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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
TEXTRON FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 05-6008768
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
40 WESTMINSTER STREET
P.O. BOX 6687
PROVIDENCE, RHODE ISLAND 02940-6687
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (401) 621-4200
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g)OF THE ACT:
COMMON STOCK, $100.00 PAR VALUE
(TITLE OF CLASS)
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I 1(a) AND
(b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT.
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TABLE OF CONTENTS
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Item 1. Business.................................................... 1
Item 2. Financial Information....................................... 11
Item 3. Properties.................................................. 13
Item 4. Security Ownership of Certain Beneficial Owners and
Management.................................................. 13
Item 5. Directors and Executive Officers............................ 13
Item 6. Executive Compensation...................................... 14
Item 7. Certain Relationships and Related Transactions.............. 15
Item 8. Legal Proceedings........................................... 15
Item 9. Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters...................... 15
Item 10. Recent Sales of Unregistered Securities..................... 15
Item 11. Description of Registrant's Securities to be Registered..... 15
Item 12. Indemnification of Officers and Directors................... 15
Item 13. Financial Statements and Supplementary Data................. 16
Item 14. Changes in and Disagreements with Accountants and Financial
Disclosure.................................................. 51
Item 15. Financial Statements and Exhibits........................... 51
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ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
General
Textron Financial Corporation (together with its consolidated subsidiaries
called the "Corporation," the "Company" or "TFC," unless the context otherwise
requires) was incorporated on February 5, 1962, in the State of Delaware. TFC is
a diversified commercial finance company with operations in three active
segments: (1) term loans and leases, (2) revolving credit, and (3) specialty
finance. Term lending and leasing activity is focused in aircraft, equipment and
golf finance. Revolving credit products consist primarily of dealer inventory
finance, factoring, and working capital loans. Specialty finance operations
include broadcast media finance, franchise finance, resort receivables finance
and structured investment grade transactions. TFC's other financial services and
products include transaction syndication, equipment appraisal and management,
portfolio servicing and insurance brokerage.
Since TFC's inception, all of its stock has been owned by Textron Inc.
("Textron"), a $10 billion global, multi-industry company with market-leading
operations in Aircraft, Automotive, Industrial and Finance. TFC was organized to
finance the distribution of Textron products. However, the scope of the
financial services offered by the Company has become progressively more
diversified. As of June 30, 1999, 26% of TFC's managed finance receivables were
related to Textron products ("Textron-related receivables"). TFC has full
recourse to Textron on approximately three-quarters of managed Textron-related
receivables. For further information on TFC's relationship with Textron, see
"Relationship with Textron" below.
TFC's financing activities are confined almost exclusively to commercial
markets and to lease and secured lending products. The Company's services are
offered primarily in North America and, to a minor extent, in South America,
Europe, and Australia. However, the Company does finance Textron products,
principally Bell helicopters and Cessna aircraft, worldwide.
TFC has approximately 26 offices nationwide, with division offices and
operation centers in East Hartford, CT; Atlanta, GA; Portland, OR; Columbus, OH;
King of Prussia, PA; Wichita, KS; Minneapolis, MN; Providence, RI; and Ft.
Worth, TX. The Corporation's principal executive offices are located at 40
Westminster Street, Providence, RI 02903.
Recent Acquisitions
TFC has grown through a combination of internal expansion and selective
acquisitions. These acquisitions have been, and future acquisitions will be,
complementary to TFC's principal business segments. Acquired businesses must
have meaningful transaction origination capabilities and credit standards
compatible with TFC's, and, when integrated with TFC, must meet certain return
on investment standards established by Textron. There have been five significant
acquisitions by TFC within the last five years:
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DATE NAME TYPE ASSETS BUSINESS
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February 1998 Systran Financial Services Stock $68 million Factoring
December 1998 Business Leasing Group Assets $186 million Small Ticket Equipment Leasing
March 1999 Southern Capital Corporation Assets $53 million Specialized Equipment Financing
July 1999 RFC Capital Stock $65 million Factoring
October 1999 Green Tree Financial Assets $432 million Aircraft and Franchise Finance
</TABLE>
On September 23, 1999, the Company announced its intention to acquire a
100% ownership interest in Litchfield Financial Corporation ("Litchfield") for
approximately $183 million in cash. Litchfield is a commercial finance company
specializing in financing arrangements for vacation interval sales, land lot
sales, and other receivables oriented transactions. This business model is
intended to further TFC's objective of growing its timeshare interval finance
portfolio, as well as its receivables based revolving credit businesses. Total
managed assets involved in the transaction are about $550 million.
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Description of Business Segments and Operating Units
TFC provides a wide range of leasing, financing and related services
through the following four business segments:
- Term Loans and Leases
- Revolving Credit
- Specialty Finance
- Commercial Real Estate (inactive)
In addition, TFC's Capital Markets Group and TBS Insurance Agency, Inc.
provide support and ancillary products for most of TFC's operating units. The
Capital Markets Group provides loan syndication, warehouse facilities and
advisory services for TFC's operating units and their customers. TBS Insurance
Agency, Inc. structures insurance programs and products for TFC's customers.
For additional information regarding TFC's business segments, see below and
Note 14 to TFC's audited Consolidated Financial Statements and Note 9 to TFC's
unaudited Condensed Consolidated Financial Statements included in Item 13 of
this Form 10.
Term Loans and Leases
Aircraft Finance -- TFC provides financing to commercial users and, to a
minor extent, consumer users of general aviation equipment. The Company finances
new and used Bell helicopters and believes it is one of the largest helicopter
financiers in the world. TFC's Cessna Finance Corporation subsidiary specializes
in the financing of new and used Cessna business jets and single-engine piston
aircraft. The Company also has expertise in financing a variety of other general
aviation aircraft and equipment.
Equipment Finance -- TFC finances an assortment of capital equipment
through vendor-sponsored financing programs, and through direct solicitation of
middle-market companies. Existing vendor programs promote the lease or purchase
of automotive service and repair equipment, machine tools and other industrial
equipment, and office automation equipment. Direct solicitation activity is
concentrated in transportation, construction, printing, and manufacturing
equipment. TFC is skilled in performing equipment appraisals, asset inspections
and repossession and re-marketing of equipment. Through its Asset Control
Services, Inc. operation, TFC offers these services to third parties.
Golf Finance -- TFC provides term financing and leasing to golf course
operators. The Company makes first mortgage loans for the construction,
acquisition or refinancing of golf course facilities, and provides financing
programs for the lease or purchase of E-Z-GO golf cars and Textron Turf Care
equipment (including the Jacobsen, Ransomes, and Cushman product lines).
The following table sets forth certain financial information regarding the
various businesses included in the Term Loans and Leases segment for the periods
indicated.
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SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, 1999 1998 1997 1996
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(IN THOUSANDS)
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AIRCRAFT FINANCE
New business volume........................ $364,339 $787,863 $686,791 $547,472
Total finance assets....................... 940,773 882,609 818,838 866,163
Revenues................................... 47,012 94,021 95,832 93,021
Nonperforming assets....................... 13,825 4,806 6,501 8,626
Revenues as a percentage of total
revenues................................. 23.56% 25.61% 27.36 28.43%
Ratio of net charge-offs (recoveries) to
average finance assets (1)............... 0.02% (0.14)% (0.19)% 0.16%
</TABLE>
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SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, 1999 1998 1997 1996
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(IN THOUSANDS)
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EQUIPMENT FINANCE
New business volume........................ $256,628 $423,751 $378,371 $422,974
Total finance assets....................... 925,582 845,064 663,118 734,899
Revenues................................... 47,042 74,228 83,142 79,349
Nonperforming assets....................... 24,358 29,151 25,357 27,577
Revenues as a percentage of total
revenues................................. 23.58% 20.22% 23.74% 24.25%
Ratio of net charge-offs (recoveries) to
average finance assets (1)............... 1.31% 1.66% 1.86% 2.08%
GOLF FINANCE
New business volume........................ $155,938 $360,718 $255,034 $282,633
Total finance assets....................... 537,065 418,181 457,666 643,243
Revenues................................... 22,749 48,394 61,445 55,718
Nonperforming assets....................... -- -- 2,204 830
Revenues as a percentage of total
revenues................................. 11.40% 13.18% 17.54% 17.03%
Ratio of net charge-offs (recoveries) to
average finance assets (1)............... 0.01% 0.02% 0.05% 0.07%
</TABLE>
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(1) Annualized
Revolving Credit
Asset-Based Lending and Factoring -- TFC provides working capital loans to
middle-market companies secured by accounts receivable, inventory and equipment.
The Company also provides specialized financing and factoring products to the
trucking and telephone service industries.
Floorplan Finance -- TFC structures inventory finance programs for dealers
and distributors of music, marine, portable spa, wood stove, lawn and garden,
specialty trailer, and manufactured housing products. The Company also provides
programs for E-Z-GO golf cars and Textron Turf Care equipment.
The following table sets forth certain financial information regarding the
various businesses included in the Revolving Credit segment for the periods
indicated.
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SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, 1999 1998 1997 1996
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(IN THOUSANDS)
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ASSET BASED LENDING AND FACTORING
New business volume...................... $510,297 $ 926,476 $200,399 $200,667
Total finance assets..................... 352,154 312,202 184,039 146,082
Revenues................................. 19,840 35,648 18,903 17,982
Nonperforming assets..................... -- -- -- --
Revenues as a percentage of total
revenues............................... 9.94% 9.71% 5.40% 5.49%
Ratio of net charge-offs (recoveries) to
average finance assets (1)............. 0.00% 0.05% 0.00% 0.55%
</TABLE>
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SIX MONTHS ENDED FOR THE YEARS ENDED
JUNE 30, 1999 1998 1997 1996
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(IN THOUSANDS)
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FLOORPLAN FINANCE
New business volume...................... $570,570 $1,048,713 $814,652 $668,879
Total finance assets..................... 572,931 518,963 364,176 334,065
Revenues................................. 30,120 52,187 43,881 36,511
Nonperforming assets..................... 2,805 4,518 5,848 3,507
Revenues as a percentage of total
revenues............................... 15.09% 14.21% 12.53% 11.16%
Ratio of net charge-offs (recoveries) to
average finance assets (1)............. 0.24% 0.32% 0.60% 0.32%
</TABLE>
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(1) Annualized
Specialty Finance
Structured Finance -- TFC manages an existing portfolio of leveraged
leases, and selectively invests in new leveraged lease transactions. These
transactions involve the long-term lease of real estate and equipment to
investment grade lessees. TFC also participates in investment grade or near
investment grade secured term and revolving structured credit facilities and
equity investments.
Resort Receivables -- TFC offers inventory and notes receivable financing
to developers of vacation interval resorts. Acquisition and construction loans
are also provided to resort developers. TBS Business Services, Inc., a
subsidiary of TFC, provides portfolio servicing of vacation interval loan
portfolios for resort developers.
Franchise Finance -- The Company offers finance programs to franchisees of
well-established franchise concepts for business acquisitions, new store
packages, image enhancements, equipment upgrades, and debt refinancings. Loans
are structured using both conventional and Small Business Administration ("SBA")
products (i.e. government guaranteed loans), through Westminster Development
Bank, a TFC subsidiary.
Broadcast Media Finance -- TFC provides finance programs to broadcast media
operators for station and equipment acquisitions. Loans are structured using
both conventional and SBA products.
The following table sets forth certain financial information regarding the
various businesses included in the Specialty Finance segment for the periods
indicated.
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SIX MONTHS
ENDED
JUNE 30, FOR THE YEARS ENDED
1999 1998 1997 1996
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(IN THOUSANDS)
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STRUCTURED FINANCE
New business volume........................... $ 23,414 $ 24,274 -- --
Total finance assets.......................... 363,301 341,481 $322,786 $317,770
Revenues...................................... 9,628 19,867 15,143 16,115
Nonperforming assets.......................... 801 -- -- --
Revenues as a percentage of total revenues.... 4.83% 5.41% 4.32% 4.92%
Ratio of net charge-offs (recoveries) to
average finance assets(1)................... (0.01%) 0.00% 0.00% 0.00%
RESORT RECEIVABLES
New business volume........................... $214,367 $392,832 $350,144 $155,607
Total finance assets.......................... 325,850 336,995 306,145 160,452
Revenues...................................... 19,716 39,121 28,298 19,616
Nonperforming assets.......................... 9,297 9,883 924 973
Revenues as a percentage of total revenues.... 9.88% 10.65% 8.08% 5.99%
Ratio of net charge-offs (recoveries) to
average finance asset(1).................... 0.14% 0.02% (0.01%) 0.00%
</TABLE>
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SIX MONTHS
ENDED
JUNE 30, FOR THE YEARS ENDED
1999 1998 1997 1996
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(IN THOUSANDS)
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FRANCHISE FINANCE
New business volume........................... $ 7,356 $ 22,320 $ 2,341 --
Total finance assets.......................... 25,364 22,889 2,425 --
Revenues...................................... 1,474 987 178 --
Nonperforming assets.......................... 79 120 -- --
Revenues as a percentage of total revenues.... 0.74% 0.27% 0.05% --
Ratio of net charge-offs (recoveries) to
average finance assets(1)................... 0.62% (.06%) 0.45% --
BROADCAST MEDIA FINANCE
New business volume........................... $ 26,874 $ 21,905 $ 23,948 $ 7,020
Total finance assets.......................... 43,085 21,288 11,787 3,575
Revenues...................................... 1,897 2,710 1,745 469
Nonperforming assets.......................... 75 -- -- --
Revenues as a percentage of total revenues.... 0.95% 0.74% 0.50% 0.14%
Ratio of net charge-offs (recoveries) to
average finance assets(1)................... 0.00% 0.00% 0.10% 0.19%
</TABLE>
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(1) Annualized
Commercial Real Estate
In 1993, the Company ceased commercial real estate lending activities and
began to orderly liquidate that portfolio. Commercial real estate mortgages were
primarily secured by first priority liens, and were generally limited to 80% of
the property's appraised market value. Properties financed were located in the
U.S. and included the following types: hotel/motel, retail, recreational,
office, warehouse, industrial, and residential apartments.
The following table sets forth certain financial information regarding the
Commercial Real Estate segment for the periods indicated.
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SIX MONTHS
ENDED
JUNE 30, FOR THE YEARS ENDED
1999 1998 1997 1996
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(IN THOUSANDS)
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COMMERCIAL REAL ESTATE
New business volume(2)........................... -- -- -- $2,044
Total finance assets............................. $14,087 $30,315 $49,661 94,266
Revenues......................................... 60 (1) 1,653 8,466
Nonperforming assets............................. 18,536 38,189 58,559 75,752
Revenues as a percentage of total revenues....... 0.03% 0.00% 0.47% 2.59%
Ratio of net charge-offs (recoveries) to average
finance assets(1).............................. 14.16% 12.92% 7.25% 6.11%
</TABLE>
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(1) Annualized
(2) Represented funding commitments that existed prior to cessation of business
activities or supplements to pre-existing loans.
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COMPETITION
The markets in which TFC operates are highly fragmented and extremely
competitive. They are characterized by competitive factors that vary, to some
extent, by product and geographic region. TFC's competitors include:
- Commercial finance companies;
- National and regional banks and thrift institutions;
- Insurance companies;
- Leasing companies; and
- Finance operations of equipment vendors.
Competition has intensified in recent years as the result of an improving
economy, easier access to capital and a heightened awareness of the
attractiveness of the commercial finance markets. The rapid expansion of
securitization products has dramatically eased access to capital, breaking down
a significant barrier to entry for new competitors.
TFC competes primarily on the basis of pricing, terms, structure, and
service. Competitors often seek to compete aggressively on the basis of these
factors. The Company may lose market share to the extent that it is unwilling to
match competitors' practices. To the extent that TFC matches these practices,
the Company may experience decreased margins and/or increased risk of credit
losses. Many of TFC's competitors are large companies that have substantial
capital, technological and marketing resources. This has become increasingly the
case given the recent surge in consolidation activity in the commercial finance
industry. In some instances, TFC's competitors have access to capital at a lower
cost than TFC.
RELATIONSHIP WITH TEXTRON
General
TFC derives a significant portion of its business from financing the sale
and leasing of products sold by Textron. In 1998, 1997, and 1996, TFC paid
Textron $980.4 million, $736.3 million and $662.9 million, respectively, for the
purchase of finance assets. TFC recognized finance charge revenues directly from
Textron and its affiliates (net of payments or reimbursements for interest
charged at more or less than market rates) of $3.7 million in 1998, $0.1 million
in 1997 and none in 1996.
Textron and TFC utilize an inter-company account for the allocation of
Textron overhead charges, and for the settlement of receivables purchases made
by TFC from Textron and its affiliates. See Note 2 to TFC's audited Consolidated
Financial Statements appearing in Item 13 of this Form 10.
Agreements with Textron
TFC and Textron are parties to several agreements which govern different
aspects of the TFC-Textron relationship. They are described below.
Receivables Purchase Agreement -- Under a Receivables Purchase Agreement
with Textron, TFC has recourse to Textron with respect to most finance
receivables and leases relating to products manufactured and sold by Textron.
Under the Receivables Purchase Agreement, Textron also makes available to TFC a
line of credit of up to $100 million for junior subordinated borrowings at the
prime interest rate.
Support Agreement with Textron -- Under the Support Agreement with Textron
dated as of May 25, 1994, Textron is required to pay to TFC, quarterly, an
amount sufficient to provide that TFC's pre-tax earnings, before extraordinary
items and fixed charges (including interest on indebtedness and amortization of
debt discount, "fixed charges"), will not be less than 125% of the Company's
fixed charges. No such payments under the Support Agreement were required for
the six months ended June 30, 1999, or for the years ended 1998, 1997, 1996,
1995, or 1994, when TFC's fixed-charge coverage ratios (as defined) were 166%,
173%, 171%, 165%, 160%, and 172%, respectively. Textron has also agreed to
maintain TFC's consolidated
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shareholder's equity at an amount not less than $200 million. Pursuant to the
terms of the Support Agreement, Textron is required to directly or indirectly
own 100% of TFC's common stock. The Support Agreement also contains a third
party beneficiary provision entitling TFC's creditors to enforce its provisions
against Textron.
Tax Sharing Agreement with Textron -- Under a Tax Sharing Agreement with
Textron, Textron has agreed to loan to TFC, on a junior subordinated
interest-free basis, an amount equal to the deferred income tax liability of
Textron attributable to the manufacturing profit not yet recognized for tax
purposes on products manufactured by Textron and financed by TFC. Borrowings
under this arrangement are reflected in amounts due to Textron in TFC's
Consolidated Balance Sheet.
TFC's revenues and expenses are included in the consolidated Federal tax
return of Textron. TFC files most of its State income tax returns on a separate
basis. TFC is allocated Federal tax benefits and charges on the basis of
statutory U.S. tax rates applied to the Company's taxable income or loss
included in the consolidated returns. The benefits of general business credits,
foreign tax credits and any other tax credits are utilized in computing current
tax liability. TFC is paid for tax benefits generated and utilized in Textron's
consolidated federal and state income tax returns, whether or not TFC would have
been able to utilize these benefits on a separate tax return. Income tax
liabilities are settled on a quarterly basis.
REGULATIONS
Small Business Act
SBA loans made by TFC are governed by the Small Business Act and the Small
Business Investment Act of 1958, as amended, and may also be subject to State
regulations respecting commercial transactions generally. These Federal and
State statutes and regulations specify the types of loans and loan amounts which
are eligible for the SBA's guarantee, as well as the servicing requirements
imposed on the lender to maintain the effectiveness of the SBA guarantees.
Other
TFC's activities are subject, in certain instances, to supervision and
regulation by State and Federal governmental authorities. These activities may
also be subject to various laws, including consumer finance laws in some
instances, and judicial and administrative decisions imposing various
requirements and restrictions, which, among other things:
- Regulate credit granting activities;
- Establish maximum interest rates, finance charges and other charges;
- Require disclosures to customers;
- Govern secured transactions;
- Affect insurance brokerage activities; and
- Set collection, foreclosure, repossession and claims handling procedures
and other trade practices.
Although most states do not intensely regulate commercial finance activity,
many states impose limitations on interest rates and other charges, and prohibit
certain collection and recovery practices. They may also require licensing of
lenders or lessors, and specific disclosure of certain contract terms. TFC is
also required to comply with certain provisions of the Equal Credit Opportunity
Act. The Company is also subject to regulation in those foreign countries in
which it has operations.
Existing statutes and regulations have not had a material adverse effect on
the Company's business. However, it is not possible to forecast the nature of
future legislation, regulations, judicial decisions, orders or interpretations,
or their impact upon TFC's future business, financial condition, results of
operations or prospects.
