent or given to such person, if required by the
Securities Act so to have been delivered, at or prior to the written
confirmation of the sale of such Registrable Stock to such person, and the
untrue statement or the alleged untrue statement or the omission or the
alleged omission was corrected in such final prospectus (or the final
prospectus as amended or supplemented) if the Company had previously
furnished copies of such final prospectus (or the final prospectus as
amended or supplemented) to such underwriter or Holder. Such indemnity
shall remain in full force and effect regardless of any investigation made
by or on behalf of any such Holder, such Holder's directors and officers,
underwriter or controlling Person, and shall survive the transfer of such
securities by such Holder.
(b) The Holders demanding or joining in a registration, severally and
not jointly, shall indemnify and hold harmless the Company, each of its
directors and officers, each Person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act, and each
underwriter (within the meaning of the Securities Act) who participates in
the offering of the Registrable Stock and each Person who controls such
underwriter against any losses, claims, damages or liabilities, joint or
several, to which the Company or any such director, officer, controlling
Person or underwriter may incur, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or proceedings in
respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in such
registration statement on the effective date thereof (including any
preliminary prospectus, final prospectus or other prospectus filed pursuant
to Rule 424 under the Securities Act or any amendments or supplements to
any of the foregoing) or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in such
registration statement, preliminary prospectus, final prospectus or other
prospectus filed pursuant to Rule 424 of the Securities Act or amendments
or supplements to any of the foregoing, in reliance upon and in conformity
with written information furnished by or on behalf of such Holder expressly
for use in connection with such registration and each such
-10-
<PAGE>
Holder shall reimburse any legal or other expenses reasonably incurred by
the Company or any such director, officer, controlling Person or
underwriter (but not in excess of expenses incurred in respect of one
counsel for all of them unless, in the reasonable judgement of an
indemnified Person, there is a conflict of interest with another
indemnified Person, in which case such Holder shall reimburse the
indemnified Persons for one additional counsel) in connection with
investigating or defending any such loss, claim, damage, liability or
proceeding; provided, however, that the indemnity agreement contained in
-------- -------
this Section 8(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or proceeding if such settlement is effected
without the consent of such Holder (which consent shall not be unreasonably
withheld), and provided, further, that the liability of each Holder
-------- -------
hereunder shall not in any event exceed the net proceeds received by such
Holder from the sale of Registrable Stock covered by such registration
statement.
(c) Promptly after receipt by an indemnified Person under this Section
8 of notice of the commencement of any action or proceeding, such
indemnified Person shall, if a claim in respect thereof is to be made
against any indemnifying Person under this Section, notify the indemnifying
Person in writing of the commencement thereof, and the indemnifying Person
shall have the right to participate in and assume the defense thereof with
counsel selected by the indemnifying Person and reasonably satisfactory to
the indemnified Person; provided, however, that an indemnified Person shall
-------- -------
have the right to retain its own counsel, with all fees and expenses
thereof to be paid by such indemnified Person (except as provided in
paragraph (a) and (b) above), and to be apprised of all progress in any
proceeding the defense of which has been assumed by the indemnifying
Person. The failure to notify an indemnifying Person promptly of the
commencement of any such action shall only release the indemnifying Person
from any of its obligations under this Section 8 if, and only to the extent
that, such indemnifying Person is materially prejudiced by such failure,
but the omission to so notify the indemnifying Person will not relieve it
of any liability that it may have to any indemnified Person otherwise than
under this Section.
(d) To the extent any indemnification by an indemnifying Person
provided for in this Section 8 is prohibited or limited by law, the
indemnifying Person, in lieu of indemnifying such indemnified Person, shall
contribute to the amount paid or payable by such indemnified Person as a
result of such losses, claims, damages or liabilities in such proportion as
is appropriate to reflect the relative fault of the indemnifying Person and
the indemnified Person in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative fault of such
indemnifying Person and indemnified Person shall be determined by reference
to, among other things, whether an untrue or alleged untrue statement of
material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying
Person or indemnified Person, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission. The amount paid or
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<PAGE>
payable by a Person as a result of losses, claims, damages or liabilities
referred to above shall be deemed to include any legal or other fees or
expenses reasonably incurred by such Person in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
9. Lockup. Each Holder shall, in connection with any registration of the
------
Company's securities, upon the request of the Company or the underwriters
managing any underwritten offering of the Company's securities, agree in writing
not to effect any sale, disposition or distribution of any Registrable Stock
(other than that included in the registration) without the prior written consent
of the Company or such underwriters, as the case may be, for such period of time
not to exceed one hundred eighty (180) days from the effective date of such
registration as the Company or the underwriters may specify; provided that all
--------
executive officers and directors of the Company shall also have agreed not to
effect any sale, disposition or distribution of any Registrable Stock under the
circumstances and pursuant to the terms set forth in this Section 9.
10. Assignment of Registration Rights. The registration rights of any
---------------------------------
Holder under this Agreement with respect to any Registrable Stock may be
assigned to an Affiliate of such Holder; provided that (a) the assigning Holder
--------
shall give the Company written notice at or prior to the time of such assignment
stating the name and address of the assignee and identifying the securities with
respect to which the rights under this Agreement are being assigned; (b) such
assignee shall agree in writing, in form and substance reasonably satisfactory
to the Company, to be bound as a Holder by the provisions of this Agreement; and
(c) immediately following such assignment the further disposition of such
securities by such assignee is restricted under the Securities Act. No
assignment of the registration rights of any Holder with respect to any
Registrable Stock in accordance with this Section 10 shall cause such
Registrable Stock to lose such status.
11. Binding Effect; Benefit. This Agreement shall be binding upon and
-----------------------
shall inure to the benefit of the parties hereto and their respective permitted
successors and assigns. Nothing in this Agreement, expressed or implied, is
intended to confer on any Person other than the parties hereto or their
respective permitted successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
12. Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the Laws of the State of New York.
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<PAGE>
13. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which when executed and delivered shall be deemed to be an
original, but all of which taken together shall constitute one and the same
agreement.
14. Headings. The descriptive headings contained in this Agreement are
--------
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
15. Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
upon written confirmation of receipt by the recipient or by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 15):
if to the Company:
Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
Attention: General Counsel
Telecopy Number: (312) 441-7456
if to The Fuji Bank Limited:
[insert address]
Attention: ______________________
Telecopy Number: ________________
16. Amendments and Waivers. Any provision of this Agreement may be
----------------------
amended or waived if such amendment or waiver is in writing and is signed, in
the case of an amendment, by each party to this Agreement, or in the case of a
waiver, by the party against whom the waiver is to be effective. No failure or
delay by any party in exercising any rich, power or privilege hereunder shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.
17. Severability. If any term or other provision of this Agreement is
------------
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions set forth in this Agreement is not affected in any manner
materially adverse to any party hereto. Upon such determination that any term
or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely
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<PAGE>
as possible in a mutually acceptable manner in order that the transactions set
forth in this Agreement be consummated as originally contemplated to the fullest
extent possible.
18. Entire Agreement. This Agreement constitutes the entire agreement
----------------
among the parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings among the parties with respect thereto.
19. Attorneys' Fees. In the event that any party hereto shall file suit
---------------
to enforce any of the terms of this Agreement or to recover damages for a breach
Of this Agreement, the prevailing party shall be entitled to recover reasonable
attorney's fees and costs incurred in such proceeding.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
HELLER FINANCIAL, INC.
By
---------------------------------
Name:
Title:
THE FUJI BANK LIMITED
By
---------------------------------
Name:
Title:
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<PAGE>
EXHIBIT 10.5
AMENDED AND RESTATED
KEEP WELL AGREEMENT
Dated as of April 15, 1998
This Amended and Restated Keep Well Agreement, dated as of April 15, 1998,
amends and restates that certain Restated Keep Well Agreement dated as of June
17, 1997 (the "Prior Restated Keep Well Agreement") between The Fuji Bank,
Limited, a Japanese banking corporation ("Fuji"), acting by and through its New
York Branch (the "Branch"), and Heller Financial, Inc, a Delaware corporation
("Finance").
W I T N E S S E T H:
WHEREAS, Fuji on January 26, 1984 purchased from Walter E. Heller
International Corporation, a Delaware corporation ("Heller"), pursuant to a
Stock Purchase Agreement dated as of April 23, 1983 (the "Stock Purchase
Agreement"), all of the issued and outstanding shares of common stock of Finance
and of Walter E. Heller Overseas Corporation; and
WHEREAS, pursuant to the Stock Purchase Agreement, Fuji and Finance entered
into a Keep Well Agreement dated as of April 23, 1983 (the "Original Keep Well
Agreement") in order to assist Finance in maintaining its credit rating; and
WHEREAS, the Prior Restated Keep Well Agreement was executed in order to
reflect various amendments that had been made to the Original Keep Well
Agreement; and
WHEREAS, Finance and Fuji now desire to amend the Prior Restated Keep Well
Agreement and to further restate such Prior Restated Keep Well Agreement to
reflect such amendment;
NOW, THEREFORE, the parties hereto agree to amend and restate the Prior
Restated Keep Well Agreement as follows (the Prior Restated Keep Well Agreement
as so amended and restated being referred to herein as the "Keep Well Agreement"
or this "Agreement"):
SECTION 1. Definitions. For the purposes of this Agreement:
"Business Day" shall mean a day of the year on which dealings are
carried on in the London interbank market and banks are open for business
in London and not required or authorized to close in New York City or
Chicago.
"Commercial Paper" shall mean all commercial paper issued and sold by
Finance (or by any issuing agent acting on behalf of Finance) after the
date of the Original Keep Well Agreement and on or prior to the 30th
Business Day after notice or termination of this Agreement is given by Fuji
pursuant to Section 8(c) or by Finance pursuant to Section 8(d).
"Illiquidity Certification" shall mean a certificate of the chief
financial officer or chief accounting officer of Finance, in substantially
the form of Exhibit A hereto.
"Moody's" shall mean Moody's Investors Service, Inc. Any reference in
this Agreement to any specific rating by Moody's is a reference to such
rating as currently defined by Moody's and shall be deemed to refer to the
equivalent rating if such rating system changes. If Moody's shall at any
time discontinue rating either the Series A Preferred Stock or the Series C
Preferred Stock and S&P is not then rating such Preferred Stock, then
Goldman, Sachs & Co. for as long as the Series A Preferred Stock shall
remain outstanding and thereafter Lehman Brothers Inc., or its applicable
successor, shall, within 30 days, select a nationally
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recognized substitute rating agency and identify the comparable ratings
from such agency. During such 30-day period, Moody's rating shall be
considered to be the last rating Moody's provided before it discontinued
rating the applicable Preferred Stock.
"Net Worth" for any period shall mean the stockholders' equity of
Finance (including preferred stock, common stock and earned surplus and all
other items listed under the heading "Stockholders' Equity" on the balance
sheet of Finance) as determined in accordance with generally accepted
accounting principles, consistently applied, and shown on the balance sheet
of Finance as at the close of such period; provided, however, that for the
purposes of this Agreement, Net Worth shall be increased by the aggregate
amount of the accrued and unpaid dividends on all shares of NW Preferred
Stock outstanding on the last day of the period in respect of which Net
Worth is being determined (and by the aggregate amount of the liquidation
preference of all such shares of NW Preferred Stock to the extent not
otherwise included in Net Worth pursuant to the foregoing provisions of
this definition).
"Net Worth Certification" for any period shall mean a certificate of
the chief financial officer or chief accounting officer of Finance, in
substantially the form of Exhibit B hereto, setting forth in detail the Net
Worth for such period and the calculations upon which it has been
determined and containing a notice of issuance of NW Preferred Stock.
"Net Worth Deficiency" for any period shall mean the amount by which
$500,000,000 exceeds the Net Worth in respect of such period.
"NW Preferred Stock" shall mean the preferred stock of Finance
entitled "NW Preferred Stock" and to be issued pursuant to Section 2 to
Fuji or a subsidiary of Fuji as Fuji shall elect by written notice to
Finance (such notice to be given to Finance no later than three Business
Days prior to the date of issuance of any such NW Preferred Stock pursuant
to Section 2), from time to time in one or more series, each without voting
rights except as shall be provided for under the statutes of the State of
Delaware, and having the following provisions:
(a) Dividends. Dividends as to any series of NW Preferred Stock shall
be payable (if declared) quarterly commencing on the last day of the
calendar quarter during which such series is issued, and on the last day of
each calendar quarter thereafter (each such last day of a calendar quarter
being a "Dividend Date") for so long as that series is outstanding (the
dividend during the first such quarter to be prorated); dividends on each
series of NW Preferred Stock shall accrue and be payable at a rate per
annum equal at all times during a calendar quarter ending on a Dividend
Date to 1% per annum above the rate of interest at which deposits in United
States Dollars are offered by the principal office of Fuji in London,
England on the second Business Day (it being agreed that for this purpose
only, the definition of "Business Day" shall not include reference to
Chicago) preceding the first day of such calendar quarter (or, in the case
of the first dividend period, preceding the date of issuance of such
series) to prime banks in the London interbank market for a period equal to
three months (or, in the case of such first dividend period, equal to such
shorter period commencing on the date of issuance of such series and ending
on the last day of the calendar quarter during which such issuance
occurred); provided, however that the dividends on each series of NW
Preferred Stock shall be noncumulative such that if the Board of Directors
of Finance fails to declare a dividend on the NW Preferred Stock payable on
a dividend payment date, then holders of NW Preferred Stock will have no
right to receive a dividend in respect of the dividend period ending on
such dividend payment date, and Finance will have no obligation to pay
dividends accrued for such period, whether or not dividends on the NW
Preferred Stock are declared payable on any future dividend payment date;
and provided further, however, that no dividend shall be paid on any series
of NW Preferred Stock during the existence of a default in the payment of
principal of or interest on any outstanding indebtedness for money borrowed
of Finance;
(b) Redemption. Shares of NW Preferred Stock shall be redeemable no
less than 30 and no more than 45 days following the end of a calendar
quarter, in an aggregate amount in respect of such calendar quarter not
exceeding the excess of Net Worth as of the end of such calendar quarter
over $500,000,000, upon five Business Days' prior written notice to Finance
from the holder thereof, at a redemption price equal to the price paid to
the issuer for such shares upon the issuance thereof plus accumulated
unpaid dividends; provided, however, that Finance shall be obligated to
effect any such redemption only to the extent that its
2
<PAGE>
doing so will not (i) result in a breach of or default under any agreement
for or instrument evidencing indebtedness of Finance or guaranteed by
Finance and (ii) conflict with the terms of the provisos to paragraph (a)
of the definition of NW Preferred Stock;
(c) No Sinking Fund. No shares of any series of NW Preferred Stock
shall be subject or entitled to the benefit of a sinking fund; and
(d) Liquidation Rights. Upon the liquidation, dissolution or winding
up of Finance, the holders of the shares of each series of NW Preferred
Stock shall be entitled to receive, out of the assets of the Company
available therefor, an amount equal to the price paid for each such share
upon the issuance thereof plus an amount equal to accrued dividends thereon
to and including the date of payment.
"Preferred Stock" shall mean either the Series A Preferred Stock or
the Series C Preferred Stock, or both, as the context shall require.
"Rating Agencies" shall mean Moody's and S&P and their respective
successors, if any, selected in accordance with the definitions of Moody's
and S&P, respectively. In the event either Moody's or S&P shall discontinue
rating either the Series A Preferred Stock or the Series C Preferred Stock
or both while the other is continuing to provide such ratings, "Rating
Agencies" shall thereafter mean the Rating Agency which is continuing to
provide such ratings.
"S&P" shall mean Standard & Poor's Ratings Services, A Division of The
McGraw-Hill Companies, Inc. Any reference in this Agreement to any
specific rating by S&P is a reference to such rating as currently defined
by S&P and shall be deemed to refer to the equivalent rating if such rating
system changes. If S&P shall at any time discontinue rating either the
Series A Preferred Stock or the Series C Preferred Stock and Moody's is not
then rating such Preferred Stock, then Goldman, Sachs & Co. for as long as
the Series A Preferred Stock shall remain outstanding and thereafter Lehman
Brothers Inc., or its applicable successor, shall, within 30 days, select a
nationally recognized substitute rating agency and identify the comparable
ratings from such agency. During such 30 day period, S&P's rating shall be
considered to be the last rating S&P provided before it discontinued rating
the applicable Preferred Stock.
"Series A Preferred Stock" shall mean the "Cumulative Perpetual Senior
Preferred Stock, Series A" issued by Finance.
"Series C Preferred Stock" shall mean the "Fixed Rate Noncumulative
Perpetual Senior Preferred Stock, Series C" issued by Finance.
"Series A Minimum Rating" shall mean with respect to: a) Moody's, a
rating of "a3" and, with respect to Moody's successor rating agency, if
any, the comparable rating of such successor, all as determined in
accordance with the definition of Moody's herein; and b) S&P, a rating of
"A-" and, with respect to S&P's successor rating agency, if any, the
comparable rating of such successor, all as determined in accordance with
the definition of S&P herein.
"Series C Minimum Rating" shall mean with respect to: a) Moody's, a
rating of "baa1" and, with respect to Moody's successor rating agency, if
any, the comparable rating of such successor, all as determined in
accordance with the definition of Moody's herein; and b) S&P, a rating of
"BBB" and, with respect to S&P's successor rating agency, if any, the
comparable rating of such successor, all as determined in accordance with
the definition of S&P herein.
"Termination Date" shall mean the earlier of (a) December 31, 2007 and
(b) the Unsupported Rating Date, but in no event earlier than December 31,
2002.
"Unsupported Rating Date" shall mean such date on which Finance shall
have first obtained from each of the Rating Agencies a written
certification that upon termination of this Agreement the ratings on the
senior unsecured indebtedness of Finance without the support provided by
this Agreement shall be no lower than the ratings of Finance with the
support provided by this Agreement.
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SECTION 2. Net Worth Maintenance. If at the close of any month, there is a
Net Worth Deficiency for such month, Finance shall forthwith send to Fuji a Net
Worth Certification with respect thereto (accompanied by financial statements
for such period) requesting Fuji to purchase, or to cause a subsidiary of Fuji
to purchase, shares of NW Preferred Stock from Finance having an aggregate
liquidation preference equal to such Net Worth Deficiency, and Fuji shall,
within five Business Days after receipt by Fuji of such written request from
Finance, purchase, or cause a subsidiary of Fuji to purchase, shares of NW
Preferred Stock from Finance in such amount, against delivery of such shares to
Fuji or the Branch or such subsidiary, as Fuji shall elect by three Business
Days' prior written notice to Finance.
SECTION 3. Liquidity Maintenance. If on or before the effectiveness of
termination of this Agreement, Finance reasonably and in good faith determines
that it will have insufficient cash or other liquid assets to meet its payment
obligations on Commercial Paper maturing on the date in respect of which such
determination is made (each such date being a "Shortfall Date" and the amount of
such insufficiency occurring on such Shortfall Date being the "Liquidity
Shortfall" in respect of such Shortfall Date), and it shall have available no
unused commitments under its lines of credit, credit agreements and other credit
facilities with lenders other than Fuji, then Finance shall forthwith send to
the Branch an Illiquidity Certification requesting Fuji, through the Branch, to
make an advance to Finance in an amount not exceeding such Liquidity
Shortfall (such advance being a "Liquidity Advance"), and, upon receipt by the
Branch no later than 11:00 A.M. (New York City time) on such Shortfall Date of
such Illiquidity Certification and an executed promissory note (which may be
signed manually by facsimile) in the form of Exhibit C hereto (a "Liquidity
Advance Note") in respect of such Liquidity Advance, the Branch shall make a
Liquidity Advance in such amount on such Shortfall Date. Each Liquidity Advance
shall be repayable on demand made at any time after the Business Day following
the 29th day after the day on which such Liquidity Advance is made, shall bear
interest on the unpaid principal amount thereof from the date of such Advance
until the principal amount thereof shall be paid in full, payable in arrears on
the maturity thereof (and, in the case of any overdue principal, on demand), at
a rate of interest equal to a fluctuating interest rate per annum equal at all
times to 1/4 of 1% per annum above, but on any overdue principal amount 1 1/4 %
per annum above, the rate of interest announced publicly by Morgan Guaranty
Trust Company of New York in New York, New York from time to time as its prime
commercial lending rate, and shall be prepayable by Finance, as a whole or in
part, without premium, upon five Business days' prior written notice to Fuji;
provided, however, that no repayment of a Liquidity Advance shall be made during
the continuance of a default in the payment of any indebtedness of Finance for
borrowed money which indebtedness is not by its terms subordinated to other
indebtedness of Finance; and provided, further, that in no event shall Fuji's
obligation pursuant to this Section 3 to make Liquidity Advances exceed in the
aggregate for all Liquidity Advances at any time outstanding $500,000,000 (the
"Liquidity Commitment").
SECTION 4. Limitation on Sale or Issuance of Common Stock of Finance. Fuji
will not, prior to giving notice of termination of this Agreement pursuant to
Section 8(c) or consenting to termination of this Agreement pursuant to Section
8(d), sell, pledge or otherwise dispose of, or permit any subsidiary to sell,
pledge or otherwise dispose of, or permit Finance to issue, any shares of common
stock of Finance, except that (i) Finance may issue shares of its common stock
to Fuji or to any corporation all of whose outstanding common stock is owned
directly or indirectly by Fuji, (ii) Fuji or any corporation all of whose
outstanding common stock is owned directly or indirectly by Fuji may transfer
shares of common stock of Finance to any corporation all of whose outstanding
common stock is owned directly or indirectly by Fuji or to Fuji and (iii)
Finance may issue, and Fuji or any corporation all of whose outstanding common
stock is owned directly or indirectly by Fuji, may sell, pledge or otherwise
dispose of, shares of the common stock of Finance to any one or more persons,
corporations or other entities provided that, after giving effect thereto, Fuji
(directly or indirectly through one or more subsidiaries) continues to hold
greater than 50% of the combined voting power of all of the issued and
outstanding common stock of Finance.
SECTION 5. Representations and Warranties of Finance. Finance represents
and warrants as follows:
(a) The execution, delivery and performance by Finance of this
Agreement and the performance of the transactions contemplated thereby are
within Finance's corporate powers, have been duly authorized by all
necessary corporate action, and do not contravene (i) Finance's charter or
by-laws or (ii) any law or contractual restriction binding on or affecting
Finance.
(b) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required
for the due execution, delivery and performance by Finance of this
Agreement or for the performance by Finance of the transactions
contemplated hereby.
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(c) This Agreement is, and each Liquidity Advance Note when issued
hereunder will be, legal, valid and binding obligations of Finance
enforceable against Finance in accordance with their respective terms,
except as may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally.
(d) A sufficient number of shares of NW Preferred Stock have been duly
authorized for issuance and sale pursuant to this Agreement and, when
issued and delivered pursuant to the provisions of this Agreement against
payment of the consideration therefor described herein, each such share
will be validly issued, fully paid and non-assessable; and each such share
will conform to the description thereof contained herein, and such
description will conform to such share. Upon its issuance, no share of NW
Preferred Stock will be subject to the preemptive rights of any stockholder
of Finance.