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EMPLOYEES
As of June 30, 1999, TFC had 862 employees. The Company is not subject to
any collective bargaining agreements.
RISK MANAGEMENT
TFC's business activities contain various elements of risk. The Company
considers the principal types of risk to be:
- Credit risk;
- Asset/liability risk (including interest rate and foreign exchange risk);
and
- Liquidity risk.
Proper management of these risks is essential to maintaining profitability.
Accordingly, the Company has designed its risk management systems and procedures
to identify and quantify these risks. TFC has established appropriate policies
and sets prudent limits in these areas. The Company's management of these risks,
and its compliance with policies and limits, is continuously monitored by means
of administrative and information systems.
Credit Risk Management
TFC manages credit risk through:
- Underwriting procedures;
- Centralized approval of individual transactions exceeding certain dollar
limits; and
- Active portfolio and account management.
The Company has developed underwriting procedures for each operating unit
that assesses a prospective borrower's ability to perform in accordance with
proposed loan terms. These procedures include:
- Analyzing business or property cash flows and collateral values;
- Performing financing sensitivity analyses; and
- Assessing potential exit strategies.
Certain receivables transactions are originated with the intent of fully or
partially selling them. This strategy provides an additional tool to manage
credit risk.
TFC has developed a tiered credit approval system which allows certain
transaction types and dollar amounts to be approved at the operating unit level.
The delegation of credit authority is done under strict policy guidelines. TFC
business units are also subject to semi-annual audits by TFC's Corporate
Investment Control Department.
Depending on transaction size and complexity, transactions outside of
operating unit authority require the approval of a Group Investment Control
officer, the Executive Vice President and Chief Operating Officer, the Senior
Vice President and Chief Credit Officer, the Chairman, President and Chief
Executive Officer and/or TFC's Credit Committee, which is comprised of its
Chairman, President and Chief Executive Officer, Executive Vice President and
Chief Operating Officer, Senior Vice President and Chief Credit Officer, Senior
Vice President and Chief Financial Officer, and Senior Vice President, General
Counsel and Secretary.
The Company controls the credit risk associated with its portfolio by
limiting transaction sizes, as well as diversifying transactions by: (1)
industry, (2) geographic area, (3) property type and (4) borrower. Through these
practices, TFC identifies and limits exposure to unfavorable risks and seeks
favorable financing opportunities. Management reviews receivable aging trends
and watch list reports, and conducts regular business reviews, in order to
monitor portfolio performance.
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Geographic Concentration -- TFC continuously monitors its portfolio to
avoid any undue geographic concentration in any region of the U.S. or in any
foreign country. The largest concentration of domestic receivables was in the
Southeastern U.S., representing 25% of TFC's total owned and securitized
portfolio at June 30, 1999. International receivables are mostly generated in
support of Textron product sales. At June 30, 1999, international receivables
represented 11% of TFC's total owned and securitized portfolio, with no single
country representing more than 6%.
Asset/Liability Risk Management
The Company continuously measures and quantifies: (1) interest rate risk,
(2) foreign exchange risk, and (3) liquidity risk, in each case taking into
account the effect of derivatives hedging activity. TFC uses derivatives as an
integral part of its asset/liability management program, in order to reduce:
- Interest rate exposure arising from mismatches between assets and
liabilities; and
- Foreign currency exposure arising from changes in exchange rates.
The Company does not use derivative products for the purpose of generating
earnings from changes in market conditions. Before entering into a derivative
transaction, the Company determines that a high correlation exists between the
change in value of the hedged transaction and the value of the derivative. When
TFC executes a transaction, it designates the derivative to specific debt. 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 matures. Accordingly, after the inception of a hedge transaction, TFC
monitors the effectiveness of derivatives through an ongoing review of the
amounts and maturities of assets, liabilities and swap positions. This
information is reviewed by TFC's Treasurer and its Chief Financial Officer so
that appropriate remedial action can be taken, as necessary.
TFC carefully manages exposure to counterparty risk in connection with its
derivatives transactions. In general, the Company limits its transactions to
counterparties having ratings of at least "A" by Standard & Poors Rating
Service, or "A2" by Moody's Investor Service. Total notional counterparty
exposure is limited to $500 million. This maximum notional exposure equates to
approximately $15 million of potential credit exposure (within two standard
deviations of probability) for the types of derivative transactions typically
entered into by TFC (e.g. interest rate swaps, basis swaps, and short-term
currency swaps and forward contracts).
Interest Rate Risk Management -- TFC manages interest rate risk by
monitoring the duration and interest rate sensitivity of its assets, and by
incurring liabilities (either directly or synthetically with derivatives) having
a similar duration and interest sensitivity profile. TFC's internal policies
limit the aggregate mismatch of interest sensitive assets and liabilities to 10%
of total assets.
From a quantitative perspective, TFC assesses its exposure to interest rate
changes using an analysis that measures the potential loss in net income, over a
12 month period, resulting from a hypothetical increase in interest rates of 100
basis points across all maturities occurring at the outset of the measurement
period (sometimes referred to as a "shock test"). The Company also assumes in
its analysis that: prospective receivables additions will be perfectly match
funded, existing portfolio will not prepay, and all other relevant factors will
remain constant. Applying this "shock test" model to TFC's asset and liability
position as of June 30, 1999, the Company's net income for the following
12-month period would be reduced by approximately $1.9 million.
Foreign Exchange Risk Management -- A small portion of the finance assets
owned by TFC are located outside of the United States. These receivables are
generally in support of Textron's overseas product sales and are predominantly
denominated in U.S. dollars. TFC presently has foreign currency receivables
denominated in Canadian and Australian dollars. In order to minimize the effect
of fluctuations in foreign currency exchange rates in TFC's financial results,
the Company enters into forward exchange contracts, on a monthly basis, in
amounts sufficient to hedge TFC's total asset exposure. As a result, TFC has no
material exposure to changes in foreign currency exchange rates.
9
<PAGE> 12
Liquidity Risk Management
The Company uses cash to fund asset growth and to meet debt obligations and
other commitments. TFC's primary sources of funds are:
- commercial paper borrowings;
- issuances of medium-term notes and other term debt securities; and
- syndication, securitization or sale of receivables.
All commercial paper borrowings are fully backed by committed bank lines,
providing liquidity in the event of capital market dislocation. The Company
generally maintains less than 50% of debt obligations in commercial paper and
short-term debt. If the Company is unable to access these markets on acceptable
terms, it can draw on its bank credit facilities and use cash flow from
operations and portfolio liquidations to satisfy its liquidity needs. See also
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," included in Item 13, for further
information concerning TFC's liquidity risk management.
PORTFOLIO QUALITY
The performance of TFC's portfolio reflects the Company's rigorous credit
approval process and disciplined portfolio management. As of June 30, 1999,
nonperforming assets were $69.8 million, or 1.7% of finance assets, improved
from $86.7 million, or 2.3% of finance assets at the end of 1998. Much of the
improvement in portfolio performance is a consequence of the liquidation of
TFC's commercial real estate portfolio. TFC's performance is comfortably within
its target range for nonperforming assets of 2% to 4% of finance assets.
The following table presents information about the credit quality of the
Company's portfolio:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, FOR THE YEARS ENDED
1999 1998 1997 1996 1995 1994
----------- ------ ----- ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
NONPERFORMING ASSETS
Non-accrual loans....................... $ 53.5 $ 69.9 $85.6 $ 91.2 $ 98.7 $100.3
Real estate owned....................... 7.3 11.6 10.6 17.9 27.1 29.4
Repossessed assets...................... 9.0 5.2 3.2 8.2 1.6 6.6
------ ------ ----- ------ ------ ------
Total nonperforming assets......... $ 69.8 $ 86.7 $99.4 $117.3 $127.4 $136.3
====== ====== ===== ====== ====== ======
Ratio of nonperforming receivables to total
receivables................................ 1.8% 2.4% 3.2% 3.7% 4.3% 4.9%
Ratio of nonperforming assets to total
finance assets............................. 1.7% 2.3% 3.1% 3.6% 4.1% 4.7%
ALLOWANCE FOR LOSSES
Allowance for losses of receivables.......... $ 85.7 $ 83.9 $77.4 $ 74.8 $ 74.8 $ 70.0
Ratio of allowance for losses on receivable
to receivables............................. 2.1% 2.3% 2.5% 2.4% 2.5% 2.5%
Ratio of allowances for losses on receivables
to net charge-offs......................... 4.8x(1) 5.1x 4.0x 2.8x 3.3x 2.5x
Ratio of allowance for losses on receivables
to nonperforming receivables............... 122.8% 96.8% 77.9% 63.8% 58.7% 51.4%
</TABLE>
- ---------------
(1) Annualized
10
<PAGE> 13
Nonperforming Assets
Nonperforming assets include nonaccrual finance receivables and repossessed
assets. TFC classifies receivables as nonaccrual, and suspends the recognition
of earnings, when accounts are contractually delinquent by more than three
months, unless collection of principal and interest is not doubtful. In
addition, earlier suspension may occur if TFC has significant doubt about the
ability of the obligor to meet current contractual terms. Doubt may be created
by: (1) payment delinquency, (2) reduction in the obligor's cash flows, (3)
deterioration in the loan to collateral value relationship, or (4) other
relevant considerations. The table below shows nonperforming assets by business
segment:
<TABLE>
<CAPTION>
YEARS ENDED
JUNE 30, ------------------------
1999 1998 1997 1996
-------- ----- ----- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
NONPERFORMING ASSETS BY SEGMENT
Term loans and leases............................... $38.2 $34.0 $34.1 $ 37.0
Revolving credit.................................... 2.8 4.5 5.8 3.5
Specialty finance................................... 10.3 10.0 .9 1.0
Commercial real estate.............................. 18.5 38.2 58.6 75.8
----- ----- ----- ------
Total nonperforming assets..................... $69.8 $86.7 $99.4 $117.3
===== ===== ===== ======
</TABLE>
The above table does not include captive receivables with recourse to
Textron. Captive receivables with recourse that were 90 days or more delinquent
amounted to 12.9%, 10.9%, 9.7%, and 10.1% of recourse captive finance
receivables at June 30, 1999 and years ended 1998, 1997, and 1996, respectively.
TFC recognizes revenues on such delinquent accounts. Such revenues were
approximately $3.3 million, $5.8 million, $7.9 million, and $6.9 million for the
six months ended June 30, 1999, and years ended 1998, 1997, and 1996,
respectively.
Delinquent Earning Accounts and Loan Modifications
TFC does not have any earning accounts that are 90 days or more delinquent,
with the exception of captive receivables described above. Loans that are
modified are not returned to accruing status until six months of timely payments
have been received, or TFC otherwise deems that full collection of principal and
interest is not doubtful.
Allowance for Losses
The allowance for losses on receivables is available to absorb losses in
the entire portfolio. TFC establishes this allowance through direct charges to
income. Losses are charged to the allowance when all or a portion of a
receivable is considered to be uncollectible. The Company reviews the allowance
periodically, and adjusts it in response to: (1) the size and loss experience of
the overall portfolio, (2) current economic conditions, and (3) the
collectibility and workout potential of identified nonperforming accounts.
Finance receivables are written down to the fair value of the related collateral
(less estimated cost to sell) when the collateral is repossessed or when no
payment has been received for six months. If the fair market value of
repossessed assets declines after the time of repossession, TFC records a
writedown to reflect this reduction in value.
ITEM 2. FINANCIAL INFORMATION
The results of TFC's operations and balance sheet data for each of the
years in the three-year period ended January 2, 1999, and as of January 2, 1999,
January 3, 1998, and December 28, 1996, respectively, were derived from TFC's
audited Consolidated Financial Statements, and the notes thereto, which appear
elsewhere in this Form 10. The results of operations and balance sheet data for
each of the years in the two-year period ended December 30, 1995, and as of
December 30, 1995, and December 31, 1994, respectively, were derived from TFC's
audited Consolidated Financial Statements, and the notes thereto, which are not
presented herein. The results of operations and balance sheet data for the six
months ended
11
<PAGE> 14
June 30, 1999 and 1998 were derived from TFC's unaudited Condensed Consolidated
Financial Statements, and Notes thereto, appearing in Item 13 of this Form 10.
The data presented below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
TFC's audited Consolidated Financial Statements and unaudited Condensed
Consolidated Financial Statements.
<TABLE>
<CAPTION>
AT OR FOR THE SIX MONTHS ENDED AT OR FOR THE YEARS ENDED(1)
($ IN THOUSANDS) JUNE 30, 1999 JUNE 30, 1998 1998 1997 1996 1995 1994
---------------- -------------- -------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Finance charges and
discounts.................... $ 168,739 $ 146,694 $ 297,091 $ 290,943 $ 281,830 $ 271,580 $ 237,634
Rental revenues on operating
leases....................... 8,136 8,645 17,181 18,664 19,071 20,859 20,841
Other income................... 22,663 20,921 52,890 40,613 26,346 18,777 18,692
Net income..................... 34,417 31,622 69,576 67,741 58,339 54,447 51,141
BALANCE SHEET DATA
Total finance receivables...... $3,988,590 $3,256,738 $3,611,397 $3,069,123 $3,172,824 $2,967,569 $2,786,891
Reserve for losses............. 85,687 78,676 83,887 77,394 74,824 74,769 69,981
Operating lease equipment,
net.......................... 111,602 122,874 118,590 111,518 127,691 124,728 136,135
Total assets................... 4,165,020 3,395,195 3,784,538 3,177,965 3,269,141 3,060,521 2,910,841
Commercial paper & short-term
debt......................... 1,233,693 1,110,641 1,424,872 1,073,665 1,014,613 1,009,761 940,371
Long-term senior notes......... 1,917,486 1,354,931 1,403,958 1,290,903 1,426,783 1,170,650 1,127,517
Deferred income taxes.......... 330,118 307,744 321,521 319,293 315,366 302,741 293,532
Shareholders equity............ 496,469 439,598 472,452 405,876 411,715 382,476 354,629
External debt to shareholder's
equity....................... 6.35x 5.61x 5.99x 5.83x 5.93x 5.95x 6.09x
SELECTED DATA AND RATIOS
PROFITABILITY
Net interest margin as a
percentage of average net
investment(2)................ 6.30% 6.62% 6.88% 6.51% 6.15% 5.98% 6.32%
Return on equity............... 14.3% 15.0% 16.2% 16.8% 14.8% 14.8% 15.0%
Return on average assets(3).... 1.73% 1.91% 2.06% 2.07% 1.84% 1.82% 1.85%
Ratio of earnings to fixed
charges...................... 1.65x 1.67x 1.72x 1.70x 1.65x 1.60x 1.72x
Salaries and administrative
expenses as a percentage of
average managed
receivables(4)............... 1.78% 1.71% 1.73% 1.54% 1.65% 1.59% 1.66%
CREDIT QUALITY
60+ days contractual
delinquency as a percentage
of finance receivables(5).... 1.26% 0.93% 0.87% 0.86% 0.75% 2.52% 0.93%
Nonperforming assets as a % of
finance assets............... 1.74% 2.73% 2.3% 3.1% 3.6% 4.1% 4.7%
Reserves for losses as a
percentage of finance
receivables.................. 2.1% 2.4% 2.3% 2.5% 2.4% 2.5% 2.5%
</TABLE>
- ---------------
(1) TFC's year-end dates conform with Textron's year-end which falls on the
nearest Saturday to December 31st. All interim periods are calendar month
end.
(2) Represents revenues earned less interest expense on borrowings as a
percentage of average finance assets. Average finance assets include finance
receivables plus operating leases.
(3) Average assets include finance receivables less allowance for loan loss,
operating leases and other assets. Investments in leveraged leases are not
net of deferred taxes.
(4) Average managed receivables include owned receivables plus receivables
serviced under securitizations, participations and third party portfolio
servicing agreements.
(5) Delinquency excludes captive receivables with recourse to Textron. Captive
receivables represent third party finance receivables originated in
connection with the sale or lease of Textron manufactured products.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations is located in Item 13.
12
<PAGE> 15
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information about the potential effect of changes in interest rates and
currency exchange rates on TFC's financial results is discussed in Item 1, and
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations," found in Item 13.
ITEM 3. PROPERTIES
TFC leases office space from a Textron affiliate for its corporate
headquarters at 40 Westminster Street, Providence, Rhode Island 02903. The
Company leases other offices throughout the United States. For information
concerning TFC's lease obligations, see Note 12 to TFC's audited Consolidated
Financial Statements appearing elsewhere in this Form 10.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding shares of common stock ($100.00 par value per share)
of TFC are owned by Textron, whose principal executive offices are located at 40
Westminster Street, Providence, RI 02903. Textron possesses sole voting and
investment power with respect to such shares of common stock. The directors and
officers of TFC do not own any of TFC's common shares.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of TFC are as follows:
DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Edward C. Arditte............ 44 TFC Director since May of 1997. Vice President and Treasurer of
Textron Inc. since 1997. Vice President Finance and Business
Development, Textron Fastening Systems, from 1995 to 1997, and Vice
President -- Communications and Risk Management of Textron Inc.
from 1994 to 1995.
Lewis B. Campbell............ 53 TFC Director since January of 1993. Chairman and Chief Executive
Officer of Textron since 1999. President and Chief Executive
Officer from 1998 to 1999. President and Chief Operating Officer of
Textron Inc. from 1994 to 1998.
Stephen A. Giliotti.......... 51 TFC Director since December of 1994. Chairman, President and Chief
Executive Officer of TFC since 1999. President from 1995 to 1999.
Executive Vice President and Chief Operating Officer from 1994 to
1995.
John A. Janitz............... 56 TFC Director since May 1999. President and Chief Operating Officer
of Textron Inc. since 1999. Chairman, President and Chief Executive
Officer of Textron Automotive Company From 1996 to 1999. Executive
Vice President, General Manager, Occupant Restraint, Seat Belt and
Fasteners of TRW, Inc. from 1990 to 1996.
Wayne W. Juchatz............. 52 TFC Director since May of 1995. Executive Vice President and
General Counsel of Textron Inc. since 1995. Executive Vice
President, General Counsel and Secretary of RJ Reynolds Co. from
1994 to 1995.
</TABLE>
13
<PAGE> 16
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Stephen A. Giliotti.......... 51 Chairman, President and Chief Executive Officer since 1999.
Formerly, President from 1995 to 1999. Executive Vice President and
Chief Operating Officer from 1994 to 1995.
Buell J. Carter.............. 53 Executive Vice President and Chief Operating Officer since 1999.
Formerly, Senior Vice President -- Operations from 1997 to 1999.
Vice President, Division Manager, Asset Based Finance from 1991 to
1997.
Andrew M. Chester............ 45 Senior Vice President, Human Resources since 1998. Formerly, Vice
President, Human Resources from 1989 to 1998.
Thomas J. Cullen............. 43 Senior Vice President and Chief Financial Officer since 1997.
Senior Vice President, Finance from 1995 to 1997. Vice President,
and Controller from 1992 to 1995.
O. Lewis Humphrey............ 52 Senior Vice President and Chief Credit Officer since 1995.
Formerly, Vice President, Corporate Investment Control from 1991 to
1995.
John W. Mayers, Jr........... 45 Senior Vice President, Corporate Development since 1999. Formerly,
Vice President, Risk Management and Insurance for Textron Inc. from
1997 to 1999. Director, Risk Management and Insurance for Textron
Inc. from 1993 to 1997.
Dan R. McCullough............ 55 Senior Vice President, Operations since 1995. Formerly, Vice
President Vendor Finance and Floorplan Finance from 1991 to 1995.
Richard H. Mitterling........ 52 Senior Vice President, Operations since 1998. Formerly, Vice
President, Division Manager, Resort Receivable Division from 1994
to 1998.
Ronald W. Oake............... 55 Senior Vice President, Operations since 1999. Formerly, Vice
President, Division Manager, Floorplan Finance Division from 1998
to 1999; General Manager of Avco Financial Services from 1995 to
1998; Vice President, Operations, Floorplan Finance Division from
1992 to 1995.
Elizabeth C. Perkins......... 45 Senior Vice President, General Counsel since 1994.
David A. Raspallo............ 40 Senior Vice President and Chief Information Officer since 1998.
Formerly, Vice President, Financial Segments TFC/AFS from 1998 to
1999; Vice President, Information Systems from 1993 to 1998.
Barry L. Elfstrom............ 47 Vice President, Controller Financial Reporting since 1999. Vice
President and Controller or Assistant Controller 1986 to 1999.
Brian F. Lynn................ 39 Vice President and Treasurer since 1999. Formerly, Vice President,
Division Manager, Vendor Finance Division from 1996 to 1999; Vice
President and Treasurer from 1994 to 1996.
Eric Salander................ 40 Vice President Finance since 1999. Vice President, Strategic
Planning 1996 -- 1999. Formerly, Vice President Administration for
AAA South Central NE from 1995 to 1996. Manager Ernst & Young from
1989 to 1995.
Kathleen A. Smith............ 50 Vice President, Tax since 1998. Formerly, Assistant Vice President,
Tax from 1996 to 1998; Senior Manager of Tax for Lefkowitz,
Garfunkel, Champi & DiRenzo from 1992 to 1996.
</TABLE>
ITEM 6. EXECUTIVE COMPENSATION
Omitted.
14
<PAGE> 17
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted.
ITEM 8. LEGAL PROCEEDINGS
See Note 13 to TFC's audited Consolidated Financial Statements regarding
legal proceedings.
ITEM 9. MARKET PRICE OF AND DIVIDENDS OF THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The common stock of TFC is owned entirely by Textron and, therefore, there
is no trading of TFC's stock. Dividends of $18.7 million were declared and paid
in the six months ended June 30, 1999, and $62.3 million and $73.6 million were
declared and paid in the years ended 1998 and 1997, respectively. See Note 8 to
TFC's audited Consolidated Financial Statements regarding restrictions as to
dividend availability.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, TFC has sold medium-term notes from time to
time. These debt securities were sold to qualified institutional buyers and
accredited institutional investors, and were exempt from the Securities Act of
1933 under Section 4(2).
The following table lists sales of TFC's Series C and Series D medium-term
notes for the periods shown:
<TABLE>
<CAPTION>
YEAR SERIES AMOUNT MATURITY
---- ------ ------------ ---------
<S> <C> <C> <C>
1996..................................... C $ 75,000,000 3 years
1997..................................... C $200,000,000 2 years
1998..................................... D $370,000,000 2-3 years
1999 (through June 30)................... D $605,000,000 3-4 years
</TABLE>
The Company's medium-term notes have been publicly offered by the following
underwriters: Banc of America Securities LLC, Chase Securities, Inc., J.P.
Morgan Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Salomon Smith Barney, and Warburg Dillion Read LLC. Commissions paid by TFC to
these underwriters ranged from 0.25% to 0.45% of the amount of the medium-term
notes sold. These medium-term notes were sold for cash and generally at par.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The following description of the capital stock of the Company and certain
provisions of the Company's Restated Certificate of Incorporation and By-Laws is
a summary and is qualified in its entirety by the provisions of the Restated
Certificate of Incorporation and By-Laws, which have been filed as exhibits to
this Form 10.
The Company has authorized Four Thousand (4,000) shares of Common Stock
with a par value of $100.00 per share. No preferred stock has been issued or
authorized. All outstanding shares of stock are held by Textron.
Each stockholder of record is entitled to one vote, by person or by proxy,
for each share of Common Stock held on every matter properly submitted to the
stockholders for a vote. Except as otherwise provided by law, or in the Restated
Certificate of Incorporation or By-Laws, stockholder votes shall be decided by
the vote of a majority in interest of the stockholders entitled to vote thereon.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes and empowers
each Delaware corporation to indemnify its directors, officers, employees and
agents against liabilities incurred in connection with, and related expenses
resulting from, any claim, action or suit brought against any such person as a
result of his or her relationship with the corporation, provided that such
persons acted in good faith and in a manner
15
<PAGE> 18
such person reasonably believed to be in, and not opposed to, the best interests
of the corporation in connection with the acts or events on which such claim,
action or suit is based. The finding of either civil or criminal liability on
the part of such person in connection with such acts or events is not
necessarily determinative of the question of whether such person has met the
required standard of conduct and is, accordingly, entitled to be indemnified.
The foregoing statements are subject to the detailed provisions of Section 145
of the General Corporation Law of the State of Delaware.
The By-Laws of Textron Financial Corporation provide that each person who
at any time is or shall have been a director or elected or appointed officer of
Textron Financial Corporation, or is or shall have been serving another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity at the request of Textron Financial Corporation, and
his or her heirs, executors and administrators, shall be indemnified by Textron
Financial Corporation in accordance with and to the full extent permitted by the
General Corporation Law of the State of Delaware. Paragraph (f) of Article XII
of the By-Laws of Textron Financial Corporation facilitates enforcement of the
right of directors and owners to be indemnified by establishing such right as a
contract right pursuant to which the person entitled thereto may bring suit as
if the indemnification provisions of the By-Laws were set forth in a separate
written contract between Textron Financial Corporation and the director or
officer.
The By-Laws of Textron Financial Corporation provide that Textron Financial
Corporation shall indemnify, in all respects and to the full extent authorized
or permitted by law, 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, by reason of his or
her being or having been a director, elected or appointed officer, employee or
agent, of any other corporation, partnership, joint venture, trust, employee
benefit plan 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. Such
indemnification of any person shall inure to the benefit of his or her heirs,
executors and administrators.
The By-Laws of Textron also provide similar indemnification for officers of
Textron who serve as directors of the Company.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
TFC utilizes a broad base of financial resources for its liquidity and
capital requirements. Cash is provided from operations and several different
sources of borrowings, including the issuance of commercial paper and short-term
bank debt, sales of medium- and long-term debt in the U.S. and foreign financial
markets and junior subordinated borrowings under a $100 million line of credit
with Textron. For liquidity purposes, TFC has a policy of maintaining sufficient
unused lines of credit to support its outstanding commercial paper and
short-term bank debt. TFC has line of credit agreements of $1.2 billion, of
which $400 million will expire in 2000 and $800 million will expire in 2003.
TFC's lines of credit not used or reserved as support for commercial paper and
bank borrowings were $16 million at June 30, 1999, as compared to $114 million
at January 2, 1999.
In 1999, TFC entered into a short-term promissory note program with Textron
at market rates of interest. As of June 30, 1999, TFC had no borrowings under
this program and the program was cancelled.
TFC has two medium-term note facilities, totaling $1.5 billion, under Rule
144A of the Securities Act of 1933, as amended. Proceeds from issuances of these
facilities have been used to refinance maturing commercial paper and long-term
debt and to fund receivable growth. During 1998, TFC issued $237 million of
variable rate notes and $133 million of fixed rate notes through these
facilities. At January 2, 1999, TFC had
16
<PAGE> 19
$472 million available through its medium-term note facilities. During the first
six months of 1999, TFC issued $200 million of fixed rate notes and $405 million
of variable rate notes through these facilities. At June 30, 1999, TFC had $117
million available through its medium-term note facilities.
Cash flows from operations during the first six months of 1999 were $77
million, as compared to $71 million in the corresponding period last year. The
increase in operating cash flows primarily reflects higher net income and the
timing of income tax payments, partially offset by an increase in other assets
and the timing of the payments of accrued interest and other liabilities. Cash
flows used in investing activities were funded from the collection of
receivables and through the issuance of long- and short-term bank debt.
Short-term borrowings decreased by $191 million and long-term borrowings
increased by $519 million. Borrowings under a junior subordinated facility
increased by $4 million, reflecting the funding of finance receivables related
to Textron's manufacturing divisions. During the first six months of 1999,
Textron contributed capital of $8.3 million to TFC to finance an acquisition.
Cash flows provided by operations were $144 million in 1998, as compared to
$93 million in 1997. The increase in operating cash flows primarily reflects the
timing of the payments of income taxes and accrued interest and other
liabilities, and includes increase in payables for receivable additions
originated in late December. Cash flows from operations of $93 million in 1997
were $6 million less than in 1996. The decrease from 1996 is primarily due to
the timing of income tax payments and a non-cash gain on a receivables
securitization, partially offset by a 7% increase in income before provision for
losses. Cash flows used in investing activities in 1998 were funded from the
collection of receivables and through the issuance of long-term bank debt.
Short-term borrowings increased by $351 million and $59 million in 1998 and
1997, respectively, reflecting the financing of acquisitions and receivable
growth. Long-term borrowings increased in 1998 by $66 million as compared to a
decrease of $136 million in the prior year. The increase in 1998 reflects
refinancing of short-term debt. The decrease in 1997 reflected the use of
proceeds from a securitization of receivables. In 1998, TFC paid dividends to
Textron of $62.3 million as compared to $73.6 million in 1997. The decrease was
primarily due to additional dividends paid in 1997 for the purpose of adjusting
TFC's leverage.
Because the finance business involves the purchase and carrying of
receivables, a relatively high ratio of borrowings to net worth is customary.
Debt as a percentage of total capitalization was 86%, unchanged from year-end.
Commercial paper and short-term debt as a percentage of total debt was 39% at
June 30, 1999, down from 50% at year-end.
TFC's ratio of earnings to fixed charges decreased to 1.65x during the
first six months of 1999, as compared to a ratio of 1.67x for the same period
last year. The decrease is attributable to a 12% increase in interest expense,
versus an 11% increase in income before interest expense and income taxes.
TFC's ratio of earnings to fixed charges was 1.72x in 1998 (1.70x in 1997
and 1.65x in 1996). The ratio increased in 1998 due to a 4% increase in income
before income taxes, partially offset by an increase in interest expense.
FINANCE RECEIVABLES
Total finance receivables increased to $3.989 billion at June 30, 1999, up
from $3.611 billion at January 2, 1999. Equipment on operating leases at June
30, 1999 decreased to $112 million, as compared to $119 million at year-end. The
increase in receivables primarily relates to growth in term loan segment, which
included an acquisition of a portfolio of equipment loans and leases, as well as
growth in the revolving credit segment. In 1998, owned finance receivables
increased 18% from $3,069 billion at January 3, 1998. The increase reflects
growth in TFC's revolving credit segment, and the aircraft finance business of
the term loan segment. Receivables growth also reflects the acquisitions of an
equipment finance portfolio and a receivable factoring company. Managed finance
receivables, defined as owned receivables plus receivables serviced under
securitizations, participations, and third-party portfolio servicing agreements,
increased to $4.887 billion from $4.509 billion at year-end.
17
<PAGE> 20
Finance receivable additions for the first six months of 1999 were $2.130
million, as compared to $1.857 million for the corresponding period in 1998. The
increase in additions was due to growth in the term loan, revolving credit and
specialty finance segments. Finance receivable additions in 1998 were $4.009
billion, as compared to $2.712 billion of additions in 1997. The increase in
additions was primarily due to growth in the revolving credit segment and golf
and aircraft financing in the term loan segment.
NONPERFORMING ASSETS
Nonperforming assets were $70 million at June 30, 1999, down from $87
million at year-end. This decrease was primarily due to a decrease in the real
estate portfolio, partially offset by an increase in nonperforming assets in the
term loan portfolio. Nonperforming commercial real estate assets represent 27%
of total nonperforming assets, down from 44% at year-end. Nonperforming assets
decreased 13% to $87 million at January 2, 1999, from $99 million at January 3,
1998. The improvement relates to a decrease in nonperforming real estate,
partially offset by increases in the revolving and term loan portfolios.
Nonaccrual commercial real estate loans were $32 million in 1998 and $50 million
in 1997. Commercial real estate owned was $6 million in 1998 ($9 million in
1997), and other real estate owned was $5 million in 1998 and $2 million in
1997, net of valuation allowances.
The allowance for losses on receivables as a percentage of nonperforming
assets increased to 123% at June 30, 1999 from 97% at year-end. The increase
from year-end primarily reflects a decrease of nonperforming assets, principally
in the commercial real estate portfolio.
INTEREST RATE SENSITIVITY
Management's strategy of matching interest-sensitive assets with
interest-sensitive liabilities limits the Company's risk to changes in interest
rates and includes entering into interest rate exchange agreements as part of
this matching strategy. At June 30, 1999, TFC's interest-sensitive liabilities
in excess of interest-sensitive assets were $378 million, net of $400 million of
fixed-rate interest rate exchange agreements. Interest-sensitive liabilities in
excess of interest-sensitive assets were $463 million at January 2, 1999, net of
$300 million of interest rate exchange agreements ($250 million fixed rate and
$50 million variable rate). The change in the Company's net position does not
reflect a change in management's match funding strategy.
FINANCIAL RISK MANAGEMENT
As part of managing its interest rate risks, TFC utilizes interest rate
exchange agreements. The objective of TFC's use of such agreements is not to
speculate for profit, but generally to convert variable rate debt into fixed
rate debt with respect to specific liabilities. These agreements do not involve
a high degree of complexity or risk. TFC does not trade interest rate exchange
agreements or enter into leveraged interest rate exchange agreements. The
difference between the variable rate TFC received and the fixed rate TFC paid on
the interest rate exchange agreements increased interest expense by $1.3 million
in the first six months in 1999 and $0.9 million in the corresponding period in
1998. The net effect of these agreements increased TFC's interest expense by
$2.0 million in 1998, $1.2 million in 1997 and $2.5 million in 1996.
TFC manages its foreign currency exposure by funding certain foreign
currency denominated assets with liabilities in the same currency and, as such,
certain exposures are naturally offset. In addition, as part of managing its
foreign currency exposure, TFC enters into foreign currency forward exchange
contracts. The objective of such agreements is to manage the exposure to changes
in currency rates.
18
<PAGE> 21
RESULTS OF OPERATIONS
REVENUES
For six months ended June 30, 1999 vs. June 30, 1998
Revenues for the first six months of 1999 increased by $23.3 million, or
13%, as compared to the corresponding six month period last year, on a 20%
higher level of average finance receivables. The increase in revenues is
primarily due to increases in average finance receivables and other income,
partially offset by lower finance receivable yields. Finance receivable yields
decreased to 9.61% for the six months ended June 30, 1999, as compared to 10.13%
in the corresponding period in 1998. The change reflects a decrease in the prime
rate during the first six months from the corresponding period in 1998 and a
change in portfolio mix. The increase in other income primarily reflects an
increase in syndication income, partially offset by a decrease in prepayment
income. Operating lease rental revenue of $8.1 million decreased from $8.6
million in the corresponding period in 1998, on 7% lower average operating lease
assets.
Years ended 1998 vs. 1997 and 1996
Total revenues in 1998 increased $17 million from 1997, to $367 million,
reflecting a higher level of average finance receivables and higher other
income. Total revenues in 1997 were $350 million, as compared to $327 million in
1996.
Finance charge revenues increased 2% in 1998, as compared to a 3% increase
in 1997. The 1998 results reflect a 2% higher level of average owned finance
receivables while yields on owned finance receivables remained constant at 10.0%
for both 1998 and 1997. Finance charge revenues of $291 million increased 3% in
1997, as compared to a 4% increase in 1996. The 1997 results reflect a 3% higher
level of average owned finance receivables and constant finance receivables
yields at 10.0% in both 1997 and 1996.
Rental revenue from operating leases in 1998 was $17 million, down from $19
million in both 1997 and 1996, on lower average operating lease assets of 3% in
1998 and 2% in 1997. Other income of $53 million in 1998 increased by $12
million from 1997, reflecting higher syndications fees, residual income,
servicing fees and prepayment income. Other income of $41 million in 1997
increased by $14 million from 1996, reflecting higher syndications fees, a $3.5
million gain on a securitization of Textron-related receivables and higher
prepayment income.
INTEREST EXPENSE
Six months ended June 30, 1999 vs. June 30, 1998
Interest expense for the six months ended June 30, 1999 was $9.5 million
higher than the amount reported during the first six months of 1998. Interest
expense reflects a 26% increase in average debt outstanding, partially offset by
a decrease in the average borrowing rate to 5.56% for the six months ended June
30, 1999, as compared to 6.22% for the first six months of 1998. The decrease in
the average borrowing rate for the six months ended June 30, 1999, as compared
to the same period last year, is primarily attributable to lower short-term
interest rates reflecting a lower prevailing interest rate environment,
partially offset by higher credit spreads in January in TFC's commercial paper
program.
Years ended 1998 vs. 1997 and 1996
Interest expense of $155 million in 1998 increased 1%, or $2 million, from
1997, reflecting a 2% increase in average debt outstanding, partially offset by
a decrease in the cost of borrowed funds. TFC's average borrowing rate primarily
reflects a reduction in long-term variable rate debt costs. Interest expense of
$153 million in 1997 increased 4%, or $6 million, from 1996, reflecting a 4%
increase in average debt outstanding and an increase in the cost of borrowed
funds. TFC's average borrowing rate was 6.2% in 1998, 6.3% in 1997 and 6.2% in
1996.
19
<PAGE> 22
INTEREST MARGIN
Six months ended June 30, 1999 vs. June 30, 1998
TFC's earnings are influenced by the interest margin earned on finance
receivables (i.e., the excess of revenues over interest expense on borrowings).
Interest margin decreased to 6.30% from 6.62%, as compared to the corresponding
period last year, reflecting a decrease in interest earned on variable rate
receivables due to lower prevailing interest rates, slower growth in fee income
and competitive pressures.
Years ended 1998 vs. 1997 and 1996
Interest margin increased to 6.88% in 1998 from 6.51% in 1997, primarily
reflecting higher other income and a lower average borrowing rate. The increase
was partially offset by a decrease in variable rate receivables which are
generally tied to changes in the prime rate offered by major U.S. banks and the
London Interbank Offered Rate (LIBOR). These decreases preceded a decrease in
short-term borrowing costs in the fourth quarter of 1998.
Interest margin increased to 6.51% in 1997 from 6.15% in 1996, primarily
reflecting higher other income which included a gain on a receivable
securitization. The increase was partially offset by an increase in short-term
interest rates on borrowings that preceded the repricing of TFC's variable rate
receivables, which are generally tied to changes in the prime rate offered by
major U.S. banks and LIBOR, and competitive pressures.
OPERATING EXPENSES
Six months ended June 30, 1999 vs. June 30, 1998
Selling and administrative expenses increased by $8.2 million for the first
six months of 1999, as compared to the first six months of 1998, reflecting
higher expenses related to the acquisition of a small-ticket equipment leasing
division, growth in managed receivables, growth in businesses with higher
operating expenses and investments in start-up fee initiatives.
Years ended 1998 vs. 1997 and 1996
Selling and administrative expenses of $72 million in 1998 increased by $14
million from 1997, as compared to an increase of $8 million in 1997 from 1996.
The increase in 1998 principally reflects higher expenses related to an
acquisition of a receivable factoring company, growth in managed receivables and
growth in businesses with higher operating expenses. The 1997 increase
principally reflects higher expenses related to the growth of managed finance
receivables, an increase in collection expenses related to the equipment
portfolio and a change in business mix.
PROVISION FOR LOSSES
Six months ended June 30, 1999 vs. June 30, 1998
The provision for losses of $11.7 million increased by $1.4 million for the
first six months of 1999, as compared to the corresponding period in 1998. The
increase in the provision is related to higher provision for losses in the term
loans and leases and revolving credit segments, partially offset by a lower
provision in the commercial real estate portfolio in 1999 as compared to 1998.
The allowance for losses on receivables increased to $86 million at June
30, 1999, as compared to $84 million at the end of 1998. This increase is
related to an increase in owned receivables outstanding. Net charge-offs were
$8.9 million in the first six months of 1999, as compared to $8.2 million in the
corresponding period of 1998. Approximately $2.3 million of net charge-offs were
related to commercial real estate assets, as compared to $3.4 million in the
corresponding period in 1998.
20
<PAGE> 23
Years ended 1998 vs. 1997 and 1996
The provision for losses of $20 million in 1998 decreased from $23 million
in 1997. The decrease in the 1998 provision for losses reflects lower real
estate charge-offs and lower nonperforming assets. The provision for losses in
1997 decreased by $3 million from $26 million in 1996, reflecting lower real
estate charge-offs, higher recoveries of previously charged off aircraft and
equipment loans and lower nonperforming assets.
The allowance for losses on receivables was $84 million at January 2, 1999
and $77 million at January 3, 1998. The increase is primarily related to
portfolio growth. Net charge-offs were $16 million in 1998, as compared to $20
million in 1997 and $27 million in 1996 (including $1 million and $2 million
charged to the real estate owned valuation allowance in 1997 and 1996,
respectively). Net charge-offs related to commercial real estate assets were $5
million in 1998, down from $6 million in 1997. Equipment related net charge-offs
decreased to $11 million in 1998, as compared to $14 million in 1997. The
allowance for losses as a percent of receivables was 2.3% at January 2, 1999,
and 2.5% at January 3, 1998 (2.7% and 3.0% excluding receivables with recourse
to Textron in 1998 and 1997, respectively).
Although management believes it has made adequate provision for anticipated
losses, realization of these assets remains subject to uncertainties. Subsequent
evaluations of nonperforming assets, in light of factors then prevailing,
including economic conditions, may require additional increases in the allowance
for losses for such assets.
NET INCOME
Six months ended June 30, 1999 vs. June 30, 1998
Net income for the first six months of 1999 was $34.4 million, 9% higher
than the corresponding period of 1998. Earnings were favorably impacted by
higher average receivables and fee income. The favorable results were partially
offset by lower finance yields, an increase in selling and administrative
expenses and a higher provision for losses.