(e) The offering, sale and delivery of the NW Preferred Stock to Fuji
or a subsidiary of Fuji under the circumstances contemplated hereby do not
require registration of the NW Preferred Stock under the Securities Act of
1933, as amended (the "1933 Act"), and do not require qualification of
this Agreement or any indenture under the Trust Indenture Act of 1939, as
amended.
(f) All Commercial Paper will be exempt from registration under the
1933 Act by virtue of Section 3(a)(3) thereof.
(g) Finance is not engaged in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve
System), and no proceeds of any sale of NW Preferred Stock or any Liquidity
Advance will be used to purchase or carry any margin stock or to extend
credit to others for the purpose of purchasing or carrying any margin
stock.
SECTION 6. Covenants of Finance. Finance covenants and agrees that, until
the latest of the effective date of termination of this Agreement as herein
provided, the redemption in full of all NW Preferred Stock and the repayment in
full of all Liquidity Advances made by Fuji:
(a) Finance will not issue or permit to be issued any Commercial Paper
having maturity later than the Business Day immediately following the 269th
day after its date of issue;
(b) Finance will issue Commercial Paper only on such terms as will
enable such Commercial Paper to be exempt from registration under the 1933
Act by virtue of Section 3(a)(3) thereof;
(c) Finance will use its best efforts to meet maturities of
outstanding Commercial Paper when due from sources (including the proceeds
of commercial paper issued by Finance after notice of termination of this
Agreement shall have been given pursuant to Section 8(c) or 8(d)) other
than the proceeds of Liquidity Advances, and will use the proceeds of each
Liquidity Advance solely for the payment at maturity of the Commercial
Paper in respect of which such Liquidity Advance was requested;
(d) Finance will, not less often than at the close of each month,
determine whether there is a Net Worth Deficiency for the period as to
which such determination is made;
(e) Finance will maintain (and Fuji hereby undertakes to assure that
Finance will maintain) in full force and effect and available to it unused
short-term lines of credit, asset sales facilities and committed credit
facilities in its favor in an amount at all times approximately equal to
75% of the amount of its commercial paper (including Commercial Paper) from
time to time outstanding; and
(f) Immediately upon receipt of notice of (i) termination of this
Agreement given by Fuji pursuant to Section 8(c) or (ii) consent by Fuji to
termination of this Agreement by Finance pursuant to Section 8(d), Finance
shall furnish notice of such termination to all Commercial Paper dealers
and to each statistical rating agency that has issued a rating in respect
of Finance or any of its commercial paper or other debt obligations.
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SECTION 7. No Guarantee; Limitation on Applicability; No Commercial Paper
Holder To Have Rights. This Agreement is not, and nothing herein contained and
nothing done pursuant hereto by Fuji shall be deemed to constitute a guarantee,
directly or indirectly, by Fuji of the payment of any Commercial Paper or other
commercial paper, indebtedness, liability or obligation of any kind or character
of Finance or any subsidiary of Finance, nor shall this Agreement or anything
contained herein have any effect, directly or indirectly, upon or in respect of
any commercial paper or upon or in respect of any Commercial Paper not issued
and outstanding on the day notice of termination of this Agreement is given
pursuant to Section 8(c) or on the day Fuji shall consent to termination of this
Agreement pursuant to Section 8(d), as the case may be. Fuji shall not, by
virtue of this Agreement, the transactions contemplated hereby or otherwise,
have any obligation or liability of any kind or character to or in respect of
any holder of any commercial paper or other indebtedness, liability or
obligation of any kind or character of Finance or any subsidiary of Finance.
SECTION 8. Modification, Amendment and Termination. (a) This Agreement may
be modified or amended only by the written agreement of Fuji and Finance;
provided, however, that (i) no such modification or amendment shall have any
adverse effect upon any Commercial Paper outstanding at the time of such
modification or amendment for so long as such Commercial Paper is outstanding;
(ii) the provisions of Section 8(b), 8(c) and 8(d) shall not be modified or
amended for any reason except and unless to extend the dates set forth therein;
and (iii) prior to the Termination Date, the dollar amount of $500,000,000 set
forth in each of Section 1 (in each of the definitions of "Net Worth Deficiency"
and "NW Preferred Stock" - (b) Redemption) and Section 3 shall not be decreased
for any reason.
(b) This Agreement may not be terminated for any reason by either party
hereto, and shall continue in full force and effect, until the Termination Date.
After the Termination Date, this Agreement may be terminated by Fuji, in
accordance with the provisions of Section 8(c) hereof, or by Finance, in
accordance with the provisions of Section 8(d) hereof.
(c) At any time after the Termination Date, this Agreement may be
terminated by Fuji upon 30 Business Days' prior written notice to Finance (with
a copy of such notice to each statistical rating agency referred to in Section
6(f) and, if Fuji shall so elect, to each Commercial Paper dealer). However,
such termination shall not in any way relieve Finance of its obligations under
the NW Preferred Stock outstanding on the date of such termination or under the
Liquidity Advance Notes outstanding on the date of such termination, or in
respect of Fuji's fee set forth in Section 9. Also, such termination shall not
be effective as to the obligations of Fuji contained in Sections 2 and 3 until
the scheduled maturity of all Commercial Paper issued in accordance with the
terms hereof and outstanding on the 30th Business Day after notice of such
termination is given.
(d) At any time after the Termination Date, this Agreement may be
terminated by Finance upon (i) thirty Business Days' prior written notice to
Fuji and (ii) receipt by Finance of written consent from Fuji to such
termination (with notice of such termination to be given by Finance, after
receipt of Fuji's consent to such termination, to each Commercial Paper dealer
and statistical rating agency referred to in Section 6(f)). However, such
termination by Finance shall not in any way relieve Finance of its obligations
under the NW Preferred Stock outstanding on the date of such termination or
under the Liquidity Advance Notes outstanding on the date of such termination,
or in respect of Fuji's fee set forth in Section 9. Also, such termination shall
not be effective as to the obligations of Fuji contained in Sections 2 and 3
until the scheduled maturity of all Commercial Paper issued in accordance with
the terms hereof and outstanding on the 30th Business Day after notice of such
termination is given.
(e)(1) Anything contained elsewhere herein to the contrary notwithstanding,
it is expressly understood and agreed that this Agreement may not be terminated
for any reason by either party hereto, and shall continue in full force and
effect, at any time while all or any portion of the Series A Preferred Stock is
outstanding and held by third parties other than Fuji (or any direct or indirect
wholly-owned subsidiary of Fuji) unless Finance shall have first obtained from
each of the Rating Agencies a written certification that upon termination of
this Agreement the Series A Preferred Stock will be rated no lower than the
Series A Minimum Rating.
(2) Anything contained elsewhere herein to the contrary notwithstanding, it
is expressly understood and agreed that this Agreement may not be terminated for
any reason by either party hereto, and shall continue in full force and effect,
at any time while all or any portion of the Series C Preferred Stock is
outstanding and held by third parties other than Fuji (or any direct or indirect
wholly-owned subsidiary of Fuji) unless Finance shall have first obtained from
each of the Rating Agencies a written certification that upon termination of
this Agreement the Series C Preferred Stock will be rated no lower than the
Series C Minimum Rating.
6
<PAGE>
(3) For purposes of the each of the foregoing clauses (1) and (2), the
Series A Preferred Stock or the Series C Preferred Stock shall cease to be
considered outstanding at such time as an effective notice of redemption of all
of such Preferred Stock shall have been given by Finance and funds sufficient to
effectuate such redemption shall have been deposited with the party designated
for such purpose in the notice.
(f) For the purposes hereof, no portion of any Commercial Paper shall be
considered to be "outstanding" if moneys or securities in an amount sufficient
for the payment of principal thereof and interest and premium, if any, thereon
shall have been deposited with the proper party or parties for the satisfaction
and discharge of such portion of such Commercial Paper, all in accordance with
the governing instrument defining the rights of the holders thereof or shall
have been deposited in trust with a commercial bank in The City of New York.
SECTION 9. Fuji's Fee. Finance shall pay to Fuji a fee, payable in same day
funds, on the average daily unused portion of the Liquidity Commitment from the
date hereof until the date of the payment in full of all Commercial Paper
outstanding on the day on which Fuji shall give notice to Finance of the
termination of this Agreement pursuant to Section 8(c) or on the day Fuji shall
consent to the termination of this Agreement pursuant to Section 8(d), as the
case may be, at the rate of 1/16 of 1% per annum, payable on July 1, 1983 and on
the first Business Day of each calendar quarter thereafter until the date of
such payment in full of all such Commercial Paper, and on the date of such
payment in full of all such Commercial Paper.
SECTION 10. Representation by Fuji. Fuji represents that it is acquiring
the shares of NW Preferred Stock as contemplated hereby for its own account in
the ordinary course of its business and not with a view to the public
distribution or sale thereof nor with any present intention of selling or
distributing such shares, but subject, nevertheless, to any legal or
administrative requirement that the disposition of its property shall at all
times be within its control.
SECTION 11. Notices. All notices, requests and other communications
required or permitted hereunder shall, unless otherwise stated herein, be given
by hand delivery or by telecopy, addressed as follows:
To Fuji:
The Fuji Bank, Limited
New York Branch
Two World Trade Center
79th Floor
New York, New York 10048
Attention: Vice President and Manager,
U.S. Corporate Finance and Credit
Group II
Telecopy: 212.898.2770
To Finance:
Heller Financial, Inc.
500 West Monroe
Chicago, Illinois 60661
Attention: Treasurer
Telecopy: 312.441.7568
or at such other address as either party shall specify to the other party in
writing.
SECTION 12. Accounting Terms; Interest Computation. All accounting terms
not specifically defined herein shall be construed in accordance with generally
accepted accounting principles consistently applied, except as otherwise stated
herein.
All computations of interest under or in connection with this Agreement
shall be made on the basis of a year of 360 days for the actual number of days
elapsed. Whenever any payment to be made hereunder or in connection
7
<PAGE>
herewith shall be due on a day other than a Business Day, such payment may be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest.
SECTION 13. No Waiver; Remedies. No failure on the part of Fuji to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 14. Original Keep Well Agreement Superseded. This Agreement amends
and supersedes the Prior Restated Keep Well Agreement as that document has been
amended from time to time.
SECTION 15. Submission to Jurisdiction. Fuji hereby irrevocably submits to
the jurisdiction of any New York State or Federal court sitting in the County of
New York, State of New York, over any action or proceeding arising out of this
Agreement. Fuji hereby irrevocably appoints the Branch as its agent to receive
on behalf of Fuji service of copies of the summons and complaint and any other
process that may be served in any such action or proceeding.
SECTION 16. Binding Effect; Successors. This Agreement shall be binding
upon, and inure to the benefit of, Fuji and Finance and their respective
successors and assigns, except that Finance shall not have the right to assign
its rights hereunder or any interest herein without the prior written consent of
Fuji. Fuji may assign to any financial institution all or any part of, or any
interest in, its rights and benefits hereunder and under any of the Liquidity
Advance Notes and, subject to the provisions of Section 10, the shares of NW
Preferred Stock owned by Fuji.
SECTION 17. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York. In Witness
Whereof, the parties hereto have caused this Agreement to be executed and
delivered by their respective officers thereunto duly authorized as of the date
first above written.
THE FUJI BANK, LIMITED
By:
--------------------
Name: Atsushi Takano
Its: Managing Director
THE FUJI BANK, LIMITED, NEW YORK
BRANCH, as Obligor under Section 3 of the
Amended and Restated Keep Well Agreement
By:
-------------------
Name: Tsutomu Hayano
Its: Director and General Manager
HELLER FINANCIAL, INC.