Years ended 1998 vs. 1997 and 1996
Net income increased by 3% to $70 million in 1998. Net income was favorably
affected by an increase in other income, higher average managed finance
receivables, a lower provision for losses and lower borrowing costs, partially
offset by a higher tax provision rate and higher selling and administrative
expenses. Net income increased by 16% in 1997, to $68 million, favorably
affected by an increase in other income, higher average managed finance
receivables, a lower provision for losses and a lower tax provision rate,
partially offset by higher borrowing costs and higher selling and administrative
expenses.
YEAR 2000 READINESS DISCLOSURE
Introduction
Much of the world's computer hardware and software is not designed to
process date information after 1999. This is largely because computer programs
have historically used only two digits to identify the year in a date, but
problems related to processing of date information also may arise because some
software assigns special meaning to certain dates. This Year 2000 problem could,
if uncorrected, cause computers and other equipment used by TFC and TFC's
suppliers and customers to fail to operate properly.
Year 2000 Program
In early 1997, TFC began a company-wide program (the "Program") to assess
the possible vulnerability of TFC to the Year 2000 problem and to minimize the
effect of the problem on TFC's operations. The Program is centrally directed
from the year 2000 Program Office at Textron's corporate headquarters and is
executed at TFC. With respect to TFC, the Program addresses four "Major
Elements":
- Business Systems: management information systems and personal computer
applications, including the computing environments that support them.
21
<PAGE> 24
- Facilities Equipment: equipment that uses a computer to control its
operation for providing services.
- Suppliers: assurance that those who sell goods and services to TFC will
not interrupt TFC operations due to the Year 2000 problem.
- Customers: assurance that those who enter into financing transactions
with TFC will not interrupt TFC's operations due to the Year 2000
problem.
For each of the Major Elements, the Program measures five "Readiness
Levels":
Level I Management has become aware of the issue. An inventory is being
taken of the items that the Year 2000 problem may affect.
Level II The inventory of Year 2000 items has been completed. The
priority of each item is being assessed. Actions are being
planned to assure that each item is ready for the Year 2000.
Resources are being committed to do the work.
Level III Planning has been completed. The prescribed actions are being
performed, including testing to verify that the actions are
effective. Suppliers and customers are being surveyed and their
progress is being tracked.
Level IV Items critical to operations have been tested. Audits and
associated corrective actions have been completed. Contingency
plans are being prepared. Audits to verify readiness are being
performed. Remediation of items that are important to operations,
but not critical, is being performed.
Level V Systems critical to operations have been tested. Audits and
associated corrective actions have been completed. Contingency
plans have been completed. Follow-up checking of suppliers and
customers is continuing. In all material respects, TFC is ready
for Year 2000.
TFC reached Readiness Level V by September 30, 1999. TFC has had a combination
of independent parties and Textron personnel complete an assessment of the
implementation of the Program. As of September 30, 1999, all planned assessments
were complete.
Risks and Contingency Plans
Year 2000 issues have the potential, if not remediated, to severely disrupt
TFC's business operations and to adversely affect TFC's financial condition. The
Year 2000 Program is expected to significantly reduce TFC's exposure to these
issues, particularly with respect to TFC's Business Systems and Facilities
Equipment. However, it is possible that unanticipated problems may arise in the
course of TFC's implementation of the Year 2000 Program. In addition, while
monitoring of Year 2000 readiness by TFC's suppliers and customers is a major
part of the Year 2000 Program, TFC has very limited ability to ensure Year 2000
readiness by such parties. TFC could also be affected by failure of government
agencies, in the U.S. and elsewhere, to maintain governmental services that are
essential to TFC's operations. TFC cannot identify all possible scenarios.
However, the most reasonably likely worst case scenario would be the inability
of third parties, including utilities, to deliver supplies and services that are
critical to TFC's operations and that could not quickly be replaced by other
suppliers or internally. In that situation, operations at the affected TFC
facilities could be interrupted, with adverse effects on TFC's financial
results.
Contingency plans to cover situations in which Year 2000 problems arise
despite TFC's efforts are substantially ready. TFC is monitoring the Year 2000
readiness of critical suppliers and has identified qualified alternate suppliers
that can be substituted if necessary. TFC has established procedures and backup
capabilities to process loan and lease functions and applications that could be
affected at various facilities by disruption in services provided by utilities.
TFC is preparing facilities, procedures and alternate utility sources to support
critical communications if there are disruptions in normal communications
services.
Forward-looking statements contained in this report relating to Year 2000
issues, including expectations of readiness, possible effects on TFC and similar
matters, are subject to the risks described in this section.
22
<PAGE> 25
Year 2000 Costs
The total cost of the Year 2000 Program for continuing operations is
estimated to be approximately $7.7 million. Approximately $1.2 million is for
modifications to existing systems and other program expenses and $6.5 million is
for replacement systems which have been capitalized in accordance with Company
policy. Through June 30, 1999, total expenditures were $7.7 million. The
estimated future cost to complete the Program is expected to be immaterial.
Funds for the Program are provided from normal operating and capital budgets.
The Year 2000 Program has delayed certain other TFC information management
projects. Delay of these projects is not expected to have an adverse impact on
TFC.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 requires that companies
capitalize certain internal-use software once certain criteria are met. The
statement is effective for financial statements of fiscal years beginning after
December 15, 1998.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities. SOP
98-5 will require all costs of start-up activities, including organization
costs, to be expensed as incurred. This statement is effective for financial
statements of fiscal years beginning after December 15, 1998.
In June 1998, the Financial Accounting Standards Board issued FAS 133,
"Accounting for Derivative Instruments and Hedging Activities." FAS 133 requires
entities to recognize all derivatives as either assets or liabilities and
measure those instruments at fair value. This statement is effective for fiscal
years beginning after June 15, 1999.
These statements will not have a material effect on TFC's financial
position or results of operations when adopted.
FORWARD LOOKING STATEMENTS
Certain statements in this Form 10 are forward-looking statements,
including those that discuss strategies, goals, outlook or other non-historical
matters; or project revenues, income, returns or other financial measures. These
forward-looking statements are subject to risks and uncertainties that may cause
actual results to differ materially from those contained in the statements,
including the following: (a) the extent to which TFC is able to successfully
integrate acquisitions, (b) changes in worldwide economic and political
conditions and associated impact on interest and foreign exchange rates, (c) the
level of sales of Textron products for which TFC offers financing, (d) the
ability to maintain credit quality and control costs when entering new markets,
(e) the actions of our competitors and our ability to respond, and (f) our
ability to attract and retain qualified and experienced personnel.
Looking forward, TFC will be affected by a number of factors that are
difficult to predict, including, among other things, the Company's access to
debt financing at competitive rates and equity in the form of retained earnings
and capital contributions from Textron. These factors may influence TFC's future
growth and earnings.
23
<PAGE> 26
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Textron Financial Corporation
We have audited the accompanying consolidated balance sheet of Textron
Financial Corporation as of January 2, 1999 and January 3, 1998, and the related
consolidated statements of income, cash flows, and changes in shareholder's
equity for each of the three years in the period ended January 2, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Textron
Financial Corporation at January 2, 1999 and January 3, 1998, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended January 2, 1999 in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
January 26, 1999
24
<PAGE> 27
TEXTRON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
For each of the three years in the period ended January 2, 1999
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues
Finance charges and discounts............................... $297,091 $290,943 $281,830
Rental revenues on operating leases......................... 17,181 18,664 19,071
Other income................................................ 52,890 40,613 26,346
-------- -------- --------
367,162 350,220 327,247
Expenses
Interest.................................................... 155,126 153,127 146,615
Selling and administrative.................................. 71,587 57,757 50,121
Provision for losses........................................ 20,483 22,824 26,350
Depreciation of equipment on operating leases............... 7,340 8,433 8,437
-------- -------- --------
254,536 242,141 231,523
-------- -------- --------
Income before income taxes.................................. 112,626 108,079 95,724
Income taxes................................................ 43,050 40,338 37,385
-------- -------- --------
Net income.................................................. $ 69,576 $ 67,741 $ 58,339
======== ======== ========
</TABLE>
See notes to consolidated financial statements
25
<PAGE> 28
TEXTRON FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 3,
1999 1998
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and equivalents........................................ $ 22,396 $ 13,597
Finance receivables, net of unearned income:
Installment contracts.................................. 1,338,644 1,140,460
Floorplan receivables.................................. 572,289 408,721
Revolving loans........................................ 555,571 392,787
Finance leases......................................... 424,436 392,326
Leveraged leases....................................... 345,873 329,811
Golf course and resort mortgages....................... 342,844 355,357
Commercial real estate mortgages....................... 31,740 49,661
---------- ----------
Total finance receivables......................... 3,611,397 3,069,123
Allowance for losses on receivables.................... (83,887) (77,394)
---------- ----------
Finance receivables -- net.................................. 3,527,510 2,991,729
Equipment on operating leases -- net........................ 118,590 111,518
Other assets................................................ 116,042 61,121
---------- ----------
Total assets...................................... $3,784,538 $3,177,965
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities
Accrued interest and other liabilities...................... $ 143,316 $ 81,812
Amounts due to Textron Inc.................................. 18,419 6,416
Deferred income taxes....................................... 321,521 319,293
Debt........................................................ 2,828,830 2,364,568
---------- ----------
Total liabilities................................. 3,312,086 2,772,089
---------- ----------
Shareholder's equity
Common stock, $100 par value (4,000 shares authorized; 2,500
shares issued and outstanding)............................ 250 250
Capital surplus............................................. 155,171 95,871
Retained earnings........................................... 317,031 309,755
---------- ----------
Total shareholder's equity........................ 472,452 405,876
---------- ----------
Total liabilities and shareholder's equity........ $3,784,538 $3,177,965
========== ==========
</TABLE>
See notes to consolidated financial statements
26
<PAGE> 29
TEXTRON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For each of the three years in the period ended January 2, 1999
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 69,576 $ 67,741 $ 58,339
Adjustments to reconcile net income to net cash provided
by operating activities:
Increase (decrease) in accrued interest and other
liabilities....................................... 42,209 (4,901) (4,532)
Provision for losses................................ 20,483 22,824 26,350
Depreciation and amortization....................... 13,716 11,221 10,936
Deferred income taxes............................... 2,228 3,927 12,625
Leveraged lease earnings in excess of cash
received.......................................... (7,646) (5,162) (7,707)
Gain on receivables securitization.................. (3,400) (3,500) --
Other............................................... 7,141 462 2,860
---------- ---------- ----------
Net cash provided by operating activities...... 144,307 92,612 98,871
CASH FLOWS FROM INVESTING ACTIVITIES:
Finance receivables originated or purchased.............. (4,069,256) (2,711,680) (2,287,293)
Finance receivables repaid or sold....................... 3,458,873 2,444,301 2,090,923
Proceeds from receivables securitization................. 259,577 373,046 --
Acquisitions, net of cash acquired....................... (203,203) -- --
Purchase of assets for operating leases.................. (36,840) (38,073) (52,572)
Proceeds from disposition of operating lease and other
assets................................................. 25,892 45,409 43,061
Other capital expenditures............................... (12,948) (7,443) (2,559)
Proceeds from real estate owned.......................... 2,028 5,460 6,134
Other investments........................................ (5,997) -- --
---------- ---------- ----------
Net cash provided by (used in) investing
activities................................... (581,874) 111,020 (202,306)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt................. 370,000 200,000 345,000
Principal payments on long-term debt..................... (304,311) (335,880) (185,128)
Net increase in commercial paper......................... 188,176 23,313 10,034
Net increase (decrease) in short-term bank debt.......... 163,031 35,739 (5,182)
Proceeds from issuance of non-recourse debt.............. 60,404 -- --
Principal payments on non-recourse debt.................. (39,937) (38,938) (34,882)
Net increase (decrease) in amounts due to Textron Inc.... 12,003 (7,744) 6,576
Capital contribution from Textron Inc.................... 59,300 -- --
Dividends paid to Textron Inc............................ (62,300) (73,580) (29,100)
---------- ---------- ----------
Net cash provided by (used in) financing
activities................................... 446,366 (197,090) 107,318
---------- ---------- ----------
Net increase in cash..................................... 8,799 6,542 3,883
Cash and equivalents at beginning of year................ 13,597 7,055 3,172
---------- ---------- ----------
Cash and equivalents at end of year...................... $ 22,396 $ 13,597 $ 7,055
========== ========== ==========
</TABLE>
See notes to consolidated financial statements
27
<PAGE> 30
TEXTRON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
For each of the three years in the period ended January 2, 1999
<TABLE>
<CAPTION>
COMMON CAPITAL RETAINED
STOCK SURPLUS EARNINGS TOTAL
------ -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance December 30, 1995........................... $250 $ 95,871 $286,355 $382,476
Net income.......................................... -- -- 58,339 58,339
Dividends to Textron Inc............................ -- -- (29,100) (29,100)
---- -------- -------- --------
Balance December 28, 1996........................... 250 95,871 315,594 411,715
Net income.......................................... -- -- 67,741 67,741
Dividends to Textron Inc............................ -- -- (73,580) (73,580)
---- -------- -------- --------
Balance January 3, 1998............................. 250 95,871 309,755 405,876
NET INCOME.......................................... -- -- 69,576 69,576
CAPITAL CONTRIBUTION FROM TEXTRON................... -- 59,300 -- 59,300
DIVIDEND TO TEXTRON INC............................. -- -- (62,300) (62,300)
---- -------- -------- --------
BALANCE JANUARY 2, 1999............................. $250 $155,171 $317,031 $472,452
==== ======== ======== ========
</TABLE>
See notes to consolidated financial statements
28
<PAGE> 31
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Textron Financial Corporation (TFC or the Company) is a diversified
commercial finance company offering specialized lending for equipment finance,
revolving credit arrangements and leveraged leasing. TFC originates loan and
lease transactions for numerous industries including aircraft, golf, timeshare
resorts, transportation and machine tool. TFC's other financial services and
products include syndications, asset management, portfolio servicing and
insurance brokerage. TFC is a subsidiary of Textron Inc. (Textron), a $10
billion global, multi-industry company with market-leading businesses in
Aircraft, Automotive, Industrial and Finance. At January 2, 1999, TFC's finance
receivables which were related to Textron or Textron's products comprised 27% of
TFC's total managed finance receivables. TFC's principal markets are located in
North America.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
TFC and its subsidiaries, all of which are wholly-owned. All significant
inter-company transactions are eliminated.
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 amounts reported in those statements and
accompanying notes. Actual results may differ from such estimates.
Finance Charges, Discounts and Investment Tax Credits
Finance charges and discounts include interest on loans, capital lease
earnings and discounts on certain revolving credit arrangements. Finance charges
and investment tax credits are recognized in finance charge revenues using the
interest method to produce a constant rate of return over the terms of the
receivables. Accrual of interest income is suspended for accounts which are
contractually delinquent by more than three months, unless collection is not
doubtful. In addition, detailed reviews of loans may result in earlier
suspension if collection is doubtful. Accrual of interest is resumed when the
loan becomes contractually current, and suspended interest income is recognized
at that time.
Other Income
Other income includes late charges, prepayment penalties, residual gains
and other miscellaneous fees which are primarily recognized as income when
received.
Other income also includes gains on the sale of loans and leases. When the
Company sells loans and leases in securitizations, it retains interest-only
strips, subordinated tranches, servicing rights, and cash reserve accounts. Gain
or loss on sale depends in part on the previous carrying amount of retained
interest, allocated in proportion to their fair value. Subsequent to the sales,
certain retained interests are carried at fair value and accounting for other
retained interests is based in part on fair values. The Company generally
estimates fair value based on the present value of future cash flows expected
under management's best estimates of the key assumptions-credit losses,
prepayment speeds, forward yield curves, and discount rates commensurate with
the risks involved.
Finance Receivable Origination Fees and Costs
Fees received and direct loan origination costs are deferred and amortized
to finance charge revenues over the contractual lives of the respective
receivables using the interest method. Unamortized amounts are recognized in
revenues when receivables are sold or paid in full.
29
<PAGE> 32
Allowance for Losses on Receivables
Provisions for losses on finance receivables are charged to income in
amounts sufficient to maintain the allowance at a level considered adequate to
cover losses in the existing receivable portfolio. Management evaluates the
allowance by examining current delinquencies, the characteristics of the
existing accounts, historical loss experience, the value of the underlying
collateral and general economic conditions and trends.
Finance receivables are written off when they are deemed uncollectible.
Finance receivables are written down to the fair value (less estimated costs to
sell) of the related collateral when the collateral is repossessed or when no
payment has been received for six months, unless management deems the receivable
collectible. Foreclosed real estate loans and repossessed assets are transferred
out of finance receivables into other assets at the lower of fair value (less
estimated costs to sell) or the outstanding loan balance. The difference between
the amount transferred and the outstanding loan balance is written off. The
carrying value of real estate owned is periodically reevaluated, and where
appropriate, adjustments are made through a valuation allowance to reflect
subsequent changes in fair value, but the carrying amount is never increased
above the amount originally transferred.
Equipment on Operating Leases
Income from operating leases is recognized in equal amounts over the lease
term. The cost of such assets is capitalized and depreciated to estimated
residual values using the straight-line method over the estimated useful lives
of the assets or the lease term.
Employee Benefits
The Company participates in a Textron pension plan which provides pension
benefits to substantially all of the Company's employees. The benefits are based
on the employees' compensation and years of service. Textron's funding policy is
consistent with the funding requirements of federal law and regulation. Plan
assets consist principally of corporate and government bonds and common stocks.
Pension cost in 1998, 1997 and 1996 was $1.2 million, $0.9 million and $0.7
million, respectively.
Foreign Currency Exchange Contracts
TFC has entered into foreign currency exchange contracts to minimize its
currency exchange risk on its foreign currency receivables and debt. Gains and
losses on foreign currency exchange contracts that hedge foreign currency
receivables and debt are recognized in income as the exchange rates change and
offset foreign currency gains and losses on the foreign currency receivables and
debt. While TFC is exposed to credit loss in the event of nonperformance by the
other parties to the contracts, TFC does not anticipate nonperformance by any of
those parties. Foreign currency exchange gains and losses in 1998, 1997 and 1996
were not material.
Interest Rate Exchange Agreements
As part of managing interest rate exposure on its variable interest rate
borrowings, TFC is a party to various interest rate exchange agreements. While
TFC is exposed to credit loss for the periodic settlement of amounts due under
such agreements in the event of nonperformance by the counterparties, TFC does
not anticipate nonperformance by any of those parties. TFC currently minimizes
this potential for risk by entering into contracts exclusively with major,
financially sound counterparties having no less than a long-term bond rating of
"A" by continuously monitoring the counterparties' credit rating and by limiting
exposure with any one financial institution. The risk of loss in the event of
nonperformance by the counterparties was insignificant at January 2, 1999.
Interest differentials to be paid or received are accrued and recognized in
interest expense over the lives of the agreements.
Fees and expenses incurred to enter into interest rate exchange agreements
are deferred and subsequently amortized to expense over the terms of the
agreements.
30
<PAGE> 33
Income Taxes
TFC's revenues and expenses are included in Textron's consolidated tax
return. Current tax expense is based on allocated federal tax charges and
benefits on the basis of statutory U.S. tax rates applied to the Company's
taxable income or loss included in Textron's consolidated returns.
Deferred income taxes are recognized for temporary differences between the
financial reporting basis and income tax basis of assets and liabilities, based
on enacted tax rates expected to be in effect when such amounts are expected to
be realized or settled.
Intangible Assets
Goodwill is amortized over its estimated period of benefit on a
straight-line basis; other intangible assets, including internal-use software,
are amortized on a straight-line basis over their estimated lives. No
amortization period exceeds 25 years.
Fair Value of Financial Instruments
Fair values of financial instruments are based upon estimates at a specific
point in time using available market information and appropriate valuation
methodologies. These estimates are subjective in nature and involve
uncertainties and significant judgment in the interpretation of current market
data. Therefore, the fair values presented are not necessarily indicative of
amounts TFC could realize or settle currently. TFC does not necessarily intend
to dispose of or liquidate such instruments prior to maturity.
Cash and Equivalents
Cash and equivalents consist of cash in banks and overnight interest
bearing deposits in banks.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
NOTE 2
RELATIONSHIP WITH TEXTRON INC.
TFC is a wholly-owned subsidiary of Textron and derives a portion of its
business from financing the sale and lease of products manufactured and sold by
Textron. TFC recognized finance charge revenues from Textron and affiliates (net
of payments or reimbursements for interest charged at more or less than market
rates on Textron manufactured products) of $3.7 million in 1998, $0.1 million in
1997, with no net revenue in 1996 and operating lease revenues of $10.8 million
in 1998, $13.3 million in 1997 and $13.7 million in 1996. In 1998, 1997 and
1996, TFC paid Textron $980.4 million, $736.3 million and $662.9 million,
respectively, for the purchase of receivables and operating lease assets.
TFC and Textron are parties to several agreements, collectively referred to
as operating agreements, which govern many areas of the TFC-Textron
relationship.
Under operating agreements with Textron, TFC has recourse to Textron with
respect to certain finance receivables and operating leases. Finance receivables
of $540.2 million at January 2, 1999 and $518.9 million at January 3, 1998 and
operating leases of $76.6 million at both January 2, 1999 and January 3, 1998
were subject to recourse to Textron or due from Textron. In addition, TFC had
recourse to Textron on subordinated certificates of $27 million and $16 million
at year-end 1998 and 1997, respectively, and on cash reserves of $10 million and
$6 million at year-end 1998 and 1997 respectively. Both the subordinated
certificates and the cash reserves were related to receivable securitizations.
Under the operating agreements between Textron and TFC, Textron has made
available to TFC a $100 million line of credit for junior subordinated
borrowings at the prime interest rate (7.75% at January 2, 1999). TFC had no
borrowings under this line at January 2, 1999 or January 3, 1998. In addition,
Textron has
31
<PAGE> 34
agreed to lend TFC, interest-free, an amount not to exceed the deferred income
tax liability of Textron attributable to the manufacturing profit deferred for
tax purposes on products manufactured by Textron and financed by TFC. The
Company had borrowings from Textron of $18.8 million at January 2, 1999 ($20.2
million at January 3, 1998) under this arrangement, which are reflected in
Amounts due to Textron Inc. and in Accrued Interest and Other Liabilities on
TFC's consolidated balance sheet.
Textron has also agreed with TFC to cause TFC's pretax income available for
fixed charges to be not less than 125% of its fixed charges and its consolidated
shareholder's equity to be not less than $200 million. No related payments were
required for 1998, 1997 or 1996.
The Company has an income tax liability of $4.6 million at January 2, 1999,
as compared to an income tax receivable of $5.8 million at January 3, 1998.
These amounts are included in Accrued Interest and Other Liabilities on TFC's
consolidated balance sheet, and will be settled with Textron as Textron manages
its consolidated federal tax position.
NOTE 3
ACQUISITIONS
During 1998, TFC acquired two businesses -- Systran Financial Services
Corporation and Business Leasing Group. These transactions were accounted for
using the purchase method. Each company's results of operations are included in
TFC's consolidated financial statements from the date of each acquisition.
Systran Financial Services Corporation, a receivables factoring company,
was acquired in the first quarter of 1998. The total purchase price was $22.8
million. The fair value of the assets acquired was $67.5 million and liabilities
assumed were $59.2 million. The goodwill associated with this transaction is
being amortized over 25 years.
Business Leasing Group, an equipment leasing division of a commercial bank,
was acquired on December 31, 1998. The total purchase price was $186.4 million.
TFC is in the process of finalizing the purchase price allocation for this
acquisition.
Had the acquisitions occurred on January 4, 1998, the effect on the
Company's 1998 results would not have been material. Consequently, pro forma
information has not been presented.
NOTE 4
RECEIVABLE SECURITIZATIONS
The Company securitized $273 million and $401 million of loan and lease
receivables in the third quarters of 1998 and 1997, respectively. These
transactions resulted in gains of $3.4 million and $3.5 million in 1998 and
1997, respectively. Retained interests in transferred assets consist primarily
of subordinated certificates totaling $27 million at year-end 1998 and $16
million at year-end 1997, as well as interest-only securities. Additionally, $4
million of proceeds were used to fund a restricted cash reserve to support the
1998 transaction, as compared to $6 million in 1997. Both the subordinated
certificates and the cash reserve are included in Other Assets on TFC's
consolidated balance sheet. TFC did not recognize a servicing asset or
liability.
Interest-only securities represent the right to receive certain cash flows
which exceed the amount of cash flows sold in the Company's securitized contract
sale. Interest-only securities generally represent the value of interest to be
collected on the underlying financial contracts of the securitization over the
sum of the interest to be paid to security classes sold, contractual servicing
fees and credit losses. These cash flows are projected and discounted over the
expected life of the financial contracts using prepayment, default, loss and
interest rate assumptions that the Company believes market participants would
use for similar financial instruments.
TFC has entered into certain interest rate exchange agreements to mitigate
its exposure to decreases in interest rates on its interest-only securities.
Under the interest rate exchange agreements, TFC makes periodic variable rate
payments based upon the prime rate and the one and six month London Interbank
Offered Rate (LIBOR) and receives fixed rate payments. These interest rate
exchange agreements are adjusted periodically
32
<PAGE> 35
to match the amortization of the variable rate contracts in the securitized
portfolio and are summarized in the following table:
<TABLE>
<CAPTION>
JAN. 2, JAN. 3,
1999 1998
------- -------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Prime rate.................................................. 7.75% 8.50%
One-Month LIBOR............................................. 4.94% --
1998 Securitization
Notional principal -- variable............................
payments tied to the prime rate........................... $55.3 --
Fixed Rate................................................ 7.94% --
Notional principal -- variable............................
Payments tied to LIBOR................................. $34.3 --
Fixed rate............................................. 5.13% --
Six-month LIBOR............................................. 4.94% 5.72%
1997 Securitization
Notional principal variable
payments tied to the prime rate........................ $46.6 $69.5
Fixed rate........................................... 8.77% 8.77%
Notional principal -- variable
Payments tied to LIBOR................................. $21.2 $44.4
Fixed rate........................................... 5.97% 5.97%
</TABLE>
Interest rate floor agreements, entered into through AAA-rated
counterparties to the Textron Financial Corporation Receivables Trust 1998-A and
1997-A (the Trusts), provide a minimum interest rate on variable rate
receivables held by the Trusts and are tied to both the prime rate and the one-
and six-month LIBOR. These interest rate floor agreements are adjusted
periodically to match the amortization of the variable rate contracts in the
securitized portfolio and are summarized as follows:
<TABLE>
<CAPTION>
JAN. 2, JAN. 3,
1999 1998
------- -------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Prime rate.................................................. 7.75% 8.50%
One-month LIBOR............................................. 4.94% --
1998 Securitization
Notional principal tied to the prime rate.............. $57.6 --
Floor rate............................................. 8.50% --
Notional principal tied to LIBOR....................... $36.5 --
Floor rate.................................................. 5.34% --
Six-month LIBOR............................................. 4.94% 5.72%
1997 Securitization
Notional principal tied to the prime rate.............. $70.5 $72.5
Floor rate............................................. 8.50% 8.50%
Notional principal tied to LIBOR....................... $37.1 $45.7
Floor rate............................................. $5.65% $5.65%
</TABLE>
TFC also has a securitization program consisting of a $160 million interest
in a designated pool of installment contracts. Subsequent collections of
installment contracts sold typically are reinvested in the pool of eligible
assets to maintain an aggregate outstanding balance of sold installment
contracts at a constant amount. Receivables sold which remained uncollected at
January 2, 1999 were $160 million. The ongoing purchase arrangement is
discretionary on the part of both parties and has been extended through 2000.
33
<PAGE> 36
NOTE 5
FINANCE RECEIVABLES
Contractual Maturities
The contractual maturities of finance receivables outstanding at January 2,
1999 were as follows:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER TOTAL
---------- -------- -------- -------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Installment contracts....................... $ 306,325 $224,078 $185,854 $134,902 $113,532 $373,953 $1,338,644
Floorplan receivables....................... 435,811 102,048 34,004 426 -- -- 572,289
Revolving loans............................. 376,286 19,882 57,400 91,259 8,726 2,018 555,571
Finance leases.............................. 101,276 93,066 90,320 53,279 35,384 51,111 424,436
Leveraged leases............................ 3,553 8,458 (4,411) (6,240) (5,286) 349,799 345,873
Golf course and resort mortgages............ 18,291 56,782 73,830 21,290 56,368 116,283 342,844
Commercial real estate mortgages............ 22,080 9,660 -- -- -- -- 31,740
---------- -------- -------- -------- -------- -------- ----------
Total finance receivables........... $1,263,622 $513,974 $436,997 $294,916 $208,724 $893,164 $3,611,397
========== ======== ======== ======== ======== ======== ==========
</TABLE>
Finance receivables often are repaid or refinanced prior to contractual
maturity. Accordingly, the foregoing tabulation should not be regarded as a
forecast of future cash collections. During 1998 and 1997, cash collections of
finance receivables (excluding proceeds from sales of receivable portfolios)
were $3.41 billion and $2.29 billion, respectively. Revolving loans generally
have terms of one to three years, and at times convert to term loans that
contractually amortize over an average term of seven years. Floorplan and
revolving loans are cyclical and result in cash turnover that is several times
larger than contractual maturities. In 1998, such cash turnover was 4.0 times
contractual maturities. Finance leases include residual values expected to be
realized at contractual maturity. The ratio of cash collections (net of finance
charges) to average net receivables, excluding floorplan and revolving
receivables, was approximately 56% in 1998 and 48% in 1997. Leveraged leases
reflect contractual maturities net of contractual non-recourse debt payments and
include residual values expected to be realized at contractual maturity.
Installment contracts have initial terms generally ranging from one to 12
years. Commercial real estate and golf course mortgages have initial terms
generally ranging from three to seven years with amortization periods from 15 to
20 years. Finance leases have initial terms generally up to 12 years. Leveraged
leases have initial terms up to approximately 30 years. Floorplan and revolving
receivables generally mature within one year.
Finance leases and installment contracts are secured by the financed
equipment and, in some instances, by the personal guarantee of the principals or
recourse arrangements with the originating vendor. Golf course and resort
mortgages are generally secured by real property and are limited to 70% or less
of the property's appraised market value at loan origination. Commercial real
estate loans are secured by real property and are generally limited to 80% or
less of the property's appraised market value at loan origination. Leveraged
leases are secured by the ownership of the leased asset. Floorplan receivables
are secured by the inventory of the financed distributor or dealer and, in some
programs, by recourse arrangements with the originating manufacturer. Revolving
loans consist of loans secured by pools of vacation interval notes receivable,
and, in most instances, the underlying real property, or trade receivables,
inventory, and/or plant and equipment.
TFC's finance receivables are diversified across geographic region,
borrower industry and type of collateral. TFC's owned and securitized receivable
geographic concentrations at January 2, 1999 were as follows: Southeast 25%; Far
West 16%; Southwest 10%; Great Lakes 10%; Mideast 10%; Plains 9%; New England
5%; other domestic 4%; and international 11%. TFC's most significant collateral
concentration was aircraft, which accounted for 26% of owned and securitized
receivables at January 2, 1999. There were no significant industry
concentrations at January 2, 1999.
34
<PAGE> 37
Loan Impairment
At January 2, 1999 and January 3, 1998, the Company had nonaccrual loans
and leases totaling $69.9 million and $85.6 million, respectively. Approximately
$46.5 million and $63.5 million of these respective amounts were considered
impaired, which excludes finance leases and homogeneous loan portfolios. TFC's
nonaccrual loans consist primarily of delinquent and/or restructured commercial
real estate loans. Cash payments, including finance charges on nonaccrual
accounts, generally are applied to reduce loan principal. The allowance for
losses on receivables related to impaired loans was $14.9 million at January 2,
1999 and $13.5 million at January 3, 1998. The average recorded investment in
impaired loans during 1998 and 1997 was $50.7 million and $67.5 million,
respectively. Nonaccrual accounts resulted in TFC's revenues being reduced by
$5.1 million in 1998, $5.6 million in 1997 and $6.1 million in 1996. No interest
income was recognized using the cash basis method.
Finance Leases
<TABLE>
<CAPTION>
JAN. 2, JAN. 3,
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Total minimum lease payments receivable.................. $390,232 $348,886
Estimated residual values of leased equipment............ 130,403 130,732
-------- --------
520,635 479,618
Unearned income.......................................... (96,199) (87,292)
-------- --------
Net investment in finance leases......................... $424,436 $392,326
======== ========
</TABLE>
Minimum lease payments due under finance leases for each of the next five
years and the aggregate amounts due thereafter are as follows: $117.3 million in
1999; $101.6 million in 2000; $81.5 million in 2001; $38.5 million in 2002;
$23.7 million in 2003; and $27.6 million thereafter.
Leveraged Leases
<TABLE>
<CAPTION>
JAN. 2, JAN. 3,
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Rental receivable (net of principal and interest on
non-recourse debt)..................................... $200,134 $188,151
Estimated residual values of leased assets............... 428,809 425,222
Less unearned income..................................... (283,070) (283,562)
-------- --------
Investment in leveraged leases........................... 345,873 329,811
Deferred income taxes arising from leveraged leases...... (255,034) (253,123)
Fees payable............................................. (1,607) (2,854)
-------- --------
Net investment in leveraged leases....................... $ 89,232 $ 73,834
======== ========
</TABLE>
Approximately 63% of TFC's investment in leveraged leases is collateralized
by real estate. TFC has a forward interest rate exchange arrangement which will
have the effect of fixing interest rates at 7.5% on $60 million of non-recourse
debt beginning in 1999.
35
<PAGE> 38
The components of income from leveraged leases were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income recognized including investment tax
credits......................................... $16,426 $14,717 $15,446
Income tax expense................................ (6,237) (5,089) (5,324)
------- ------- -------
Income from Leveraged leases...................... $10,189 $ 9,628 $10,122
======= ======= =======
</TABLE>
Allowance for Losses on Receivables
<TABLE>
<CAPTION>
JAN. 2, JAN. 3,
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year............................ $ 77,394 $ 74,824
Provision for losses on receivables..................... 18,033 21,124
Receivable charge-offs.................................. (21,181) (24,848)
Recoveries of prior charge-offs......................... 4,860 6,294
Acquisitions............................................ 4,781 --
-------- --------
Balance at end of year.................................. $ 83,887 $ 77,394
======== ========
</TABLE>
Managed Finance Receivables
TFC manages finance receivables for a variety of investors, participants
and third party portfolio owners.
<TABLE>
<CAPTION>
JAN. 2, JAN. 3,
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Owned receivables.................................... $3,611,397 $3,069,123
Securitized receivables.............................. 616,220 520,676
---------- ----------
4,227,617 3,589,799
Non-recourse participations.......................... 228,357 174,377
Third party portfolio servicing...................... 30,908 51,437
SBA sales agreements................................. 21,958 13,732
---------- ----------
Total managed finance receivables.................... $4,508,840 $3,829,345
========== ==========
</TABLE>
NOTE 6
EQUIPMENT ON OPERATING LEASES
<TABLE>
<CAPTION>
JAN. 2, JAN. 3,
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Equipment on Operating leases, at cost.................. $147,261 $137,249
Accumulated depreciation................................ (28,671) (25,731)
-------- --------
Net investment in operating leases...................... $118,590 $111,518
======== ========
</TABLE>
Initial lease terms of rental equipment generally range from one year to
ten years. Future minimum rental payments on operating leases at January 2, 1999
were $14.3 million in 1999; $11.7 million in 2000; $10.3 million in 2001; $11.5
million in 2002; $4.7 million in 2003; and $3.9 million thereafter.
36
<PAGE> 39
NOTE 7
OTHER ASSETS
<TABLE>
<CAPTION>
JAN. 2, JAN. 3,
1999 1998
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Real estate owned....................................... $ 17,412 $13,960
Real estate valuation allowance......................... (5,783) (3,333)
-------- -------
Net real estate owned................................... 11,629 10,627
Subordinated certificates............................... 27,214 16,181
Goodwill -- net......................................... 27,093 --
Fixed assets and software -- net........................ 19,853 9,660
Trustee cash reserve.................................... 10,210 6,009
Interest-only securities................................ 8,668 8,941
Repossessed equipment................................... 5,149 3,182
Other................................................... 6,226 6,521
-------- -------
Total other assets............................ $116,042 $61,121
======== =======
</TABLE>
Sales of real estate owned totaled $2.0 million in 1998 and $5.4 million in
1997, of which TFC received $2.0 million and $5.4 million in cash in 1998 and
1997, respectively.
The cost of fixed assets is being depreciated based on estimated useful
lives of the assets using the straight-line method. Depreciation expense was
$3.5 million in 1998, $2.1 million in 1997 and $1.6 million in 1996.
REAL ESTATE VALUATION ALLOWANCE
<TABLE>
<CAPTION>
JAN. 2, JAN. 3,
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year.............................. $3,333 $ 2,633
Provision for losses on real estate owned................. 2,450 1,700
Charge-offs............................................... -- (1,000)
------ -------
Balance at end of year.................................... $5,783 $ 3,333
====== =======
</TABLE>
NOTE 8
DEBT AND CREDIT FACILITIES
<TABLE>
<CAPTION>
JAN. 2, 1999 JAN. 3, 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Commercial paper............................... $1,185,591 $ 997,415
Short-term bank debt........................... 239,281 76,250
---------- ----------
Total short-term debt..................... 1,424,872 1,073,665
Long-term debt:
5.72% -- 5.86% notes; due 2000 to 2001......... 33,000 21,000
6.13% -- 6.51% notes; due 1999 to 2001......... 204,000 112,000
7.14% -- 7.67% notes; due 1999 to 2000......... 234,958 258,903
Variable rate notes due 1999 to 2001........... 932,000 899,000
---------- ----------
Total long-term debt...................... 1,403,958 1,290,903
---------- ----------
Total debt................................ $2,828,830 $2,364,568
========== ==========
</TABLE>
TFC has lines of credit with a bank group aggregating $1.2 billion at
January 2, 1999, of which $400 million will expire in 1999 and $800 million will
expire in 2003. TFC's lines of credit, including the line of credit with
Textron, not used or reserved as support for commercial paper or short-term bank
borrowings at January 2, 1999 were $114.4 million. TFC generally pays fees in
support of these lines.
37
<PAGE> 40
The weighted average interest rates on short-term borrowings, before
consideration of the effect of interest rate exchange agreements, were as
follows:
<TABLE>
<CAPTION>
JAN. 2, JAN. 3, DEC. 28,
1999 1998 1996
------- ------- --------
<S> <C> <C> <C>
Commercial paper................................... 6.12% 6.14% 5.64%
Short-term bank debt............................... 6.91% 5.54% 5.56%
</TABLE>
The corresponding weighted average interest rates on these borrowings
during the last three years were 5.83% in 1998, 5.77% in 1997 and 5.65% in 1996.
Weighted average interest rates have been determined by relating interest costs
for each year to the daily average dollar amounts outstanding.
Interest on TFC's variable rate notes is tied predominantly to the
three-month LIBOR for U.S. dollar deposits. The weighted average interest rate
on these notes was 5.79% at January 2, 1999 and 6.11% at January 3, 1998.
The amount of net assets available for dividends and other payments to
Textron is restricted by the terms of the Company's lending agreements. As of
January 2, 1999, approximately $168.9 million of net assets was unrestricted and
available to be transferred to Textron. The lending agreements also contain
various restrictive provisions regarding additional debt (not in excess of 800%
of consolidated net worth and qualifying subordinated obligations), the creation
of liens and the maintenance of a fixed charges coverage ratio of no less than
125%.
Required principal payments during the next five years on debt outstanding
at January 2, 1999 (excluding short-term debt) are as follows: $558.5 million in
1999; $507.5 million in 2000; and $338.0 million in 2001.
Cash payments made by TFC for interest were $152.9 million in 1998, $153.0
million in 1997 and $149.8 million in 1996.
NOTE 9
INTEREST RATE EXCHANGE AGREEMENTS
Under interest rate exchange agreements, TFC makes periodic fixed payments
in exchange for periodic variable payments and vice versa. TFC has entered into
such agreements to mitigate its exposure to increases in interest rates on a
portion of its fixed and variable debt.
Interest rate exchange agreements, excluding those related to
securitizations, were designated against long-term notes and had the effect of
adjusting the average rate of interest during the year to 6.03% from 5.96% on a
variable rate notes and to 6.79% from 6.89% on the long-term fixed rate notes.
Interest rate exchange agreements in effect on January 2, 1999 will expire in
1999.