By:
-------------------
Name: Richard J. Almeida
Title: Chairman of the Board
and Chief Executive Officer
8
<PAGE>
EXHIBIT A TO AMENDED AND RESTATED KEEP WELL AGREEMENT
Form of Illiquidity Certificate
I, _______________________, [Chief Financial Officer] [Chief Accounting
Officer] of Heller Financial, Inc., a Delaware corporation ("Finance"), DO
HEREBY CERTIFY to The Fuji Bank, Limited ("Fuji"), in connection with Section 3
of the Amended and Restated Keep Well Agreement dated as of April 15, 1998
between Finance and Fuji (the "Keep Well Agreement", the terms defined therein
being used herein as therein defined), THAT:
1. This Illiquidity Certificate constitutes the irrevocable request of
Finance that Fuji make a Liquidity Advance to Finance in the amount of
$__________(the "Requested Advance") on the fifth Business Day after the receipt
by Fuji of this Certificate. The Requested Advance shall be evidenced by the
Liquidity Advance Note accompanying this Certificate (the "Note") and shall have
such terms and conditions as are set forth in the Keep Well Agreement and the
Note. The Note has been duly authorized, executed and delivered by Finance and
is in the form of Liquidity Advance Note set forth in the Keep Well Agreement.
2. Finance has reasonably and in good faith determined that it will have a
Liquidity Shortfall in the amount of the Requested Advance on the fifth Business
Day after the date hereof and that it has available no unused commitments under
its line of credit, credit agreements and other credit facilities with lenders
other than Fuji.
3. Fuji is to make the Requested Advance available to Finance on the fifth
Business Day after the receipt by Fuji of this Certificate by crediting
Finance's account no. _____________ maintained at _______________________ in New
York, New York in the amount of the Requested Advance.
In Witness Whereof, I have signed this Certificate this _____ day
of__________________, 19___
Heller Financial, Inc.
By:
-------------------------------------
Title:
----------------------------------
9
<PAGE>
EXHIBIT B TO RESTATED KEEP WELL AGREEMENT
Form of Net Worth Certificate
I, _______________________, the [Chief Financial Officer] [Chief Accounting
Officer] of Heller Financial, Inc., a Delaware corporation ("Finance"), DO
HEREBY CERTIFY to The Fuji Bank, Limited ("Fuji"), in connection with Section 2
of the Amended and Restated Keep Well Agreement dated as of April 15, 1998
between Finance and Fuji (the "Keep Well Agreement", the terms defined therein
being used herein as therein defined), THAT:
1. Accompanying this Certificate are financial statements of Finance for
the calendar quarter ended immediately prior to the date hereof. The
Net Worth for such calendar quarter is equal to $_____________, and the
calculations upon which it has been determined are the following:
_____________. Such Net Worth has been determined in a manner
consistent with the definition of "Net Worth" contained in the Keep
Well Agreement.
2. There is a Net Worth Deficiency for such calendar quarter (the "Net
Worth Deficiency" equal to $___________, which is the excess of
$500,000,000 over the Net Worth set forth in Paragraph 1.
3. This Net Worth Certificate constitutes (i) notice to Fuji that Finance
shall issue shares of its NW Preferred Stock in the amount of the Net
Worth Deficiency (the "Issued Amount") on the fifth Business Day after
the date hereof (the "Issuance Date") and (ii) the irrevocable request
of Finance that Fuji purchase shares of NW Preferred Stock in the
aggregate amount equal to the Issuance Amount on the fifth Business Day
after receipt by Fuji of this Certificate. Shares of NW Preferred Stock
issued on the Issuance Date shall be evidenced by one or more
certificates of NW Preferred Stock issued to Fuji or the Branch, as
Fuji shall request not later than two Business Days after receipt by
Fuji of this Certification, and shall have such terms and conditions as
are set forth in the Keep Well Agreement. Each such share, when issued,
will have been duly authorized, issued and delivered by Finance and
will be in the form of NW Preferred Stock specified in the Keep Well
Agreement.
In Witness Whereof, I have signed this certificate this _____ day of
___________________, 19____.
Heller Financial, Inc.
By:
---------------------------------
Title:
------------------------------
10
<PAGE>
EXHIBIT C TO RESTATED KEEP WELL AGREEMENT
Form of Liquidity Advance Note
LIQUIDITY ADVANCE PROMISSORY NOTE
U.S. $[amount of Liquidity Dated: _________________________, 19____
Advance in figures]
FOR VALUE RECEIVED, the undersigned, HELLER FINANCIAL, INC., a corporation
organized and existing under the laws of Delaware (the "Borrower"), HEREBY
PROMISES TO PAY to the order of THE FUJI BANK, LIMITED (the "Bank"), a Japanese
banking corporation, the principal sum of [amount of the Liquidity Advance in
words] United States Dollars (U.S. $ [amount of the Liquidity Advance in
figures]) on _______________, 19___ [insert the date of the Business day next
succeeding the day that is twenty-nine days after the date of Note], together
with interest on the principal amount remaining unpaid hereunder from the date
hereof until said principal amount is paid in full, payable on the day said
principal amount becomes due and, with respect to interest on any overdue
principal amount, payable on demand, at a fluctuating interest rate per annum
equal at all times to 1/4 of 1% per annum above, but on any overdue principal
amount 1 1/4% per annum above, the rate of interest announced publicly by Morgan
Guaranty Trust Company of New York in New York, New York from time to time as
its prime commercial lending rate (the "Prime Rate"). Each change in the
fluctuating interest rate hereunder shall take effect simultaneously with the
corresponding change in the Prime Rate.
The Borrower may, upon at least five Business Days' notice to the Bank,
prepay this Liquidity Advance Note, without premium, in whole or in part, with
accrued interest to the date of such prepayment on the amount prepaid, provided
that each partial prepayment shall be in a principal amount not less than U.S.
$10,000,000 or a multiple thereof.
The Borrower shall make each payment of principal and interest hereunder
not later than 12:00 noon (New York City time) on the day when due in lawful
money of the United States to the Bank at the office of The Fuji Bank, Limited,
New York Branch, Two World Trade Center, 79th Floor, New York, New York 10048,
by wire transfer of Federal funds to the account of the Bank at Morgan Guaranty
Trust Company of New York, account no. 631-19-808.
All computations of interest shall be made by the Bank on the basis of a
year of 360 days for the actual number of days (including the first day but
excluding the last day occurring in the period for which such interest is
payable) elapsed.
This Liquidity Advance Promissory Note is one of the Liquidity Advance
Notes referred to in, and is entitled to the benefits of, the Amended and
Restated Keep Well Agreement dated as of April 15, 1998 between the Borrower and
the Bank, and shall be governed by, and construed in accordance with, the law of
the State of New York.
Heller Financial, Inc.
By:
-----------------------------------
Title:
--------------------------------
11
<PAGE>
EXHIBIT 10.19
SIXTH AMENDMENT
OF
HELLER INTERNATIONAL CORPORATION
EXECUTIVE DEFERRED COMPENSATION PLAN
------------------------------------
WHEREAS, Heller International Corporation ("HIC") has established the
Heller International Corporation Executive Deferred Compensation Plan effective
as of January 1, 1994 (the "Plan") for a select group of its management and
highly compensated employees; and
WHEREAS, Heller Financial, Inc. ("HFI"), Heller Financial Leasing,
Inc. ("HFLI"), Heller International Group, Inc. ("HIG") and Heller International
Holdings, Inc. ("HIHI") have adopted the Plan for certain of their respective
management and highly compensated employees in accordance with Section 7 of the
Plan; and
WHEREAS, the Plan has previously been amended and HIC has determined that
further amendment thereof is necessary and desirable;
NOW, THEREFORE, in exercise of the power reserved to the Compensation
Committee of the Board of Directors of HIC by Section 8 of the Plan, the Plan is
amended, effective January 1, 1997, in the following particulars:
1. By substituting the following for Section 2.3(a) of the Plan:
"(a) All or any portion of his incentive payments (`Incentive
Payments') under the Long-term Incentive Plan of Heller
International Corporation with respect to performance in the
calendar year in which the Deferral Election is made in
increments of 1%."
Executed as of the 30th day of April, 1997.
HELLER INTERNATIONAL CORPORATION
By /s/ Kristin M. Zivilik
---------------------------------
Its AVP, Human Resources, Benefits
--------------------------------
<PAGE>
EXHIBIT 10.20
SEVENTH AMENDMENT
OF
HELLER INTERNATIONAL CORPORATION
EXECUTIVE DEFERRED COMPENSATION PLAN
------------------------------------
WHEREAS, Heller International Corporation ("HIC") has established the
Heller International Corporation Executive Deferred Compensation Plan effective
as of January 1, 1994 (the "Plan") for a select group of its management and
highly compensated employees; and
WHEREAS, HIC transferred sponsorship of the Plan to Heller Financial, Inc.
(the "Company"), effective as of January 1, 1998; and
WHEREAS, the Plan has previously been amended and HIC has determined that
further amendment thereof is necessary and desirable;
NOW, THEREFORE, in exercise of the power reserved to the Company by Section
8 of the Plan and delegated to the undersigned officer by resolutions of the
Board of Directors of the Company, the Plan as previously amended, is further
amended, effective as of January 1, 1998, in the following particulars:
1. By changing the name of the Plan from "Heller International Corporation
Executive Deferred Compensation Plan" to Heller Financial, Inc. Executive
Deferred Compensation Plan."
2. By substituting the following two sentences for the first sentence of
subsection 1.1 of the Plan:
"The Heller International Corporation Executive Deferred Compensation Plan
(the `Original Plan') was established by Heller International Corporation
effective as of January 1, 1994 (the `Effective Date'). The Original Plan
was renamed the Heller Financial, Inc. Executive Deferred Compensation Plan
(the `Plan') effective as of January 1, 1998."
3. By substituting the following two sentences for the first sentence of
subsection 1.2 of the Plan:
"Heller International Corporation established the Original Plan effective
January 1, 1994 for a select group of management and highly compensated
employees of Heller International Corporation or any subsidiary or
affiliate that adopted the Original Plan in accordance with Section 7 to
retain and attract highly qualified personnel by offering the benefits of a
non-qualified, unfunded plan of deferred compensation. Heller
International Corporation transferred sponsorship of the Original Plan to
Heller Financial, Inc. (the `Company'), effective as of January 1, 1998."
<PAGE>
4. By substituting the year "2004" for the year "1999" where the latter
appears in subsection 2.2(I) of the Plan.
5. By substituting the words "one-hundred thousand dollars ($100,000)" for
the words "ten thousand dollars ($10,000) where the latter appear in subsection
5.8 of the Plan.
* * *
IN WITNESS WHEREOF, on behalf of the Company, the undersigned officer has
executed this amendment this 2/nd/ day of March, 1998.
HELLER FINANCIAL, INC.
By /s/ C.J. Deviney
--------------------------------
Its Vice President
-------------------------------
2
<PAGE>
EXHIBIT 10.21
EIGHTH AMENDMENT
OF
HELLER FINANCIAL, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
------------------------------------
WHEREAS, Heller Financial, Inc. (the "Company") maintains the Heller
Financial, Inc. Executive Deferred Compensation Plan (the "Plan") for a select
group of its management and highly compensated employees; and
WHEREAS, the Plan has previously been amended and the Company has
determined that further amendment thereof is necessary and desirable;
NOW, THEREFORE, in exercise of the power reserved to the Company by Section
8 of the Plan and delegated to the undersigned officer by resolution of the
Board of Directors of the Company, the Plan, as previously amended, is further
amended in the following particulars:
1. By adding the following new sentence immediately after the first
sentence of Section 1.2 of the Plan, effective as of January 1, 1998:
"This plan allows Eligible Employees to make deferrals and receive benefits
regardless of the benefit and contribution limits applicable to qualified
retirement plans under the Internal Revenue Code of 1986, as amended."
2. By adding the following new paragraph at the end of Section 4.2 of the
Plan, effective as of April 1, 1998:
"Notwithstanding the foregoing provisions of this Section 4.2, the date on
which shares of the Company's Class A Common Stock, par value $0.25
("Common Stock") are first offered to the public in connection with the
initial public offering undertaken in April of 1998 (the "Public Offering
Date") will be the Valuation Date for April, 1998. The Public Offering
Date will also be a special investment election change date, but only for
purposes of electing into an investment fund consisting of Company Stock.
Provided a Participant files the prescribed form with the Committee no
later than the date prescribed by the Committee, his or her election to
invest a portion of his or her future deferrals or already existing
Deferral Account in an investment fund consisting of Company Stock will be
effective on the Public Offering Date."
* * *
<PAGE>
IN WITNESS WHEREOF, on behalf of the Company, the undersigned officer has
executed this amendment the ___ day of April, 1998
HELLER FINANCIAL, INC.
By: /s/ SIGNATURE
-------------------------------------
Its:
------------------------------------
2
<PAGE>
EXHIBIT 10.29
FIFTH AMENDMENT
OF
HELLER FINANCIAL, INC.
SAVINGS AND PROFIT SHARING PLAN
-------------------------------
WHEREAS, Heller Financial, Inc. (the "Company") maintains the Heller
Financial, Inc. Savings and Profit Sharing Plan, as amended and restated
effective as of January 1, 1989 (the "Plan") for the benefit of its eligible
employees and the eligible employees of its affiliates that adopt the Plan with
the Company's consent; and
WHEREAS, the Plan has previously been amended and further amendment
thereof now is considered desirable;
NOW, THEREFORE, in exercise of the power reserved to the Company by
Section 11.2 of the Plan and delegated to the undersigned officer by resolution
of the Board of Directors of the Company, the Plan, as previously amended, is
further amended in the following particulars, effective as of April 30, 1998:
1. By adding the following new sentence to the end of Section 7.7(a):
"The Plan will permit investment in stock of the Company, and the Committee
will be permitted to establish as one of the Investment Funds a fund which
consists of Class A Common Stock, par value $0.25, of the Company (the
"Heller Stock Fund"). The Committee will be permitted to establish, and
then to amend or eliminate, rules limiting the frequency with which
Participants may elect into or out of the Heller Stock Fund, or limiting
the dollar figure or proportion of his or her aggregate or individual
Accounts which may be invested by a Participant in the Heller Stock Fund."
2. By substituting the following for Section 8.11 of the Plan:
<PAGE>
"8.11 Form of Payment. Payments under the Plan will be made in cash
or, at the direction of the Participant or Beneficiary entitled to payment,
in shares of Class A Common Stock, par value $0.25, of the Company
("Company Stock"), if and to the extent the Accounts to be distributed are
invested in Company Stock."
IN WITNESS WHEREOF, the undersigned officer of Heller Financial, Inc.
has caused the foregoing amendment to be executed this 30th day of April, 1998.
HELLER FINANCIAL, INC.
By /s/ SIGNATURE
-----------------------------------------
Its
-------------------------------------
ATTEST
By /s/ SIGNATURE
----------------------------------
Its
-------------------------------
2
<PAGE>
EXHIBIT 10.30
AMENDMENT OF LETTER AGREEMENT
-----------------------------
This Amendment of Letter Agreement is entered into between Heller
Financial, Inc., a Delaware corporation (the "Company"), and Richard J. Almeida
(the "Executive");
WITNESSETH THAT:
---------------
Whereas, the Company and Executive entered into a Letter Agreement
detailing the terms and conditions of Executive's employment as Chief Executive
Officer and Chairman of the Board of the Company, effective as of December 31,
1997 (the "Letter Agreement"); and
Whereas, a portion of the Company's stock is being sold to the public as
part of an initial public offering, and the Company and Executive desire to
amend the Letter Agreement to provide additional protection to Executive in
connection with any future change in control of the Company;
Now, Therefore, it is hereby agreed by and between the parties, for good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, that the Letter Agreement be and it hereby is amended, effective
as of May 6, 1998, by adding the following new Paragraphs 11 and 12 to the
Letter Agreement, immediately after Paragraph 10 thereof:
"11. Payments and Benefits Upon Employment Termination After a Change in
Control. If, during the Term of this Agreement and within the period
ending on the earlier of two (2) years after a Change in Control (all
capitalized terms as defined below) or May 6, 2001, or during the
Period Pending a Change in Control, (i) your employment with the
Company and its Affiliates is terminated without cause (as defined in
Subparagraph 7(c)), or (ii) you voluntarily terminate your employment
with Good Reason, the Company will, within 30 days (except as
otherwise expressly provided) of your Employment Termination, make
the payments and provide the benefits described below.
(a) The Company will continue your annual Base Salary (as defined
below) for twenty-four (24) months following Employment
Termination at the same time and in the same manner as the
Company paid salary during employment (including the right to
defer such amounts under the Company's non-qualified deferred
compensation plan) or, at your election, make a lump sum cash
payment to you equal to the present value of two times your Base
Salary; and
(b) For the year in which Employment Termination occurs, the Company
will pay an Annual Incentive Plan bonus calculated as of the end
of the Annual Incentive Plan year, based on performance for the
entire year, at the applicable Target bonus level for that year.
The Company will pay such bonus in a lump sum within 45 days of
the end of the year of Employment Termination; and
-1-
<PAGE>
(c) With respect to each Welfare Benefit Plan, for the period
beginning on Employment Termination and ending on the earlier of
(i) two years following Employment Termination, or (ii) the date
you become covered by a welfare benefit plan or program
maintained by an entity other than the Company or an Affiliate
which provides coverage or benefits at least equal, in all
respects, to such Welfare Benefit Plan, you shall continue to
participate in such Welfare Benefit Plan on the same basis and
at the same cost to you as was the case immediately prior to the
Change in Control (or, if more favorable to you, as was the case
prior to your Employment Termination), or, if any benefit or
coverage cannot be provided under a Welfare Benefit Plan because
of applicable law or contractual provisions, you shall be
provided with substantially similar benefits and coverage for
such period; and
(d) The Company will pay you a lump sum amount equal to the present
value of the additional benefit that you would have accrued
under the Company's qualified and non-qualified retirement plans
(as in effect prior to the Change in Control or, if benefits are
increased under the plans after the Change in Control, as in
effect prior to your Employment Termination) had you continued
to receive benefits thereunder through the end of the 24th month
following Employment Termination. All benefits under the
Company's non-qualified retirement plans will be fully vested
(to the extent, if any, not vested upon the Change in Control).
The Company will pay such lump sum to you within 45 days of the
end of the year of Employment Termination; and
(e) The Company will add 24 months to your age and benefit service
for purposes of determining your eligibility for and benefits
under the Company's retiree medical benefit plan; and
(f) You will continue to be eligible for the executive perquisites
outlined in the Company's policies in effect at the time of the
Change in Control (or, if more favorable to you, as in effect
prior to your Employment Termination) through the end of the
24th month following Employment Termination. The Company will
bear the cost of such benefits and perquisites, at the same
level in effect immediately prior to Employment Termination; and
(g) If Employment Termination occurs in 1998, you will be fully
vested in all performance shares granted to you under the
Company's 1996-1998 LTIP, and vested in two-thirds (2/3) of the
performance shares under the 1997-1999 LTIP. If Employment
Termination occurs in 1999, you will be fully vested in all
performance shares granted to you under the Company's 1997-1999
LTIP. The award paid to you under the 1996-1998 and 1997-1999
LTIPs will be determined under the terms of such
-2-
<PAGE>
LTIP for the applicable cycle, using actual performance for each
such cycle, and will be paid to you in a lump sum within 45 days
of the end of the year of your Employment Termination.
In the event that, under the terms of this Letter Agreement, you
could be entitled to both the payments and benefits described in this
Paragraph 12 and the payments and benefits provided in Paragraph 7,
you shall elect the Paragraph under which payments and benefits are
made to you; provided that, in no event shall payments and benefits
be paid to you under both Paragraph 7 and this Paragraph.
Notwithstanding any provision of this Paragraph to the contrary, any
payment or distribution by or on behalf of the Company or any
Affiliate to or for the benefit of you (whether paid or payable or
distributed or distributable pursuant to the terms of this Letter
Agreement or otherwise) as a result of a Change in Control shall not
exceed 2.99 times your average "Annualized Includible Compensation
for the Base Period," as defined in Code Section 280G(d)(1).
13. Other Definitions. For purposes of Paragraph 12 of this Letter
Agreement:
(a) "Affiliate" shall mean any entity that is a member of a
controlled group of corporations or a group of trades or
businesses under common control (each as defined in Code Section
1563), which includes the Company.
(b) "Base Salary" shall mean your salary at the greater of the rate
in effect on the date of (i) the Change in Control, or (ii)
Employment Termination.
(c) A "Change in Control" of the Company will be deemed to occur as
of the first day that The Fuji Bank, Limited and its
subsidiaries shall cease to own, directly or indirectly, at
least fifty percent (50%) of the combined voting power of the
then outstanding voting securities of the Company entitled to
vote generally in the election of the Board (the "Company Voting
Securities") of the Company and any successor to the Company
resulting from a reorganization, merger or consolidation, or
sale or other disposition of all or substantially all of the
assets of the Company.
(d) "Employment Termination" shall mean the effective date of: (i)
your voluntary termination of employment with the Company or any
Affiliate with Good Reason; or (ii) the termination of your
employment by the Company or any Affiliate without cause.
(e) "Good Reason" shall exist if, without your express written
consent, any of the following events occur:
-3-
<PAGE>
(i) The Company or an Affiliate significantly diminishes your
assigned duties and responsibilities from the level or
extent at which they existed before a Change in Control
including, without limitation, if the Company or Affiliate
removes your title(s) or materially diminishes the powers
associated with your title(s). For Good Reason to exist,
you must deliver written notice to the Company or Affiliate
specifying the diminution in assigned duties and
responsibilities that you believe constitutes Good Reason,
and the Company or Affiliate must fail to reverse the same
or to take all reasonable steps to that end within 30 days
after receiving the notice;
(ii) The Company or an Affiliate materially reduces your Base
Salary below the greater of that in effect as of the date
of this Agreement and that in effect as of the Change in
Control;
(iii) The Company or Affiliate requires you to relocate your
principal business office or your principal place of
residence outside the Chicago, Illinois Standard
Metropolitan Statistical Area (the "Geographical Employment
Area"), or assigns to you duties that would reasonably
require such a relocation;
(iv) The Company or an Affiliate requires, or assigns duties to
you which would reasonably require, you to spend more than
one hundred (100) normal working days away from the
Geographical Employment Area during any consecutive twelve-
month period; or
(v) The Company or an Affiliate fails to continue in effect any
cash or stock-based incentive or bonus plan, retirement
plan, welfare benefit plan, or other benefit plan, program
or arrangement that applied to you on the date of the
Change in Control, unless the aggregate value (as computed
by an independent employee benefits consultant selected by
the Company) of all such compensation, retirement and
benefit plans, programs and arrangements provided to you is
not materially less than their aggregate value as of the
date of the amendment of this Letter Agreement, or, if
greater, their aggregate value as of the date of the Change
in Control.
(f) "Period Pending a Change in Control" shall mean the period after
the approval by the Company's stockholders and prior to the
effective time of any transaction described in subparagraph
13(c) above.
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<PAGE>
(g) "Welfare Benefit Plan" shall mean each welfare benefit plan
maintained or contributed to by the Company or any Affiliate,
including, but not limited to a plan that provides health
(including medical, dental or both), life, accident or
disability benefits or insurance, or similar coverage, in which
you were participating at the time of the Change in Control."