<TABLE>
<CAPTION>
JAN. 2, 1999 JAN. 3, 1998
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Weighted average original term.................. 2.5 years 2.7 years
Notional principal-fixed rate payments.......... $ 250,000 $ 450,000
Fixed weighted average interest rate............ 6.26% 6.02%
Variable weighted average interest rate......... 5.27% 5.89%
Notional principal -- variable rate payments.... $ 50,000 $ 50,000
Fixed weighted average interest rate............ 6.30% 6.30%
Variable weighted average interest rate......... 5.22% 5.94%
</TABLE>
38
<PAGE> 41
NOTE 10
INCOME TAXES
The components of income taxes were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................ $35,445 $33,187 $21,301
State.......................................... 5,377 3,224 3,459
------- ------- -------
Total current income taxes..................... 40,822 36,411 24,760
Deferred:
Federal........................................ 544 3,045 9,700
State.......................................... 1,684 882 2,925
------- ------- -------
Total deferred income taxes.................... 2,228 3,927 12,625
Total income taxes............................. $43,050 $40,338 $37,385
======= ======= =======
</TABLE>
Cash paid for income taxes was $26.1 million in 1998, $44.3 million in 1997
and $24.7 million in 1996. The federal statutory income tax rate is reconciled
to the effective income tax rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal statutory income tax rate................... 35.0% 35.0% 35.0%
State income taxes.................................. 4.1 2.6 4.3
Tax exempt interest................................. (0.3) (0.4) (0.4)
Other, net.......................................... (0.6) 0.1 0.2
---- ---- ----
Effective income tax rate........................... 38.2% 37.3% 39.1%
==== ==== ====
</TABLE>
The components of TFC's deferred tax assets and liabilities were as
follows:
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 3,
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for losses on receivables................. $ 31,599 $ 29,798
Earnings on nonaccrual loans........................ 2,674 4,682
Other............................................... 12,002 2,508
-------- --------
Total deferred tax assets........................... 46,275 36,988
Deferred tax liabilities:
Leveraged leases.................................... 255,034 253,123
Finance leases...................................... 76,179 70,310
Equipment on operating leases....................... 25,719 20,139
Other............................................... 10,864 12,709
-------- --------
Total deferred tax liabilities...................... 367,796 356,281
-------- --------
Net deferred tax liabilities........................ $321,521 $319,293
======== ========
</TABLE>
NOTE 11
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used in estimating the fair
value of TFC's financial instruments:
Finance Receivables
The estimated fair values of fixed rate installment contracts, real estate
loans, floorplan receivables and revolving loans were estimated based on
discounted cash flow analyses using interest rates currently being offered for
similar loans to borrowers of similar credit quality. Estimated future cash
flows were adjusted for
39
<PAGE> 42
TFC's estimates of prepayments, refinances and loan losses based on internal
historical data. The estimated fair values of all variable rate receivables
approximated the net carrying value of such receivables. The estimated fair
values of nonperforming loans were based on independent appraisals, discounted
cash flow analyses using risk adjusted interest rates, or TFC valuations based
on the fair value of the related collateral. The fair values of TFC's finance
leases, leveraged leases and operating leases ($424.4 million, $345.9 million
and $118.6 million, net carrying amount, respectively, at January 2, 1999 and
$392.3 million, $329.8 million and $111.5 million, net carrying amount,
respectively, at January 3, 1998) are not required to be disclosed under
generally accepted accounting principles. As a result, a significant portion of
the assets which are included in the Company's asset and liability management
strategy are excluded from this fair value disclosure.
Debt, Interest Rate Exchange Agreements and Foreign Currency Exchange
Agreements
The estimated fair value of fixed rate debt was determined by either
independent investment bankers or discounted cash flow analyses using interest
rates for similar debt with maturities similar to the remaining terms of the
existing debt. The fair values of variable rate debt and short-term borrowings
supported by credit facilities approximated their carrying values. The estimated
fair values of interest rate exchange agreements and foreign currency exchange
agreements were determined by independent investment bankers and represent the
estimated amounts that TFC would be required to pay to (or collect from) a third
party to assume TFC's obligations under the agreements.
The carrying values and estimated fair values of TFC's financial
instruments for which it is practicable to calculate a fair value are as
follows:
<TABLE>
<CAPTION>
JANUARY 2, 1999 JANUARY 3, 1998
----------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Installment contracts........................ $1,338,644 $1,343,642 $1,140,460 $1,142,651
Floorplan receivables........................ 572,289 571,810 408,721 408,105
Revolving loans.............................. 555,571 555,577 392,787 392,787
Golf course and resort mortgages............. 342,844 347,988 355,357 355,826
Commercial real estate mortgages............. 31,740 18,015 49,661 34,251
Subordinated certificates.................... 27,214 27,214 16,181 16,181
Trustee cash reserve......................... 10,210 10,210 6,009 6,009
Interest-only securities..................... 8,668 8,668 8,941 8,941
Investments in equity partnerships........... 5,997 5,997 -- --
Allowance for loan losses.................... (67,024) -- (66,806) --
---------- ---------- ---------- ----------
$2,826,153 $2,889,121 $2,311,311 $2,364,751
========== ========== ========== ==========
LIABILITIES
Commercial paper and short-term bank debt.... $1,424,872 $1,424,872 $1,073,665 $1,073,665
Variable rate long-term notes................ 932,000 932,000 899,000 899,000
Fixed rate long-term debt.................... 471,958 479,075 391,903 407,492
Amounts due to Textron Inc................... 18,810 15,662 20,151 16,502
Foreign currency exchange agreements......... -- (55) -- (13)
Interest rate exchange agreements............ -- 1,301 -- 429
---------- ---------- ---------- ----------
$2,847,640 $2,852,855 $2,384,719 $2,397,075
========== ========== ========== ==========
</TABLE>
NOTE 12
COMMITMENTS
TFC makes future loan commitments to accommodate the financial needs of its
customers, for which TFC receives commitment fees. Loan commitments of $432.4
million were outstanding at January 2, 1999. Generally, interest rates on these
commitments are not set until the loans are funded; therefore, TFC is not
40
<PAGE> 43
exposed to interest rate changes. Loan commitments have credit risk essentially
the same as that involved in extending loans to customers and are subject to
TFC's normal credit policies. Creditworthiness and collateral are both
considered before a loan commitment is approved.
TFC's offices are occupied under non-cancelable operating leases expiring
on various dates through 2004. Rental expense was $3.5 million in 1998 ($2.5
million in 1997 and $2.3 million in 1996). Future minimum rental commitments for
all non-cancelable operating leases in effect at January 2, 1999 approximated
$2.9 million for 1999; $2.0 million for 2000; $1.2 million for 2001; $0.9
million for 2002; $0.6 million for 2003; and $0.3 million thereafter. Of these
amounts, $0.9 million per year through the year 2000 and $0.3 million in 2001
are payable to Textron.
NOTE 13
CONTINGENCIES
There are pending or threatened against TFC and its subsidiaries lawsuits
and other proceedings. Among these suits and proceedings are some which seek
compensatory, treble or punitive damages in substantial amounts. These suits and
proceedings are being defended or contested on behalf of TFC and its
subsidiaries. On the basis of information presently available, TFC believes any
such liability would not have a material effect on TFC's net income or financial
condition.
NOTE 14
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
At year-end 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information, which requires segment data to be measured and analyzed on a basis
that is consistent with how business activities are reported internally for
management. The Company's business segments are organized based on the nature of
products and services provided. The accounting policies for these segments are
the same as those described for the consolidated entity.
The Company evaluates the performance of its business segments primarily on
the basis of revenues, income before taxes, and finance assets. Details of total
revenues, income before taxes, and finance assets by business segment are
provided below:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
1998 % 1997 % 1996 %
---------- --- ---------- --- ---------- ---
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues
Term loans and leases.................. $ 216,643 59 $ 240,419 69 $ 228,088 70
Revolving credit....................... 87,835 24 62,784 18 54,493 17
Specialty finance...................... 62,685 17 45,364 13 36,200 11
Commercial real estate................. (1) -- 1,653 -- 8,466 2
---------- --- ---------- --- ---------- ---
Total revenues.............................. $ 367,162 100 $ 350,220 100 $ 327,247 100
Income before taxes(1)(2)
Term loans and leases.................. $ 70,304 $ 81,809 $ 70,954
Revolving credit....................... 26,398 18,524 17,879
Specialty finance...................... 26,752 19,509 17,105
Commercial real estate................. (10,828) (11,763) (10,214)
---------- ---------- ----------
Total income before taxes................... $ 112,626 $ 108,079 $ 95,724
========== ========== ==========
</TABLE>
41
<PAGE> 44
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Finance assets(3)
Term loans and leases.................. $2,145,854 $1,939,622 $2,244,305
Revolving credit....................... 831,165 548,215 480,147
Specialty finance...................... 722,653 643,143 481,797
Commercial real estate................. 30,315 49,661 94,266
---------- ---------- ----------
Total finance receivables................... $3,729,987 $3,180,641 $3,300,515
========== ========== ==========
</TABLE>
- ---------------
(1) Interest expense is allocated to each segment in proportion to its net
investment in finance assets. Net investment in finance assets includes
deferred income taxes, security deposits and other specifically identified
liabilities. The interest allocated matches variable rate debt with variable
rate finance assets and fixed rate debt with fixed rate finance assets.
(2) Indirect expenses are allocated to each segment based on the utilization of
such resources. Some allocations are based on the segments proportion of net
investment in finance assets, headcount, number of transactions, computer
resources and senior management time.
(3) Finance assets include finance receivables and equipment on operating
leases, net of accumulated depreciation, but exclude repossessed assets and
beneficial interests in securitized assets (classified as other assets in
TFC's Consolidated Balance Sheet).
NOTE 15
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
----------------- ----------------- ----------------- -----------------
1998 1997 1998 1997 1998 1997 1998 1997
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................................... $85,390 $82,789 $90,870 $89,378 $98,509 $91,509 $92,393 $86,544
Expenses...................................... 60,812 58,901 63,898 62,528 65,365 61,954 64,461 58,758
Net income.................................... 15,074 14,473 16,548 16,331 20,317 19,004 17,637 17,933
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
42
<PAGE> 45
TEXTRON FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
REVENUES
Finance charges and discounts............................. $168,739 $146,694
Rental revenues on operating leases....................... 8,136 8,645
Other income.............................................. 22,663 20,921
-------- --------
199,538 176,260
EXPENSES
Interest.................................................. 85,467 76,360
Selling and administrative................................ 42,695 34,484
Provision for losses...................................... 11,706 10,271
Depreciation of equipment on operating leases............. 3,565 3,595
-------- --------
143,433 124,710
-------- --------
Income before income taxes.................................. 56,105 51,550
Income taxes................................................ 21,688 19,928
-------- --------
NET INCOME.................................................. $ 34,417 $ 31,622
======== ========
</TABLE>
43
<PAGE> 46
TEXTRON FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1999 JANUARY 2, 1999
------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and equivalents...................................... $ 12,149 $ 22,396
Finance receivables, net of unearned income:
Installment contracts.................................. 1,508,308 1,338,644
Floorplan receivables.................................. 615,203 572,289
Revolving loans........................................ 595,169 555,571
Finance leases......................................... 520,237 424,436
Golf course and resort mortgages....................... 387,138 342,844
Leveraged leases....................................... 348,448 345,873
Commercial real estate mortgages....................... 14,087 31,740
---------- ----------
Total finance receivables......................... 3,988,590 3,611,397
Allowance for losses on receivables......................... (85,687) (83,887)
---------- ----------
Finance receivables -- net........................ 3,902,903 3,527,510
Equipment on operating leases -- net........................ 111,602 118,590
Other assets................................................ 138,366 116,042
---------- ----------
Total assets...................................... $4,165,020 $3,784,538
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES
Accrued interest and other liabilities.................... $ 165,226 $ 143,316
Amounts due to Textron Inc................................ 22,028 18,419
Deferred income taxes..................................... 330,118 321,521
Debt...................................................... 3,151,179 2,828,830
---------- ----------
Total liabilities................................. 3,668,551 3,312,086
SHAREHOLDER'S EQUITY
Common stock, $100 par value (4,000 shares authorized;
2,500 shares issued and outstanding)................... 250 250
Capital surplus........................................... 163,471 155,171
Retained earnings......................................... 332,748 317,031
---------- ----------
Total shareholder's equity........................ 496,469 472,452
---------- ----------
Total liabilities and shareholder's equity........ $4,165,020 $3,784,538
========== ==========
</TABLE>
44
<PAGE> 47
TEXTRON FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 34,417 $ 31,622
Adjustments to reconcile net income to net cash provided by
operating activities:
Increase in accrued interest and other liabilities..... 21,206 31,162
Provision for losses................................... 11,706 10,271
Deferred income taxes.................................. 8,597 (11,549)
Depreciation and amortization.......................... 7,700 5,728
Leveraged lease noncash earnings....................... (701) (3,522)
Other.................................................. (5,950) 7,625
----------- -----------
Net cash provided by operating activities......... 76,975 71,337
CASH FLOWS FROM INVESTING ACTIVITIES:
Finance receivables originated or purchased................. (2,129,783) (1,857,093)
Finance receivables repaid or sold.......................... 1,837,821 1,749,074
Acquisitions, net of cash acquired.......................... (53,152) (16,762)
Proceeds from disposition of operating lease and other
assets.................................................... 17,706 13,001
Purchase of assets for operating leases..................... (14,302) (27,904)
Other capital expenditures.................................. (5,059) (4,555)
Proceeds from real estate owned............................. 2,312 2,028
Other investments........................................... (10,053) --
----------- -----------
Net cash used in investing activities............. (354,510) (142,211)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.................... 660,000 300,000
Net decrease in short-term debt............................. (189,320) (3,926)
Principal payments on long-term debt........................ (141,472) (283,338)
Principal payments on non-recourse debt..................... (53,271) (26,969)
Net increase (decrease) in commercial paper................. (1,859) 40,902
Net increase in amounts due to Textron Inc.................. 3,609 51,026
Capital contributions from Textron Inc...................... 8,300 22,800
Dividends paid to Textron Inc............................... (18,700) (20,700)
----------- -----------
Net cash provided by financing activities......... 267,287 79,795
----------- -----------
NET INCREASE (DECREASE) IN CASH............................. (10,248) 8,921
Cash and equivalents at beginning of year................... 22,397 13,597
----------- -----------
Cash and equivalents at end of period....................... $ 12,149 $ 22,518
=========== ===========
</TABLE>
45
<PAGE> 48
TEXTRON FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON CAPITAL RETAINED
STOCK SURPLUS EARNINGS TOTAL
------ -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance January 3, 1998................................ $250 $ 95,871 $309,755 $405,876
Net income............................................. -- -- 69,576 69,576
Capital contribution from Textron Inc.................. -- 59,300 -- 59,300
Dividend to Textron Inc................................ -- -- (62,300) (62,300)
---- -------- -------- --------
Balance January 2, 1999................................ 250 155,171 317,031 472,452
Net income............................................. -- -- 34,417 34,417
Capital contribution from Textron Inc.................. -- 8,300 -- 8,300
Dividend to Textron Inc................................ -- -- (18,700) (18,700)
---- -------- -------- --------
Balance June 30, 1999.................................. $250 $163,471 $332,748 $496,469
==== ======== ======== ========
</TABLE>
46
<PAGE> 49
TEXTRON FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of the Company included in the 1998
Annual Report include additional notes, which should be read in conjunction with
the consolidated financial statements included in this Financial and Statistical
Summary.
The accompanying consolidated financial statements include the accounts of
Textron Financial Corporation (the Company or TFC) and its subsidiaries, all of
which are wholly owned. All significant intercompany transactions are
eliminated. The consolidated financial statements are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of TFC's consolidated
financial position at June 30, 1999 and January 2, 1999 and its consolidated
results of operations for each of the respective three and six month periods
ended June 30, 1999 and 1998 and its consolidated cash flows for each of the six
month periods ended June 30, 1999 and 1998.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year.
NOTE 2. CASH AND EQUIVALENTS
Cash and equivalents consist of cash in banks and overnight interest
bearing deposits in banks.
NOTE 3. ACQUISITION
On March 31, 1999, TFC acquired an asset portfolio from Southern Capital
Corporation. The total purchase price was $52.8 million. The fair value of the
assets acquired was $50.3 million. The goodwill associated with this transaction
is being amortized over 10 years.
Had the acquisition occurred on January 3, 1999, the effect on the
Company's 1999 results would not have been material. Consequently, pro forma
information has not been presented.
NOTE 4. LOAN IMPAIRMENT
The Company measures reserves for credit losses on non-homogeneous impaired
loans based on the present value of expected future cash flows discounted at the
loan's effective interest rate, or at the observable market price or at the fair
value of collateral if the loan is collateral dependent. This evaluation is
inherently subjective as it requires estimates, including the amount and timing
of future cash flows expected to be received on impaired loans, that are likely
to differ from actual results.
Accrual of interest income is suspended for accounts which are
contractually delinquent by more than three months, unless collection is not
doubtful. Cash payments on nonaccrual accounts, including finance charges,
generally are applied to reduce loan principal. At June 30, 1999, the Company
had nonaccrual loans and leases totaling $53.5 million and $69.9 million on
January 2, 1999, of which approximately $32.8 million and $46.5 million,
respectively, was considered impaired, excluding finance leases and homogeneous
loan portfolios. The allowance for losses on receivables related to impaired
loans was $11.5 million at June 30, 1999 and $14.9 million at January 2, 1999.
The average recorded investment in impaired loans during the first six months of
1999 was $44.4 million and $61.2 million in the corresponding period in 1998.
Nonaccrual loans resulted in TFC's revenues being reduced by approximately $2.4
million and $2.9 million for the first six months of 1999 and 1998,
respectively, and by approximately $0.9 million and $1.5 million for the second
quarters of 1999 and 1998, respectively. No interest income was recognized using
the cash basis method.
47
<PAGE> 50
NOTE 5. MANAGED FINANCE RECEIVABLES
TFC manages finance receivables for a variety of investors, participants
and third party portfolio owners.
<TABLE>
<S> <C> <C>
Owned receivables........................................... $3,988,590 $3,611,397
Securitized receivables..................................... 505,120 616,220
---------- ----------
4,493,710 4,227,617
Non-recourse participations................................. 308,970 228,357
Third party portfolio servicing............................. 58,301 30,908
SBA sales agreements........................................ 26,143 21,958
---------- ----------
Total managed finance receivables........................... $4,887,124 $4,508,840
========== ==========
</TABLE>
NOTE 6. DEBT AND CREDIT FACILITIES
<TABLE>
<CAPTION>
JUNE 30, JANUARY 2,
1999 1999
------------ --------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Commercial paper............................................ $1,183,732 $1,185,591
Other short-term debt....................................... 49,961 239,281
---------- ----------
Total short-term debt............................. 1,233,693 1,424,872
Long-term debt:
5.66%-5.86% notes; due 2000 to 2002......................... 233,000 33,000
6.13%-6.51% notes; due 2000 to 2001......................... 112,500 204,000
7.14%-7.67% notes; due 1999 to 2000......................... 184,986 234,958
Variable rate notes; due 1999 to 2001....................... 1,387,000 932,000
---------- ----------
Total long-term debt.............................. 1,917,486 1,403,958
---------- ----------
Total debt........................................ $3,151,179 $2,828,830
========== ==========
</TABLE>
Combined commercial paper and short-term bank debt weighted average
interest rates, before consideration of the effect of interest rate exchange
agreements, have been determined by relating the annualized interest cost to the
daily average dollar amounts outstanding. The combined weighted average interest
rate during the six months ended June 30, 1999 was 5.22%. The combined weighted
average interest rate, before consideration of the effect of interest rate
exchange agreements, at June 30, 1999 was 5.11%.
Interest on variable rate notes is tied predominantly to the three-month
London Interbank Offered Rate for U.S. dollar deposits. The weighted average
interest rate on variable rate notes at June 30, 1999 was 5.27%.
The terms of certain of the Company's loan agreements and credit facilities
limit the payment of dividends to $193 million at June 30, 1999. In the first
six months of 1999, TFC paid dividends of $18.7 million.
In the first quarter of 1999, TFC entered into a revolving credit facility
with Textron whereby TFC could borrow up to $1.25 billion from Textron. As of
June 30, 1999, nothing was outstanding under this agreement and the agreement
was cancelled. The maximum amount outstanding under this facility during the
first six months of 1999 was $1.0 billion. The obligations were due on demand
and the interest rate was at a rate equivalent to the Federal Reserve Banks'
A2/P2 commercial paper rate on the date the funds were drawn upon. Approximately
$14.6 million of interest expense related to this facility is included in TFC's
consolidated financial statements for the six months ended June 30, 1999.
48
<PAGE> 51
NOTE 7. INTEREST RATE EXCHANGE AGREEMENTS
Under interest rate exchange agreements, TFC makes period fixed payments in
exchange for periodic variable payments and vice versa. TFC has entered into
such agreements to mitigate its exposure to increases in interest rates on a
portion of its fixed and variable debt.
<TABLE>
<CAPTION>
JUNE 30, 1999 JANUARY 2, 1999
------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Weighted average original term.............................. 1.9 years 2.5 years
Notional principal -- fixed rate payments................... $400,000 $250,000
Fixed weighted average interest rate........................ 5.87% 6.26%
Variable weighted average interest rate..................... 5.23% 5.27%
Notional principal -- variable rate payments................ $ -- $ 50,000
Fixed weighted average interest rate........................ -- 6.30%
Variable weighted average interest rate..................... -- 5.22%
</TABLE>
NOTE 8. INTEREST RATE EXCHANGE AGREEMENTS FOR RECEIVABLE SECURITIZATIONS
TFC has entered into certain interest rate exchange agreements to mitigate
its exposure to decreases in interest rates on its interest-only securities.
Under the interest rate exchange agreements, TFC makes periodic variable rate
payments based upon the prime rate and the one- and six-month London Interbank
Offered Rate (LIBOR) and receives fixed rate payments. These interest rate
exchange agreements are adjusted periodically to match the amortization of the
variable rate contracts in the securitized portfolio and are summarized in the
following table:
<TABLE>
<CAPTION>
JUNE 30, 1999 JANUARY 2, 1999
------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Prime rate.................................................. 7.75% 7.75%
One-month LIBOR............................................. 5.24% 4.94%
1998 Securitization
Notional principal -- variable payments tied to the
prime rate............................................ $47.9 $55.3
Fixed rate............................................. 7.94% 7.94%
Notional principal -- variable payments tied to
LIBOR................................................. $22.6 $34.3
Fixed rate............................................. 5.13% 5.13%
Six-month LIBOR............................................. 5.65% 4.94%
1997 Securitization
Notional principal -- variable payments tied to the
prime rate............................................ $17.1 $46.6
Fixed rate............................................. 8.77% 8.77%
Notional principal -- variable payments tied to
LIBOR................................................. $15.2 $21.2
Fixed rate............................................. 5.97% 5.97%
</TABLE>
Interest rate floor agreements, entered into through AAA-rated
counterparties to the Textron Financial Corporation Receivables Trusts 1998-A
and 1997-A (the Trusts), provide a minimum interest rate on variable rate
receivables held by the Trusts and are tied to both the prime rate and the one-
and six-month LIBOR. These interest rate floor agreements are adjusted
periodically to match the amortization of the variable rate contracts in the
securitized portfolio and are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999 JANUARY 2, 1999
------------- ---------------
<S> <C> <C>
Prime rate.................................................. 7.75% 7.75%
One-month LIBOR............................................. 5.24% 4.94%
1998 Securitization
Notional principal -- variable payments tied to the
prime rate............................................ $51.1 $57.6
Floor rate............................................. 8.50% 8.50%
Notional principal -- variable payments tied to
LIBOR................................................. $23.1 $36.5
Floor rate............................................. 5.34% 5.34%
</TABLE>
49
<PAGE> 52
<TABLE>
<CAPTION>
JUNE 30, 1999 JANUARY 2, 1999
------------- ---------------
<S> <C> <C>
Six-month LIBOR............................................. 5.65% 4.94%
1997 Securitization
Notional principal -- variable payments tied to the
prime rate............................................ $17.1 $70.5
Floor rate............................................. 8.50% 8.50%
Notional principal -- variable payments tied to
LIBOR................................................. $15.2 $37.1
Floor rate............................................. 5.65% 5.65%
</TABLE>
TFC also has a securitization program consisting of a $150 million interest
in a designated pool of installment contracts. Subsequent collections of
installment contracts sold are typically reinvested in the pool of eligible
assets to maintain an aggregate outstanding balance of sold installment
contracts at a constant amount. Receivables sold which remained uncollected at
June 30, 1999 were $150 million. The ongoing purchase arrangement is
discretionary on the part of both parties and has been extended through 2000.
NOTE 9. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
At year-end 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information, which requires segment data to be measured and analyzed on a basis
that is consistent with how business activities are reported internally for
management. The Company's business segments are organized based on the nature of
products and services provided. The accounting policies for these segments are
the same as those described for the consolidated entity.
The Company evaluates the performance of its business segments primarily on
the basis of revenues, income before taxes, and finance assets. Details of total
revenues, income before taxes and finance assets by business segment are
provided below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 % 1998 %
---------- --- ---------- ---
<S> <C> <C> <C> <C>
Revenues
Term loans and leases............................... $ 116,803 58 $ 105,586 59
Revolving credit.................................... 49,960 25 41,610 24
Specialty finance................................... 32,715 17 29,065 17
Commercial real estate.............................. 60 -- (1) --
---------- --- ---------- ---
Total revenues........................................... $ 199,538 100 $ 176,260 100
Income before taxes(1)(2)
Term loans and leases............................... $ 31,901 $ 31,707
Revolving credit.................................... 13,721 12,960
Specialty finance................................... 12,278 11,971
Commercial real estate.............................. (1,795) (5,088)
---------- ----------
Total income before taxes................................ $ 56,105 $ 51,550
========== ==========
Finance assets(3)
Term loans and leases............................... $2,403,420 $1,961,291
Revolving credit.................................... 925,085 748,584
Specialty finance................................... 757,600 635,328
Commercial real estate.............................. 14,087 34,409
---------- ----------
Total finance receivables................................ $4,100,192 $3,379,612
========== ==========
</TABLE>
- ---------------
(1) Interest expense is allocated to each segment in proportion to its net
investment in finance assets. Net investment in finance assets includes
deferred income taxes, security deposits and other specifically identified
liabilities. The interest allocated matches variable rate debt with variable
rate finance assets and fixed rate debt with fixed rate finance assets.
50
<PAGE> 53
(2) Indirect expenses are allocated to each segment based on the utilization of
such resources, some allocations are based on the segments proportion of net
investment in finance assets, headcount, numbers of transactions, computer
resources and senior management time.
(3) Finance assets include finance receivables and equipment on operating
leases, net of accumulated depreciation, but exclude repossessed assets and
beneficial interests in securitized assets (classified as other assets in
TFC's Consolidated Balance Sheet).
ITEM 14. CHANGES IN, AND DISAGREEMENTS WITH, ACCOUNTANTS AND FINANCIAL
DISCLOSURES
Not applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS
The following documentation is filed with the Securities and Exchange
Commission as part of this report:
1. Management's Discussion and Analysis of Financial Condition and Results
of Operations of Textron Financial Corporation
2. Report of Independent Auditors -- Ernst & Young LLP
3. The Consolidated Financial Statements of Textron Financial Corporation
(audited)
4. The Condensed Consolidated Financial Statements of Textron Financial
Corporation for the six months ended June 30, 1999 and 1998 (unaudited)
EXHIBITS
The following is an Index of Exhibits required by Item 601 of Regulation
S-K filed with the Securities and Exchange Commission as part of this report.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1 Asset Purchase Agreement dated August 27, 1999, among TFC,
as buyer, and Green Tree Financial Servicing Corporation,
Green Tree Financial Loan Company, and Piper Financial
Services, Inc., as sellers.
3.1 Restated Certificate of Incorporation of TFC, dated July 19,
1993
3.2 By-Laws of TFC as of May 4, 1999
4.1 Long-term debt instruments with principal amounts not
exceeding 10% of TFC's total consolidated assets are not
filed as exhibits to this Report. TFC will furnish a copy of
those agreements to the SEC upon its request
10.1 Support Agreement dated as of May 25, 1994, between TFC and
Textron
10.2 Receivables Purchase Agreement between TFC and Textron dated
as of January 1, 1986
10.3 Tax Sharing Agreement between TFC and Textron dated as of
December 29, 1990
12.1 Computation of Ratios of Earnings to Fixed Charges
</TABLE>
51
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
TEXTRON FINANCIAL CORPORATION
BY: /s/ STEPHEN A. GILIOTTI
----------------------------------
NAME: STEPHEN A. GILIOTTI
TITLE: CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Date: October 5, 1999
<PAGE> 55
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1 Asset Purchase Agreement dated August 27, 1999, among TFC,
as buyer, and Green Tree Financial Servicing Corporation,
Green Tree Financial Loan Company, and Piper Financial
Services, Inc., as sellers.
3.1 Restated Certificate of Incorporation of TFC, dated July 19,
1993
3.2 By-Laws of TFC as of May 4, 1999
4.1 Long-term debt instruments with principal amounts not
exceeding 10% of TFC's total consolidated assets are not
filed as exhibits to this Report. TFC will furnish a copy of
those agreements to the SEC upon its request
10.1 Support Agreement dated as of May 25, 1994, between TFC and
Textron
10.2 Receivables Purchase Agreement between TFC and Textron dated
as of January 1, 1986
10.3 Tax Sharing Agreement between TFC and Textron dated as of
December 29, 1990
12.1 Computation of Ratios of Earnings to Fixed Charges
</TABLE>
<PAGE> 1
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
DATED AUGUST 27, 1999
BY AND AMONG
TEXTRON FINANCIAL CORPORATION,
GREEN TREE FINANCIAL SERVICING CORPORATION,
GREEN TREE FINANCIAL LOAN COMPANY
AND
PIPER FINANCIAL SERVICES, INC.
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
1. Definitions..............................................................................................1
2. Basic Transaction.......................................................................................12
(a) Purchase and Sale of Assets....................................................................12
(b) Assumption of Liabilities......................................................................12
(c) Purchase Price.................................................................................12
(d) The Closing....................................................................................13
(e) Deliveries at the Closing......................................................................13
(f) Determination of Estimated Purchase Price......................................................13
(g) Post-Closing Adjustment to Estimated Purchase Price............................................14
(h) Payment of Purchase Price Adjustments..........................................................14
(i) Allocation of Purchase Price...................................................................15
(j) Purchase and Sale of Single Division...........................................................15
3. Representations and Warranties of the Sellers...........................................................15
(a) Organization of the Sellers....................................................................15
(b) Authorization of Transaction...................................................................16
(c) Noncontravention...............................................................................16
(d) Investment Banker's Fees.......................................................................16
(e) Title to Acquired Assets; Fixed Assets; Dealer Agreements......................................16
(f) Financial Information..........................................................................17
(g) Subsequent Events..............................................................................17
(h) Legal Compliance...............................................................................19
(i) Real Property..................................................................................19
(j) Contracts......................................................................................19
(k) Financing Documents............................................................................21
(l) Powers of Attorney.............................................................................22
(m) Litigation.....................................................................................22
(n) Employee Benefits..............................................................................23
(o) Guaranties.....................................................................................23
(p) Intellectual Property..........................................................................23
(q) Employees......................................................................................23
(r) Certain Transactions...........................................................................23
(s) Acquired Assets................................................................................24
(t) Securitization.................................................................................24
(u) Taxes..........................................................................................24
(v) Environmental Matters..........................................................................24
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
4. Representations and Warranties of the Buyer.............................................................24
(a) Organization of the Buyer......................................................................24
(b) Authorization of Transaction...................................................................24
(c) Noncontravention...............................................................................24
(d) Investment Banker's Fees.......................................................................25
5. Pre-Closing Covenants...................................................................................25
(a) General........................................................................................25
(b) Notices and Consents...........................................................................25
(c) Operation of Business..........................................................................26
(d) Preservation of Business.......................................................................26
(e) Access to the Business.........................................................................26
(f) Notice of Developments.........................................................................26
(g) Updated Schedule...............................................................................26
(h) Master Repurchase Agreement....................................................................26
(i) AISL Insurance Policy..........................................................................27
6. Conditions to Obligation to Close.......................................................................27
(a) Conditions to Obligation of the Buyer..........................................................27
(b) Conditions to Obligation of the Sellers........................................................28
7. Post-Closing Covenants..................................................................................29
(a) Access to Records after Closing................................................................29
(b) Other Assets; Non-Assignable Rights............................................................30
(c) Use of Name....................................................................................30
(d) Mutual Assistance Regarding Taxes..............................................................31
(e) Covenants Not to Compete.......................................................................31
(f) Non-Solicitation of Employees..................................................................33
(g) Non-Interchange of Customers...................................................................33
(h) Employee Benefits and Employment...............................................................33
(i) Further Assurances of Sellers..................................................................37
(j) Further Assurances of Buyer....................................................................37
(k) Transfer Taxes.................................................................................37
(l) Litigation Assistance..........................................................................37
(m) Separate Subsidiary for Piper Aircraft Business................................................38
(n) Nonsolicitation of Servicing Portfolio.........................................................38
(o) Collection of Certain Receivables..............................................................38
(p) Review of Files................................................................................38
(q) Repurchase of Loans............................................................................38
(r) Hotlink to AF Division Website.................................................................39
8. Termination.............................................................................................39
(a) Termination of Agreement.......................................................................39
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
(b) Effect of Termination..........................................................................39
9. Indemnification.........................................................................................39
(a) Indemnification by the Sellers.................................................................39
(b) Indemnification by the Buyer...................................................................41
(c) Notice of Claims; Insurance Benefit............................................................41
(d) Third Person Claims............................................................................42
(e) Limitations....................................................................................43
(f) Adjustment to Purchase Price...................................................................44
10. Miscellaneous...........................................................................................44
(a) Press Releases and Public Announcements........................................................44
(b) No Third-Party Beneficiaries...................................................................44
(c) Entire Agreement...............................................................................44
(d) No Additional Representations and Warranties...................................................44
(e) Seller Joint Responsibility; Succession and Assignment.........................................45
(f) Counterparts...................................................................................45
(g) Headings.......................................................................................45
(h) Notices........................................................................................45
(i) Governing Law..................................................................................46
(j) Amendments and Waivers.........................................................................46
(k) Severability...................................................................................46
(l) Expenses.......................................................................................47
(m) Construction...................................................................................47
(n) Incorporation of Exhibits and Schedules........................................................47
(o) Specific Performance...........................................................................47
(p) Submission to Jurisdiction.....................................................................47
(q) Agreement Provisions Not related to Retained Assets; Confidentiality...........................48
</TABLE>
Exhibit A -- Sub-servicing Agreement
Disclosure Schedule
-iii-
<PAGE> 5
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT entered into on August 27, 1999 by and among
Textron Financial Corporation, a Delaware corporation (the "Buyer"), Green Tree
Financial Servicing Corporation, a Delaware corporation ("Green Tree"), Green
Tree Financial Loan Company, a Minnesota industrial loan company and a wholly
owned subsidiary of Green Tree ("Green Tree FLC"), and Piper Financial Services,
Inc., a Minnesota corporation and a wholly owned subsidiary of Green Tree
("PFS") and, together with Green Tree and Green Tree FLC, the "Sellers." The
Buyer and the Sellers are referred to collectively herein as the "Parties."
WHEREAS, this Agreement contemplates a transaction in which the Buyer
will purchase all of the Acquired Assets (and assume all of the Assumed
Liabilities) of Green Tree's Aircraft Finance Division and its Franchise Finance
Division in return for cash.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
1. Definitions. The following terms used in this Agreement have the
meanings set forth below:
"Accounting Firm" has the meaning set forth in Section 2(g) below.
"Accrued Interest" means the book value of the "Accrued interest
receivables" (determined in accordance with GAAP) of the AF Division or the FF
Division, as the case may be, as set forth in the Final Closing Statements of
Assets and Liabilities.
"Acquired Assets" means all right, title, and interest in and to all of
the assets of the Sellers relating primarily to the Business, including all of
their: (a) financial assets (the "Financial Assets") shown on the Final Closing
Statements of Assets and Liabilities, as represented by accounts, notes and
other receivables, promissory notes, security agreements, loan agreements,
installment contracts, loan participation agreements, mortgages, deeds of trust,
guarantees and collateral and other supporting documents or agreements relating
to the Financial Assets, if any, including all amendments, modifications,
supplements, waivers, restatements or other changes thereto (the "Financing
Documents"), (b) fixed assets ("Fixed Assets") of the Business, generally
described as tangible personal property (such as machinery, equipment, furniture
and computers), listed on Section 3(e) of the Disclosure Schedule or acquired by
either of the Divisions subsequent to the date hereof; (c) Intellectual Property
and goodwill associated with the Business; (d) rights under the Dealer
Agreements listed on Section 3(e) of the Disclosure Schedule; (e) prepaid
personal property and sales tax assets of the Business; (f) rights under the
contracts and agreements relating to the Business listed on Section 3(j) of the
Disclosure Schedule (or which would have been listed on Section 3(j) of the
Disclosure Schedule if Section 3(j) did not contain dollar amount minimums for
certain contracts and agreements), and Sellers' rights under such contracts and
agreements entered into by any of the Sellers
-1-
<PAGE> 6
subsequent to the date hereof (subject to the provisions on non-transferability
of rights as provided in Section 7(b) below); (g) books, records, ledgers, files
(including, without limitation, credit and collateral files), documents,
correspondence, lists, studies, reports, and other printed or written materials
to the extent relating to any Aircraft Loan or Franchise Loan made or acquired
by the Business regardless of when such loans were originated or acquired by a
Division; (h) any rights to insurance (or proceeds of insurance) on any
collateral relating to Aircraft Loans or Franchise Loans (except for rights to
insurance (or proceeds of insurance) on any such collateral relating to the
conduct of the Business prior to the Closing, the Retained Assets or any
Liabilities of the Business other than Assumed Liabilities); (i) office and
other supplies of the Business used solely in the conduct of the Business and
all files, lists and the Financing Documents; (j) collateral or escrowed funds
of borrowers, including all cash collateral and cash or cash equivalents with
respect to maintenance and engine reserve and other similar accounts; and (k)
all rights with respect to asserted or unasserted litigation claims with respect
to the Business listed on Section 3(m) of the Disclosure Schedule; provided,
however, that the Acquired Assets shall not include (A) the Retained Assets, (B)
corporate charters, qualifications to conduct business as a foreign corporation,
arrangements with registered agents relating to foreign qualifications, taxpayer
and other identification numbers, seals, minute books, stock transfer books,
blank stock certificates, and other documents relating to the organization,
maintenance, and existence of the Sellers as corporations; (C) cash and cash
equivalents (other than cash collateral and cash and cash equivalents with
respect to maintenance and engine reserve and other similar accounts); (D) any
of the rights of the Sellers under this Agreement (or under any supplemental
agreement between the Sellers and the Buyer entered into on or after the date of
this Agreement); (E) rights of the Sellers or any Affiliates under any
governmental license, permit or authorization; (F) any rights to insurance (or
proceeds of insurance) for claims arising out of or related to Liabilities
(other than Assumed Liabilities) or the conduct of the Business prior to the
Closing (other than the insurance (or proceeds of insurance) identified in
clause (h) of this definition that are part of the Acquired Assets); (G) any
refunds or credits relating to Taxes that are not an Assumed Liability; (H) any
assets referred to as "Miscellaneous charge receivables" and "Assessed late
charge receivables" as set forth in the Final Closing Statements of Assets and
Liabilities; and (I) the Repo Inventory of the AF Division and the FF Division
(but only in the event that Buyer disagrees with Sellers' determination of the
fair market value of such Repo Inventory and declines to acquire the Repo
Inventory as a result of such disagreement).
"Acquired Person" has the meaning set forth in Section 7(e)(i) below.
"Adjusted AF Division Total Managed Receivables" means (a) the AF
Division Total Managed Receivables, less (b) the AF Division Delinquency
Adjustment, if any.
"Adjusted FF Division Total Managed Receivables" means (a) the FF
Division Total Managed Receivables, less (b) the FF Division Delinquency
Adjustment, if any.
"Adjustment Date" has the meaning set forth in Section 2(g) below.
-2-
<PAGE> 7
"AF Division" means Green Tree's Aircraft Finance Division (excluding
any business operations or assets thereof to the extent relating to the Retained
Assets).
"AF Division Business" means the business of the AF Division.
"AF Division Business Purchase Price" has the meaning set forth in
Section 2(c) below.
"AF Division Delinquency Adjustment" means an amount equal to the
excess, if any, of (a) the AF Division Total Managed Receivables more than 60
days past due as of the Closing Date ("Delinquent Aircraft Loans"), over (b)
.50% of the AF Division Total Managed Receivables as of the Closing Date.
"AF Division Owned Receivables" means the book value of the "AF
Division owned receivables" (determined on a gross basis in accordance with
GAAP) to be set forth in the Final Closing Statements of Assets and Liabilities.
"AF Division Securitized Receivables" means the book value of the "AF
Division securitized receivables" (determined on a gross basis in accordance
with GAAP) to be set forth in the Final Closing Statements of Assets and
Liabilities.
"AF Division Total Managed Receivables" means (a) the AF Division Owned
Receivables, plus (b) the AF Division Securitized Receivables.
"AF Division Website" means Green Tree's website located at
www.flynancing.com relating to the AF Division Business.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Agreement" means this Asset Purchase Agreement dated the date hereof
by and among the Buyer and the Sellers.