In Witness Whereof, the parties hereto have executed this Agreement on the
day and year first written above.
HELLER FINANCIAL, INC.
By:
------------------------------------ ---------------------------------
Its: RICHARD J. ALMEIDA
--------------------------------
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<PAGE>
EXHIBIT 10.31
Amendment of Letter Agreement
-----------------------------
This Amendment of Letter Agreement is entered into between Heller
Financial, Inc., a Delaware corporation (the "Company"), and Frederick E.
Wolfert (the "Executive");
Witnesseth That:
---------------
Whereas, the Company and Executive entered into a Letter Agreement
detailing the terms and conditions of Executive's employment as Chief Executive
Officer and Chairman of the Board of the Company, effective as of December 31,
1997 (the "Letter Agreement"); and
Whereas, a portion of the Company's stock is being sold to the public as
part of an initial public offering, and the Company and Executive desire to
amend the Letter Agreement to provide additional protection to Executive in
connection with any future change in control of the Company;
Now, Therefore, it is hereby agreed by and between the parties, for good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, that the Letter Agreement be and it hereby is amended, effective
as of May 6, 1998, by adding the following new Paragraphs 16 and 17 to the
Letter Agreement, immediately after Paragraph 15 thereof:
"16. Payments and Benefits Upon Employment Termination After a Change in
Control. If, during the Term of this Agreement and within the period
ending on the earlier of two (2) years after a Change in Control (all
capitalized terms as defined below) or May 6, 2001, or during the
Period Pending a Change in Control, (i) your employment with the
Company and its Affiliates is terminated without cause (as defined in
Subparagraph 12(c)), or (ii) you voluntarily terminate your employment
with Good Reason, the Company will, within 30 days (except as
otherwise expressly provided) of your Employment Termination, make the
payments and provide the benefits described below.
(a) The Company will continue your annual Base Salary (as defined
below) for twenty-four (24) months following Employment
Termination at the same time and in the same manner as the
Company paid salary during employment (including the right to
defer such amounts under the Company's non-qualified deferred
compensation plan) or, at your election, make a lump sum cash
payment to you equal to the present value of two times your Base
Salary; and
(b) For the year in which Employment Termination occurs, the Company
will pay an Annual Incentive Plan bonus calculated as of the end
of the Annual Incentive Plan year, based on performance for the
entire year, at the applicable Target bonus level for that year.
The Company will pay such bonus in a lump sum within 45 days of
the end of the year of Employment Termination; and
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<PAGE>
(c) With respect to each Welfare Benefit Plan, for the period
beginning on Employment Termination and ending on the earlier of
(i) two years following Employment Termination, or (ii) the date
you become covered by a welfare benefit plan or program
maintained by an entity other than the Company or an Affiliate
which provides coverage or benefits at least equal, in all
respects, to such Welfare Benefit Plan, you shall continue to
participate in such Welfare Benefit Plan on the same basis and at
the same cost to you as was the case immediately prior to the
Change in Control (or, if more favorable to you, as was the case
prior to your Employment Termination), or, if any benefit or
coverage cannot be provided under a Welfare Benefit Plan because
of applicable law or contractual provisions, you shall be
provided with substantially similar benefits and coverage for
such period; and
(d) The Company will pay you a lump sum amount equal to the present
value of the additional benefit that you would have accrued under
the Company's qualified and non-qualified retirement plans (as in
effect prior to the Change in Control or, if benefits are
increased under the plans after the Change in Control, as in
effect prior to your Employment Termination) had you continued to
receive benefits thereunder through the end of the 24th month
following Employment Termination. All benefits under the
Company's non-qualified retirement plans will be fully vested (to
the extent, if any, not vested upon the Change in Control). The
Company will pay such lump sum to you within 45 days of the end
of the year of Employment Termination; and
(e) The Company will add 24 months to your age and benefit service
for purposes of determining your eligibility for and benefits
under the Company's retiree medical benefit plan; and
(f) You will continue to be eligible for the executive perquisites
outlined in the Company's policies in effect at the time of the
Change in Control (or, if more favorable to you, as in effect
prior to your Employment Termination) through the end of the 24th
month following Employment Termination. The Company will bear
the cost of such benefits and perquisites, at the same level in
effect immediately prior to Employment Termination; and
(g) If Employment Termination occurs in 1998, you will be fully
vested in all performance shares granted to you under the
Company's 1996-1998 LTIP, and vested in two-thirds (2/3) of the
performance shares under the 1997-1999 LTIP. If Employment
Termination occurs in 1999, you will be fully vested in all
performance shares granted to you under the Company's 1997-1999
LTIP. The award paid to you under the 1996-1998 and 1997-1999
LTIPs will be determined under the terms of such
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<PAGE>
LTIP for the applicable cycle, using actual performance for each
such cycle, and will be paid to you in a lump sum within 45 days
of the end of the year of your Employment Termination.
In the event that, under the terms of this Letter Agreement, you could
be entitled to both the payments and benefits described in this
Paragraph 16 and the payments and benefits provided in Paragraph 12,
you shall elect the Paragraph under which payments and benefits are
made to you; provided that, in no event shall payments and benefits be
paid to you under both Paragraph 12 and this Paragraph.
Notwithstanding any provision of this Subparagraph 16 to the contrary,
any payment or distribution by or on behalf of the Company or any
Affiliate to or for the benefit of you (whether paid or payable or
distributed or distributable pursuant to the terms of this Letter
Agreement or otherwise) as a result of a Change in Control shall not
exceed 2.99 times your average "Annualized Includible Compensation for
the Base Period," as defined in Code Section 280G(d)(1).
17. Other Definitions. For purposes of Paragraph 16 of this Letter
Agreement:
(a) "Affiliate" shall mean any entity that is a member of a
controlled group of corporations or a group of trades or
businesses under common control (each as defined in Code Section
1563), which includes the Company.
(b) "Base Salary" shall mean your salary at the greater of the rate
in effect on the date of (i) the Change in Control, or (ii)
Employment Termination.
(c) A "Change in Control" of the Company will be deemed to occur as
of the first day that The Fuji Bank, Limited and its subsidiaries
shall cease to own, directly or indirectly, at least fifty
percent (50%) of the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of the Board (the "Company Voting
Securities") of the Company and any successor to the Company
resulting from a reorganization, merger or consolidation, or sale
or other disposition of all or substantially all of the assets of
the Company.
(d) "Employment Termination" shall mean the effective date of: (i)
your voluntary termination of employment with the Company or any
Affiliate with Good Reason; or (ii) the termination of your
employment by the Company or any Affiliate without cause.
(e) "Good Reason" shall exist if, without your express written
consent, any of the following events occur:
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<PAGE>
(i) The Company or an Affiliate significantly diminishes your
assigned duties and responsibilities from the level or
extent at which they existed before a Change in Control
including, without limitation, if the Company or Affiliate
removes your title(s) or materially diminishes the powers
associated with your title(s). For Good Reason to exist,
you must deliver written notice to the Company or Affiliate
specifying the diminution in assigned duties and
responsibilities that you believe constitutes Good Reason,
and the Company or Affiliate must fail to reverse the same
or to take all reasonable steps to that end within 30 days
after receiving the notice;
(ii) The Company or an Affiliate materially reduces your Base
Salary below the greater of that in effect as of the date
of this Agreement and that in effect as of the Change in
Control;
(iii) The Company or Affiliate requires you to relocate your
principal business office or your principal place of
residence outside the Chicago, Illinois Standard
Metropolitan Statistical Area (the "Geographical Employment
Area"), or assigns to you duties that would reasonably
require such a relocation;
(iv) The Company or an Affiliate requires, or assigns duties to
you which would reasonably require, you to spend more than
one hundred (100) normal working days away from the
Geographical Employment Area during any consecutive twelve-
month period; or
(v) The Company or an Affiliate fails to continue in effect any
cash or stock-based incentive or bonus plan, retirement
plan, welfare benefit plan, or other benefit plan, program
or arrangement that applied to you on the date of the
Change in Control, unless the aggregate value (as computed
by an independent employee benefits consultant selected by
the Company) of all such compensation, retirement and
benefit plans, programs and arrangements provided to you is
not materially less than their aggregate value as of the
date of the amendment of this Letter Agreement, or, if
greater, their aggregate value as of the date of the Change
in Control.
(f) "Period Pending a Change in Control" shall mean the period after
the approval by the Company's stockholders and prior to the
effective time of any transaction described in subparagraph 16(c)
above.
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<PAGE>
(g) "Welfare Benefit Plan" shall mean each welfare benefit plan
maintained or contributed to by the Company or any Affiliate,
including, but not limited to a plan that provides health
(including medical, dental or both), life, accident or disability
benefits or insurance, or similar coverage, in which you were
participating at the time of the Change in Control."
In Witness Whereof, the parties hereto have executed this Agreement on the
day and year first written above.
Heller Financial, Inc.
By:
--------------------------------- ---------------------------------
Its: Frederick E. Wolfert
-----------------------------
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EXHIBIT 10.32
Change in Control Agreement
---------------------------
This Change in Control Agreement is entered into between Heller Financial,
Inc., a Delaware corporation (the "Company"), and_____________(the "Executive");
Witnesseth That:
---------------
Whereas, a portion of the Company's stock is being sold to the public as
part of an initial public offering; and
Whereas, Executive is employed by the Company, and the Company desires to
provide protection to Executive in connection with any future change in control
of the Company;
Now, Therefore, it is hereby agreed by and between the parties, for good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, as follows:
1. Effective Date and Term. This Agreement is effective May 6, 1998 (the
"Effective Date"). This Agreement will terminate on May 6, 2001.
2. Payments and Benefits Upon Employment Termination After a Change in
Control. If, during the Term of this Agreement and within the period
ending on the earlier of two (2) years after a Change in Control (all
capitalized terms as defined below) or May 6, 2001, or during the Period
Pending a Change in Control, (i) the Executive's employment with the
Company and its Affiliates is terminated without Cause, or (ii) Executive
voluntarily terminates such employment with Good Reason, the Company will,
within 30 days (except as otherwise expressly provided) of Executive's
Employment Termination, make the payments and provide the benefits
described below.
(a) Salary Continuation. The Company will continue Executive's annual
Base Salary (as defined below) for twenty-four (24) months following
Employment Termination at the same time and in the same manner as the
Company paid salary during employment (including the right to defer
such amounts under the Company's non-qualified deferred compensation
plan) or, at Executive's election, make a lump sum cash payment to
Executive equal to the present value of two times Executive's Base
Salary; and
(b) Annual Incentive Bonus. For the year in which Employment Termination
occurs, the Company will pay an Annual Incentive Plan bonus calculated
as of the end of the Annual Incentive Plan year, based on performance
for the entire year, at the applicable Target bonus level for that
year. The Company will pay such bonus in a lump sum within 45 days of
the end of the year of Employment Termination; and
(c) Welfare Benefit Plans. With respect to each Welfare Benefit Plan, for
the period beginning on Employment Termination and ending on the
earlier of (i) two years
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<PAGE>
following Employment Termination, or (ii) the date Executive becomes
covered by a welfare benefit plan or program maintained by an entity
other than the Company or an Affiliate which provides coverage or
benefits at least equal, in all respects, to such Welfare Benefit
Plan, Executive shall continue to participate in such Welfare Benefit
Plan on the same basis and at the same cost to Executive as was the
case immediately prior to the Change in Control (or, if more favorable
to Executive, as was the case at any time prior to the Employment
Termination), or, if any benefit or coverage cannot be provided under
a Welfare Benefit Plan because of applicable law or contractual
provisions, Executive shall be provided with substantially similar
benefits and coverage for such period. Immediately following the
expiration of the continuation period required by the preceding
sentence, Executive shall be entitled to continued group health
benefit plan coverage (so-called "COBRA coverage") in accordance with
Section 4980B of the Internal Revenue Code of 1986, as amended (the
"Code"), it being intended that COBRA coverage shall be consecutive to
the benefits and coverage provided for in the preceding sentence; and
(d) Retirement Plan Benefits. The Company will pay Executive a lump sum
amount equal to the present value of the additional benefit that
Executive would have accrued under the Company's qualified and non-
qualified retirement plans (as in effect prior to the Change in
Control or, if benefits are increased under the plans after the Change
in Control, prior to the Employment Termination) had he or she
continued to receive benefits thereunder through the end of the 24th
month following Employment Termination. All benefits under the
Company's non-qualified retirement plans will be fully vested (to the
extent, if any, not vested upon the Change in Control). The Company
will pay such lump sum to Executive within 45 days of the end of the
year of Employment Termination; and
(e) Retiree Medical Benefits. The Company will add 24 months to
Executive's age and benefit service for purposes of determining
Executive's eligibility for and benefits under the Company's retiree
medical benefit plan; and
(f) Perquisites. Executive will continue to be eligible for the executive
perquisites outlined in the Company's policies in effect at the time
of the Change in Control (or, if more favorable to the Executive, as
in effect prior to the Employment Termination) through the end of the
24th month following Employment Termination. The Company will bear
the cost of such benefits and perks, at the same level in effect
immediately prior to Employment Termination; and
(g) Long Term Incentive Plans. If Employment Termination occurs in 1998,
Executive will be fully vested in all performance shares granted to
Executive under the Company's 1996-1998 LTIP, and vested in two-thirds
(2/3) of the performance shares under the 1997-1999 LTIP. If
Employment Termination occurs in 1999, Executive will be fully vested
in all performance shares granted to Executive under the Company's
1997-1999 LTIP. The award paid to Executive under the 1996-1998
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<PAGE>
and 1997-1999 LTIPs will be determined under the terms of such LTIP
for the applicable cycle, using actual performance for each such
cycle, and will be paid to Executive in a lump sum within 45 days of
the end of the year of Executive's Employment Termination.
3. Change in Control. A "Change in Control" of the Company will be deemed to
occur as of the first day that The Fuji Bank, Limited and its subsidiaries
shall cease to own, directly or indirectly, at least fifty percent (50%) of
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of the Board (the
"Company Voting Securities") of the Company or any successor to the Company
resulting from a reorganization, merger or consolidation, or sale or other
disposition of all or substantially all of the assets of the Company.
4. Other Definitions. For purposes of this Agreement:
(a) "Affiliate" shall mean any entity that is a member of a controlled
group of corporations or a group of trades or businesses under common
control (each as defined in Code Section 1563), which includes the
Company.
(b) "Base Salary" shall mean Executive's salary at the greater of the rate
in effect on the date of (i) the Change in Control, or (ii) Employment
Termination.
(c) "Board" or "Board of Directors" shall mean the Company's Board of
Directors.
(d) "Employment Termination" shall mean the effective date of: (i)
Executive's voluntary termination of employment with the Company or
any Affiliate with Good Reason; or (ii) the termination of Executive's
employment by the Company or any Affiliate without Cause.
(e) "Cause" shall mean: (i) Executive's fraud or criminal misconduct; or
(ii) the material and willful breach by Executive of his or her
responsibilities or willful failure to comply with reasonable
directives or policies of the Board, but only if the Company has given
Executive written notice specifying the breach or failure to comply,
demanding that Executive remedy the breach or failure to comply and
giving Executive an opportunity to be heard in connection with the
breach or failure to comply, and Executive either failed to remedy the
alleged breach or failed to comply within 30 days after receipt of the
written notice or failed to take all reasonable steps to that end
during the 30 days after Executive received the notice.
(f) "Good Reason" shall exist if, without Executive's express written
consent, any of the following events occur:
(i) The Company or an Affiliate significantly diminishes Executive's
assigned duties and responsibilities from the level or extent at
which they existed
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<PAGE>
before a Change in Control including, without limitation, if the
Company or Affiliate removes Executive's title(s) or materially
diminishes the powers associated with Executive's title(s). For
Good Reason to exist, Executive must deliver written notice to
the Company or Affiliate specifying the diminution in assigned
duties and responsibilities that he or she believes constitutes
Good Reason, and the Company or Affiliate must fail to reverse
the same or to take all reasonable steps to that end within 30
days after receiving the notice;
(ii) The Company or an Affiliate materially reduces Executive's Base
Salary below the greater of that in effect as of the date of
this Agreement and that in effect as of the Change in Control;
(iii) The Company or Affiliate requires Executive to relocate his or
her principal business office or his or her principal place of
residence outside the Standard Metropolitan Statistical Area
where Executive was located on the date of a Change in Control
(the "Geographical Employment Area"), or assigns to Executive
duties that would reasonably require such a relocation;
(iv) The Company or an Affiliate requires Executive to, or assigns
duties to Executive which would reasonably require Executive to,
spend more than one hundred (100) normal working days away from
the Geographical Employment Area during any consecutive twelve-
month period; or
(v) The Company or an Affiliate fails to continue in effect any cash
or stock-based incentive or bonus plan, retirement plan, welfare
benefit plan, or other benefit plan, program or arrangement that
applied to Executive on the date of the Change in Control,
unless the aggregate value (as computed by an independent
employee benefits consultant selected by the Company) of all
such compensation, retirement and benefit plans, programs and
arrangements provided to Executive is not materially less than
their aggregate value as of the date of this Agreement, or, if
greater, their aggregate value as of the date of the Change in
Control.
(g) "Period Pending a Change in Control" shall mean the period after the
approval by the Company's stockholders and prior to the effective time
of any transaction described in paragraph 3(c) or (d) above.
(h) "Welfare Benefit Plan" shall mean each welfare benefit plan maintained
or contributed to by the Company or any Affiliate, including, but not
limited to a plan that provides health (including medical, dental or
both), life, accident or disability benefits or insurance, or similar
coverage, in which Executive was participating at the time of the
Change in Control.
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<PAGE>
6. Limitation on Company Payments. Notwithstanding any provision of this
Agreement to the contrary, any payment or distribution by or on behalf of
the Company or any Affiliate to or for the benefit of Executive (whether
paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise) as a result of a Change in Control shall not
exceed 2.99 times Executive's average "Annualized Includible Compensation
for the Base Period," as defined in Code Section 280G(d)(1).
7. Executive's Death. If Executive dies during the term of this Agreement and
after a Change in Control and Employment Termination, but before the
complete payment of any amount or benefit required under this Agreement,
the Company will pay such amount or benefit to Executive's spouse, if
living, or to Executive's estate.
8. Mitigation and Set-Off. Executive shall not be required to mitigate
damages by seeking other employment or otherwise, except as provided in
Section 2(c). The Company's obligations under this Agreement shall not be
reduced in any way by reason of any compensation or benefits received (or
foregone) by Executive from sources other than the Company after
Executive's Employment Termination, or any amounts that might have been
received by Executive in other employment had Executive sought such other
employment, except as provided in Section 2(c). Executive's entitlement to
benefits and coverage under this Agreement shall continue after, and shall
not be affected by, Executive's obtaining other employment after the
Employment Termination.
9. Arbitration and Expenses. The Company and Executive agree that any dispute
or controversy arising under or in connection with this Agreement shall be
submitted to and determined by arbitration in Chicago, Illinois, in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and the parties agree to be bound by the decision
in any such arbitration proceeding. The Company shall pay to Executive all
out-of-pocket expenses, including attorneys' fees, incurred by Executive in
the event Executive successfully enforces any provision of this Agreement
in any action, arbitration or lawsuit. If Executive loses such an action,
arbitration or lawsuit, the Company shall not pay Executive any out-of-
pocket expenses so incurred.
10. Assignment; Successors. This Agreement may not be assigned by the Company
without the written consent of Executive but the obligations of the Company
under this Agreement shall be the binding legal obligations of any
successor to the Company by merger, consolidation or otherwise, and in the
event of any business combination or transaction that results in the
transfer of substantially all of the assets or business of the Company, the
Company will cause the transferee to assume the obligations of the Company
under this Agreement. This Agreement may not be assigned by Executive
during Executive's life, and upon Executive's death will inure to the
benefit of Executive's heirs, legatees and legal representatives of
Executive's estate.
11. Interpretation. The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State of Delaware,
without regard to the conflict of law
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<PAGE>
principles thereof. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
12. Withholding. The Company may withhold from any payment that it is required
to make under this Agreement amounts sufficient to satisfy applicable
withholding requirements under any federal, state or local law.
13. Amendment or Termination. The Company and Executive may amend this
Agreement at any time by written agreement.
14. Indemnification. Following Employment Termination, the Company will: (i)
indemnify and hold harmless Executive for all costs, liability and expenses
(including reasonable attorneys' fees) for all acts and omissions of
Executive that relate to Executive's employment with the Company, to the
maximum extent permitted by law; and (ii) continue Executive's coverage
under the directors' and officers' liability coverage maintained by the
Company, as in effect from time to time, to the same extent as other
current or former senior executive officers and directors of the Company
until the end of the second policy year that begins after the Employment
Termination.
15. Financing. Cash payments under this Agreement (not including any payments
made from the Qualified Plan) are general obligations of the Company, and
Executive shall have only an unsecured right to payment thereof out of the
general assets of the Company. Notwithstanding the foregoing, the Company
may, in its sole discretion by agreement with one or more trustees to be
selected by the Company, create a trust on such terms as the Company shall
determine to make payments to Executive in accordance with the terms of
this Agreement.
16. Severability. In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect.
In Witness Whereof, the parties hereto have executed this Agreement on the
day and year first written above.
Heller Financial, Inc.
By:
--------------------------------- ----------------------------------
Its: Executive
-----------------------------
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Exhibit 10.34
Heller Financial, Inc.
1998 Employee Stock Purchase Plan
---------------------------------
The Heller Financial, Inc. 1998 Employee Stock Purchase Plan provides
Eligible Employees (as defined below) of Heller Financial, Inc., a Delaware
corporation (the "Company"), and its Subsidiaries with an opportunity to
purchase shares of Common Stock of the Company on the terms and conditions set
forth below.
1. Definitions.
(a) "Business Day" - any day the New York Stock Exchange is open for
business.
(b) "Code" - the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" - the Company's Class A Common Stock, par value $0.25
per share.
(d) "Compensation" - as to a Participant, the portion of the Participant's
"Compensation" that is base pay and is used to determine the profit
sharing allocation in the Savings and Profit Sharing Plan, paid to the
Participant during a given payroll period.
(e) "Eligible Employee" - an employee who is eligible to participate in
the Plan pursuant to Section 3.
(f) "Fair Market Value" - as of any given day: (i) the average of the high
and low trading prices of the Common Stock on the national securities
exchange on which the Common Stock is listed (if the Common Stock is
so listed) or on the NASDAQ National Market System (if the Common
Stock is regularly quoted on the NASDAQ National Market System); (ii)
if not so listed or regularly quoted, the mean between the closing bid
and asked prices of publicly traded Common Stock in the over-the-
counter market; and (iii) if such bid and asked prices are not
available, as reported by any nationally recognized quotation service
selected by the Committee or as determined by the Committee.
Notwithstanding the foregoing, as to any Common Stock awarded under
this Plan in connection with the Company's initial public offering,
"Fair Market Value" will be the initial public offering price of the
Common Stock.
(g) "Grant Date" - each January 1, April 1, July 1 and October 1; except
that the May 1, 1998 effective date of the Plan will be a Grant Date.
(h) "Option" - an irrevocable option to purchase shares of Common Stock
under the Plan, pursuant to the terms and conditions of the Plan.
(i) "Participant" - an Eligible Employee who is participating in the Plan
pursuant to Section 4.
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(j) "Plan" - this Heller Financial, Inc. 1998 Employee Stock Purchase
Plan, as amended from time to time.
(k) "Plan Account" - an account maintained by the Company or its
designated recordkeeper for each Participant, to which the
Participant's payroll deductions are credited, against which funds
used to purchase shares of Common Stock are charged and to which
shares of Common Stock purchased are credited.
(l) "Plan Administrator" - the Heller Employee Benefits Committee, or such
other person or persons, including a committee, as the Board of
Directors (or the Compensation Committee of Board of Directors) of the
Company may appoint to administer the Plan. The Board of Directors
(or the Compensation Committee of Board of Directors) of the Company
may at any time remove or replace the Plan Administrator.
(m) "Purchase Date" - except as provided in Section 15, each March 31,
June 30, September 30 and December 31.
(n) "Purchase Price" - unless the Plan Administrator determines before a
Grant Date that a higher price that complies with Code Section 423
will apply, the Purchase Price of the shares of Common Stock that are
to be sold under the Plan on the Purchase Date next following that
Grant Date will be 85% of the Fair Market Value of Common Stock on the
Purchase Date next following the Grant Date.
(o) "Savings and Profit Sharing Plan" - the Heller Financial, Inc. Savings
and Profit Sharing Plan, as amended from time to time.
(p) "Subsidiary" - any corporation, other than the Company, in an unbroken
chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain
owns stock possessing 50% or more of the total combined voting power
of all classes of stock in one of the other corporations in such
chain. Subsidiary status as to a particular Option grant will be
determined at the time the Option is granted. A "domestic Subsidiary"
is any Subsidiary organized under the laws of the United States of
America. A "foreign Subsidiary" is a Subsidiary organized outside the
laws of the United States of America.
2. Stock Subject to the Plan. Subject to Section 12, the aggregate number of
shares of Common Stock that may be sold under the Plan is 1,500,000. The
Company will make open-market purchases to provide shares of Common Stock
for purchase under the Plan. If sufficient shares are not available through
open market purchases, the Company will sell Treasury shares.
3. Eligible Employees. An "Eligible Employee" means at any time each, active
common-law employee of the Company or any domestic Subsidiary, and each
active common-law employee of a foreign Subsidiary to which the Plan is
extended by the Compensation Committee of the Board of Directors of the
Company, except:
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(a) an employee who has been employed for fewer than six months by the
Company and the Subsidiaries; or
(b) an employee whose customary employment is for less than five months in
any calendar year.
4. Participation in the Plan.
(a) An Eligible Employee may participate in the Plan by completing and
filing with the Company or its designated recordkeeper an election
form that authorizes payroll deductions from the Eligible Employee's
Compensation. Deductions will be made in accordance with the Eligible
Employee's election, will begin on the first Grant Date after the
election form has been filed, and will continue until the Eligible
Employee terminates participation in the Plan or the Plan is
terminated by the Company. An Eligible Employee may participate in
the Plan only through payroll deductions. Other contributions will
not be accepted.
(b) Notwithstanding the foregoing, an Eligible Employee will not be
granted an Option on any Grant Date if, immediately after the Option
is granted, he or she owns stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company
or any Subsidiary. For purposes of this paragraph, the rules of Code
Section 424(d) will apply to determine the Eligible Employee's stock
ownership, and stock that an employee may purchase under outstanding
options will be treated as stock owned by the employee.
5. Payroll Deductions. Each payroll period, the Company will make payroll
deductions from the Compensation paid to each Participant in the percentage
elected by the Participant in his or her election form. Deduction elections
must be made in whole percentages of Compensation from 1 to 10%. No Eligible
Employee will be granted an Option under this Plan if, as a result, during
any calendar year the Option remained outstanding, he or she would first be
able to exercise options under Section 423 Plans for stock with a Fair
Market Value of more than $25,000 in the aggregate (determined as of each
Grant Date). For purposes of the foregoing sentence, "Section 423 Plans"
means this Plan and all other plans of the Company and its Subsidiaries that
are intended to qualify under Code Section 423.
6. Changes in Payroll Deductions. Subject to the minimum and maximum deduction
limits set forth above, a Participant may change the amount of his or her
payroll deductions as of the next Grant Date by filing a new election form
with the Company or its designated recordkeeper at least fifteen (15)
Business Days before the next Grant Date. The new election form will be
effective until revoked in writing.
7. Termination of Participation in Plan. At any time and for any reason, a
Participant may voluntarily terminate his or her participation in the Plan
by delivering a written notice of the termination to the Company or its
designated recordkeeper. The Company will cease making Plan payroll
deductions from the Participant's Compensation within fifteen (15) days
after it receives the notice. A Participant's participation in the Plan will
end when he or she ceases
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for any reason to be employed by the Company or any Subsidiary. If an
active employee of the Company or any Subsidiary terminates his or her Plan
participation, any payroll deductions credited to his or her Plan Account
will be used to buy shares of Common Stock on the next Purchase Date. Any
payroll deductions credited to the Plan Account of a former Participant who
is no longer employed by the Company or any of its Subsidiaries, but not
yet invested in Options, will be paid to the former Participant in cash as
soon as practicable following his or her termination of employment. An
Eligible Employee who has voluntarily terminated his or her participation
in the Plan may rejoin the Plan by filing a new election form in accordance
with Section 6.
8. Purchase of Shares.
(a) On each Grant Date, each Participant will be deemed to have been
granted an Option.
(b) On each Purchase Date, each Participant will be deemed, without any
further action, to have purchased a number of whole or fractional
shares (calculated to the fourth decimal place) of Common Stock
determined by dividing the Purchase Price into the balance in the
Participant's Plan Account on the Purchase Date. Any amount remaining
in the Participant's Plan Account will be carried forward to the next
Purchase Date unless the Plan Account is closed.
(c) As soon as practicable after each Purchase Date, individual statements
showing the number of shares of Common Stock purchased on that
Purchase Date on behalf of each Participant will be delivered to each
Participant.
(d) Upon request, a Participant may receive a stock certificate for whole
shares of Common Stock that are held in his or her Plan Account.
Notwithstanding the preceding sentence, if the Participant's
employment with the Company and all Subsidiaries terminates, he or she
will be issued a stock certificate for whole shares of Common Stock in
his or her Plan Account as soon as administratively feasible after the
termination. The Participant may elect whether the stock certificate
will be issued in his or her name, or in his or her name and the name
of another person as joint tenants with right of survivorship or as
tenants in common. A cash payment will be made for any fraction of a
share in the Participant's account, if necessary to close the account.
9. Rights as a Stockholder. As of the Purchase Date, a Participant will be
treated as record owner of shares purchased for him or her under the Plan.
10. Rights Not Transferable. Rights under the Plan are not transferable by a
Participant other than by will or the laws of descent and distribution, and
are exercisable during the Participant's lifetime only by the Participant
or by the Participant's guardian or legal representative. No rights or
payroll deductions of a Participant will be subject to execution,
attachment, levy, garnishment or similar process.
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11. Application of Funds. All funds of Participants received or held by the
Company under the Plan before purchase of shares of Common Stock will be
held by the Company without liability for interest or other increase.
12. Adjustments in Case of Changes Affecting Shares. If there is a subdivision
or consolidation of outstanding shares of Common Stock of the Company, or
if a stock dividend is paid, the number of shares approved for the Plan
will be increased or decreased proportionately, and any other adjustment
deemed equitable by the Plan Administrator will be made. If there is any
other change affecting the Common Stock, an adjustment deemed equitable by
the Plan Administrator will be made, to give appropriate effect to the
event.
13. Administration of the Plan. The Plan Administrator will administer the
Plan. The Plan Administrator has authority to make rules and regulations
for Plan administration, and full authority and discretion and authority to
interpret the Plan's terms and make decisions under it. The Plan
Administrator's interpretations and decisions regarding the Plan and its
rules and regulations will be final and conclusive. It is intended that the
Plan at all times meet the requirements of Code Section 423, and the Plan
Administrator will, to the extent possible, interpret the provision of the
Plan so as to carry out that intent.
14. Amendments to the Plan. At any time or from time to time, the Plan
Administrator may amend or modify the Plan. Notwithstanding the foregoing,
other than as provided in Section 12 or 15, the Plan may not be amended to
increase or decrease the number of shares authorized for purchase under the
Plan, to decrease the Purchase Price, or, except as needed to conform the
Plan to the requirements of the Code, to alter the Plan in any way that
would cause it to fail to meet the requirements of Code Section 423, or
that would retroactively and adversely affect the interests of
Participants.
15. Termination of Plan. The Plan will terminate on the earlier of:
(a) the date the as of which the Board of Directors terminates it; and
(b) the date no more shares remain to be purchased under the Plan.
The Board of Directors of the Company may terminate the Plan as of any
date, and the date of termination will be deemed a Purchase Date. If on
that Purchase Date Participants in the aggregate have Options to purchase
more shares of Common Stock than are available for purchase under the Plan,
each Participant will be eligible to purchase a reduced number of shares of
Common Stock on a pro rata basis, and any payroll deductions remaining in
his or her Plan Account after share purchases will be returned to the
Participant, all as provided by rules and regulations adopted by the Plan
Administrator.
16. Costs. The Company will pay all costs and expenses incurred in
administering the Plan. Any costs or expenses of selling shares and
certificating shares of Common Stock acquired under the Plan will be borne
by the holder of the shares.
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17. Governmental Regulations. The Company's obligation to sell and deliver its
Common Stock under the Plan is subject to any governmental approvals
required in connection with the authorization, issuance or sale of such
stock.
18. Applicable Law. This Plan will be interpreted under the laws of the United
States of America and, to the extent not inconsistent therewith, by the
laws of the State of Delaware. This Plan is not to be subject to the
Employee Retirement Income Security Act of 1974, as amended, but is
intended to comply with Section 423 of the Code. Any provisions required to
be set forth in this Plan by Code Section 423 are hereby incorporated by
reference.
19. Effect on Employment. The provisions of this Plan will not affect the right
of the Company or any Subsidiary or any Participant to terminate the
Participant's employment with the Company or any Subsidiary. Nothing in
this Plan will be deemed to create a contract for the employment of any
person.
20. Withholding. The Company reserves the right to withhold from stock or cash
distributed to a Participant any amounts it is required by law to withhold.
21. Sale of Company. If there is a proposed sale of all or substantially all of
the assets of the Company or a merger of the Company with or into another
corporation, the Company will require that each outstanding Option be
assumed or an equivalent right to purchase stock of the successor or
purchaser corporation be substituted by the successor or purchaser
corporation, unless the Plan is terminated.
22. Effective Date. The Plan will become effective May 1, 1998. Notwithstanding
the foregoing or any other provision of this Plan, the Plan will not become
effective unless the stockholders of Company approve it within twelve
months after the date the Board of Directors of the Company adopts it.
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Exhibit 23.1
[LETTERHEAD OF ARTHUR ANDERSEN]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
included in this Amendment No. 3 to this registration statement and to the
incorporation by reference in this Amendment No. 3 to this registration
statement of our report dated January 23, 1998 (except with respect to the
matters discussed in Note 20, as to which the date is February 24, 1998)
included in Heller Financial, Inc.'s Form 10-K/A for the year ended December 31,
1997 and to all references to our firm included in this Amendment No. 3 to this
registration statement.
/s/ Arthur Andersen LLP
Chicago, Illinois
April 28, 1998