"Aircraft Loan" means a loan (or similar financing arrangement, such as
direct finance leases) marketed and made available for the purpose of financing
or refinancing the acquisition of an aircraft, engines or other aircraft
collateral, including without limitation, kits, balloons, helicopters and
avionics; provided, however, that a loan (or similar financing arrangement)
provided by a Person as part of an aircraft floor plan lending or home equity or
mortgage loan business (or any other business not directed specifically toward
financing the acquisition of aircraft by end-users) shall not be deemed an
Aircraft Loan even if the proceeds of the loan (or similar financing
arrangement) are used to finance or refinance the acquisition of an aircraft,
unless such loan (or similar financing arrangement) has been marketed as being
specifically available for use to finance or refinance the acquisition of
aircraft.
-3-
<PAGE> 8
"Assumed Liabilities" means (a) all Liabilities or obligations of the
Sellers relating to the Business under the Financing Documents (including,
without limitation, obligations to satisfy any loan commitments made on or prior
to the Closing Date (whether or not such commitments are contained in Financing
Documents)) to be performed after the Closing; (b) all Book Liabilities in
existence as of the Closing to the extent constituting Escrow Balances, Unearned
Interest and Dealer Holdbacks listed in the Final Closing Statement of Assets
and Liabilities, (c) all Liabilities of the Business in connection with all
borrower security deposits or escrowed funds to the extent the Acquired Assets
include such security deposits or escrowed funds, (d) all Liabilities and
obligations of the Business under the Dealer Agreements to be performed after
the Closing, (e) Sellers' Liabilities to perform obligations after the Closing
under the contracts, lease agreements, and other agreements relating to the
Business, including any Liabilities listed in Section 3(j) of the Disclosure
Schedule and (f) any employment related liabilities expressly assumed by the
Buyer pursuant to Section 7(h) of this Agreement. The Assumed Liabilities shall
not include (i) any Liability of the Sellers for costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby, (ii)
any intercompany debt owed to the Sellers or an Affiliate of Sellers, (iii) any
Liability or obligation of the Sellers under this Agreement (or under any
supplemental agreement between the Sellers and the Buyer entered into on or
after the date of this Agreement), (iv) any liability, claim or obligation of a
Seller with respect to any Taxes arising on or prior to the Closing or Taxes
(including pursuant to Treasury Regulation 1.1502-6 (or any analogous provision
of state, local or foreign law), as a transferee or successor under any
provision of federal, state, local or foreign law or otherwise), or any
reporting requirement or estimated Tax payable with respect thereto, whether
arising out of or relating to events, state of facts or transactions occurring
or existing on, prior to, or after the Closing Date, including any Taxes
relating to the transactions contemplated hereby (except as otherwise provided
in Section 7(k) below); (v) any Liability resulting from, arising out of,
relating to, in the nature of, or caused by any breach of contract, breach of
warranty, tort, infringement, violation of law, or environmental matter (except
for matters listed on Section 3(v) of the Disclosure Schedule), in each case on
or prior to the Closing, (vi) any obligation of the Sellers to indemnify any
Person by reason of the fact that such person was a director, officer, employee
or agent of the Sellers or their Affiliates or was serving at the request of the
Sellers or their Affiliates as a partner, trustee, director, officer, employee
or agent of another entity (whether such indemnification is for judgments,
damages, penalties, fines, costs, amounts paid in settlement, losses, expenses,
or otherwise and whether such indemnification is pursuant to any statute,
charter document, bylaw, agreement, or otherwise) or (vii) any employment
related liabilities not expressly assumed by the Buyer pursuant to Section 7(h)
of this Agreement.
"Book Liabilities" means all obligations recorded on the books and
records of the Sellers relating primarily to the Business as listed on the Most
Recent Statement of Assets and Liabilities or incurred subsequent to the date
thereof in the Ordinary Course of Business.
"Business" means the businesses of the Divisions considered as a whole.
"Buyer" has the meaning set forth in the preface above.
-4-
<PAGE> 9
"Buyer's Employee Benefits" has the meaning set forth in Section
7(h)(ii)(A) below.
"Captive Finance Business" means a business, to the extent but only to
the extent, such business is engaged in making Aircraft Loans with respect to
(x) new aircraft manufactured by such business or one or more Affiliates thereof
and (y) used aircraft manufactured by such business or one or more of its
Affiliates to facilitate the sale of new aircraft manufactured by such business
or one or more of its Affiliates.
"Claim Notice" has the meaning set forth in Section 9(c)(i) below.
"Closing" has the meaning set forth in Section 2(d) below.
"Closing Conditions" has the meaning set forth in Section 2(d) below.
"Closing Date" has the meaning set forth in Section 2(d) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Competitive Aircraft Finance Business" has the meaning set forth in
Section 7(e)(i) below.
"Competitive Franchise Finance Business" has the meaning set forth in
Section 7(e)(ii) below.
"Conseco" means Conseco, Inc., an Indiana corporation which, as of the
date hereof, owns all of the outstanding capital stock of GTFC.
"Conseco Entity" means Conseco (or its successor by operation of law)
and any corporation, partnership, limited liability company or other entity (a)
with respect to which Conseco (or such successor), directly or indirectly, owns
a majority of the outstanding voting securities or (b) whose financial
statements are consolidated with Conseco's (or such successor's) financial
statements in accordance with GAAP and as to which Conseco is the parent entity.
"Consumer Finance Laws" means any federal or state laws or regulations
(including truth in lending, usury and licensing laws and registration
requirements) regulating loans (or any other agreement of the type underlying a
Financing Document) made to consumers or the collection of such loans (or any
amounts collectible pursuant to a Financing Document).
"Consumer Finance Law Violation Damages" means (i) any Damages
suffered, assessed, incurred or fines or other amounts paid to governmental
entities or borrowers by the Buyer as a result of or arising from Aircraft Loans
or Franchise Loans transferred to the Buyer hereunder made by any of the Sellers
to such borrowers in violation of Consumer Finance Laws and (ii) any
-5-
<PAGE> 10
losses or other Damages resulting from the Buyer's inability to collect the
principal and interest due with respect to such loans.
"Current Employees" has the meaning set forth in Section 7(h)(i) below.
"Damages" has the meaning set forth in Section 9(a)(i).
"Dealer Agreements" means any agreement in existence on the date hereof
(or entered into subsequent to the date hereof in the Ordinary Course of
Business) with a dealer or vendor of a particular kind of equipment pursuant to
which the parties thereto set forth the terms upon which the Business will
provide loan financing to customers of the dealer or vendor.
"Dealer Holdback" means the book value of the "Dealer holdback credit
balances" of the AF Division or the FF Division, as the case may be, to be set
forth in the Final Closing Statements of Assets and Liabilities.
"Descriptive Memorandum" means the Descriptive Memorandum dated April
1999 relating to the Business and GTFC's other commercial finance businesses.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Division" means the AF Division or the FF Division, as the case may
be.
"Divisions" means the AF Division and the FF Division.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in Section
3(2) of ERISA.
"Employee Welfare Benefit Plan" has the meaning set forth in Section
3(1) of ERISA.
"Employees" has the meaning set forth in Section 7(h)(i) below.
"Enforceability Exceptions" has the meaning set forth in Section 3(j)
below.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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"Escrow Balance" means the book value of the "Escrow credit balances"
of the AF Division or the FF Division, as the case may be, to be set forth in
the Final Closing Statements of Assets and Liabilities.
"Estimated Purchase Price" has the meaning set forth in Section 2(f)
below.
"FF Division" means Green Tree's Franchise Finance Division.
"FF Division Business" means the business of the FF Division.
"FF Division Business Purchase Price" has the meaning set forth in
Section 2(c) below.
"FF Division Delinquency Adjustment" means an amount equal to the
excess, if any, of (a) the FF Division Total Managed Receivables more than 60
days past due as of the Closing Date, over (b) .50% of the FF Division Total
Managed Receivables as of the Closing Date.
"FF Division Owned Receivables" means the book value of the "FF
Division owned receivables" (determined on a gross basis in accordance with
GAAP) to be set forth in the Final Closing Statements of Assets and Liabilities.
"FF Division Securitized Receivables" means the book value of the "FF
Division securitized receivables" (determined on a gross basis in accordance
with GAAP) to be set forth in the Final Closing Statements of Assets and
Liabilities.
"FF Division Total Managed Receivables" means (a) the FF Division Owned
Receivables, plus (b) the FF Division Securitized Receivables.
"Final Closing Statements of Assets and Liabilities" means the
statements of assets and liabilities of the AF Division and the FF Division as
of the Closing Date, which shall be prepared by Green Tree in accordance with
this Agreement in the same manner as the Statements of Assets and Liabilities.
"Financial Assets" means financing arrangements provided by Sellers in
connection with the Business with respect to any type of property and regardless
of whether the transaction takes the form of a loan, a conditional sales
agreement or a note and security agreement, under which the Sellers are the
lender, seller, secured party or an assignee thereof. The Financial Assets
includes loan participation agreements and Sellers' Security Interests in
collateral and cash collateral (if any).
"Financing Documents" has the meaning set forth in the definition of
Acquired Assets above.
"Fixed Assets" has the meaning set forth in the definition of Acquired
Assets above.
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"Franchise Loan" means a loan (or similar financing arrangement)
marketed and made available for the purpose of providing overall financing or
refinancing for a franchised business operation (including financing for
furniture, fixtures and equipment, remodeling and real estate acquisition);
provided, however, that a loan (or similar financing arrangement) provided by a
Person to a franchise business operation shall not be deemed to be a Franchise
Loan if such loan (or similar financing arrangement) is made to finance only a
portion of the operation's business or assets (e.g., leased or acquired real
estate or equipment), or if such loan (or similar financing arrangement) is made
as part of a financing business not directed specifically toward financing a
franchise business operation.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Green Tree" has the meaning set forth in the preface above.
"Green Tree FLC" has the meaning set forth in the preface above.
"GTFC" means Green Tree Financial Corporation, a Delaware corporation
that owns all of the outstanding capital stock of Green Tree and that is a
wholly owned subsidiary of Conseco, Inc.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Inactive Employees" has the meaning set forth in Section 7(h)(i)
below.
"Indemnified Event" has the meaning set forth in Section 9(c)(ii)
below.
"Indemnified Party" has the meaning set forth in Section 9(c)(i) below.
"Indemnitor" has the meaning set forth in Section 9(c)(i) below.
"Intellectual Property" means, with respect to such property relating
primarily to the Business, (a) the service marks and the trade names set forth
on Section 3(p) of the Disclosure Schedule, together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill
associated therewith, and all applications, registrations, and renewals in
connection therewith, (b) all copyrightable works, all copyrights, and all
applications, registrations, and renewals in connection therewith, (c) all trade
secrets and confidential business information (including ideas, know-how, loan
origination and servicing procedures customer, dealer and supplier lists,
pricing and cost information, and business and marketing plans and proposals),
(d) all proprietary computer software listed on Section 3(p) of Disclosure
Schedule and (e) the AF Division Website.
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"Knowledge of Sellers" means: (a) with respect to the AF Division, the
actual knowledge of the General Manager, Director of Operations and Loan
Processing Manager of the AF Division, the President, Executive Vice President
and Senior Counsel of GTFC's Commercial Lending Division, the Chief Financial
Officer, Treasurer, Controller and General Counsel of GTFC and the Chief
Financial Officer, Chief Accounting Officer, Senior Vice President and
President--Finance Group and General Counsel of Conseco; and (b) with respect to
the FF Division, the actual knowledge of the General Manager and Director of
Operations of the FF Division, the President, Executive Vice President and
Senior Counsel of GTFC's Commercial Lending Division, the Chief Financial
Officer, Treasurer, Controller and General Counsel of GTFC and the Chief
Financial Officer, Chief Accounting Officer, Senior Vice President and
President--Finance Group and General Counsel of Conseco.
"Liability" means any liability or obligation of any kind whatsoever
(whether known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due).
"LIBO Rate" means the offered rate for deposits in United States
Dollars (rounded upwards, if necessary, to the nearest 1/16 of 1%) for an
interest period of one month which appears on the Reuters Screen LIBO Page as of
11:00 a.m., London time, on each business day.
"Lien" means any mortgage, pledge, lien, encumbrance, charge, or other
Security Interest, other than (a) warehousemen's, artisans', mechanics',
materialmen's, and similar liens on the Fixed Assets or collateral or
repossessed inventory securing Aircraft Loans or Franchise Loans of the
Business, (b) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings (which
proceedings are set forth on Section 3(m) of the Disclosure Schedule) and (c)
other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money on Fixed Assets.
"Managed Financial Assets" means Financial Assets of the AF Division
which have been sold by Green Tree in loan securitization transactions and which
are serviced by Green Tree.
"Master Repurchase Agreement" means the Master Repurchase Agreement
dated as of December 30, 1998 between Prudential Securities Credit Corporation
and GTFC.
"Material Adverse Effect" or "Material Adverse Change" means, with
respect to the Business, a material adverse effect on or change to (as the case
may be) the business, financial condition or results of operations of the
Business; provided, however, (a) that adverse conditions relating to the economy
in general or the sector of the commercial finance industry in which the
Business operates shall not constitute a Material Adverse Effect or Material
Adverse Change and (b) any adverse change with respect to the AF Division
Business relating to the financing of aircraft manufactured by Piper Aircraft
(including, without limitation, any decline in revenues resulting therefrom)
shall not constitute a Material Adverse Change.
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"Most Recent Statements of Assets and Liabilities" has the meaning set
forth in Section 3(f) below.
"Multiemployer Plan" has the meaning set forth in Section 3(37) of
ERISA.
"Non-Assignable Rights" has the meaning set forth in Section 7(b)
below.
"Non-Competition Region" has the meaning set forth in Section 7(e)(i)
below.
"Ordinary Course of Business" means the ordinary course of business of
the Business consistent with past practices.
"Party" (including with correlative meaning, the term "Parties") has
the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, an
association, a limited liability company, a joint stock company, a trust, a
joint venture, an unincorporated organization, a governmental entity (or any
department, agency, or political subdivision thereof) or any other type of
entity.
"PFS" has the meaning set forth in the preface above.
"Piper Aircraft" means The New Piper Aircraft, Inc. and any of its
Affiliates.
"PP&E" means the book value of the "Property and equipment" of the AF
Division or the FF Division, as the case may be, to be set forth in the Final
Closing Statements of Assets and Liabilities.
"Preliminary Closing Statements of Assets and Liabilities" means the
statements of assets and liabilities of the AF Division and the FF Division as
of a date not more than 35 days prior to the Closing Date, which will be
prepared by Sellers in the same manner as the Statements of Assets and
Liabilities.
"Purchase Price" has the meaning set forth in Section 2(c) below.
"Repo Inventory" means the fair market value of the "Repo inventory" of
the AF Division (determined by reference to the "Blue Book" value less estimated
liquidation costs) or the FF Division, as the case may be, to be set forth in
the Final Closing Statements of Assets and Liabilities.
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"Refundable Fees" means the amount of the "Refundable Fees on unfunded
loans" of the AF Division or the FF Division, as the case may be, to be set
forth in the Final Closing Statements of Assets and Liabilities.
"Retained Assets" means the Financial Assets of the AF Division listed
on Section 1 of the Disclosure Schedule and any other assets or Financing
Documents to the extent relating to such Financial Assets.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means purchase money liens and Liens secured by
collateral for Financial Assets.
"Sellers" has the meaning set forth in the preface above.
"Sellers' Pension Plan" has the meaning set forth in Section 7(h)(vi)
below.
"Statements of Assets and Liabilities" has the meaning set forth in
Section 3(f) below.
"Sub-servicing Agreement" means that agreement entered into between
GTFC and Buyer pursuant to which Buyer will act as sub-servicer for the Managed
Financial Assets relating to the Business.
"Tax" (including with correlative meaning, the terms "Taxes" and
"Taxable") means (i) any income, gross receipts, ad valorem, premium, excise,
value-added, sales, use, transfer, franchise, license, severance, stamp,
occupation, service, lease, withholding, employment, payroll, premium, property
or windfall profits tax, alternative or add-on-minimum tax, or other tax, fee or
assessment, together with any interest and any penalty, addition to tax or
additional amount imposed by any governmental authority responsible for the
imposition of any such tax or in connection with the filing of or failure to
file any reports, (ii) any Liability of the Business for the payment of any
amount of the type described in clause (i) as a result of the Business being a
member of an affiliated or combined group with, or a successor to, or transferee
of, any other corporation at any time on or prior to the Closing, and (iii) any
Liability of the Business pursuant to any tax sharing, tax allocation, tax
indemnification or tax reimbursement agreement in effect at any time on or prior
to the Closing.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Textron" means Textron Inc., a Delaware corporation.
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"Textron Entity" means Textron and the Buyer (or their successors by
operation of law) and any corporation, partnership, limited liability company or
other entity (a) with respect to which Textron (or its successor by operation of
law), directly or indirectly, owns a majority of the outstanding voting
securities or (b) whose financial statements are consolidated with Textron's
financial statements in accordance with GAAP and as to which Textron is the
parent entity.
"Transfer Taxes" has the meaning set forth in Section 7(k) below.
"Transferred Employee" has the meaning set forth in Section 7(h)(i)
below.
"Transitional Services Agreement" means that agreement entered into
between Green Tree and Buyer pursuant to which Green Tree will provide
transitional services relating to the Business.
"Unearned Interest" means the book value of the "Unearned interest" of
the AF Division or the FF Division, as the case may be, as set forth in the
Final Closing Statements of Assets and Liabilities.
"WARN Act" has the meaning set forth in Section 7(h)(v) below.
"Year-End Statements of Assets and Liabilities" has the meaning set
forth in Section 3(f) below.
2. Basic Transaction.
(a) Purchase and Sale of Assets. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from the Sellers, and
the Sellers agree to sell, assign, transfer, convey, and deliver to the Buyer,
all of the Acquired Assets at the Closing for the amount of the Purchase Price.
(b) Assumption of Liabilities. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to assume and become responsible
for all of the Assumed Liabilities at the Closing. The Buyer will not assume or
have any responsibility with respect to any obligation or Liability of the
Sellers not included in the definition of Assumed Liabilities.
(c) Purchase Price.
(i) The purchase price (the "Purchase Price") to be paid by
Buyer for the Business shall be equal to the sum of: (A) the AF
Business Purchase Price and (B) the FF Business Purchase Price.
(ii) For purposes of this Agreement, the "AF Business Purchase
Price" means (A) the sum of (1) the AF Division Owned Receivables, (2)
(x) the Adjusted AF Division
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Total Managed Receivables, multiplied by (y) .0345, (3) the Repo
Inventory of the AF Division (provided that the value of such Repo
Inventory shall be deemed to be zero, if such Repo Inventory is not an
Acquired Asset), (4) the Accrued Interest of the AF Division and (5)
the PP&E of the AF Division, less (B) the sum of (1) the Escrow Balance
of the AF Division, (2) Unearned Interest of the AF Division and (3)
the Dealer Holdback of the AF Division.
(iii) For purposes of this Agreement, the "FF Business
Purchase Price" means (A) the sum of (1) the FF Division Owned
Receivables, (2) (x) the Adjusted FF Division Total Managed
Receivables, multiplied by (y) .1010, (3) the Repo Inventory of the FF
Division (provided that the value of such Repo Inventory shall be
deemed to be zero, if such Repo Inventory is not an Acquired Asset),
(4) the Accrued Interest of the FF Division and (5) the PP&E of the FF
Division, less (B) the sum of (1) the Escrow Balance of the FF
Division, (2) the Unearned Interest of the FF Division and (3) the
Refundable Fees of the FF Division.
(d) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Green Tree at 345
St. Peter Street, 1100 Landmark Tower, Saint Paul, Minnesota, commencing at 9:00
a.m. local time on the second business day following the satisfaction or waiver
of all conditions to the obligations of the Parties to consummate the
transactions contemplated hereby (other than conditions with respect to actions
the respective Parties will take at the Closing itself) (the "Closing
Conditions"), or such other date as the Parties may mutually determine (the
"Closing Date").
(e) Deliveries at the Closing. At the Closing, (i) the Sellers will
deliver to the Buyer the various certificates, instruments, and documents
referred to in Section 6(a) below; (ii) the Buyer will deliver to the Sellers
the various certificates, instruments, and documents referred to in Section 6(b)
below; (iii) the Sellers will execute, acknowledge (if appropriate), and deliver
to the Buyer (A) assignments (including any applicable real property and
Intellectual Property transfer documents) in form and substance consistent with
the terms of this Agreement and reasonably satisfactory to the Buyer and Sellers
and (B) such other instruments of sale, transfer, conveyance, and assignment as
the Buyer and its counsel reasonably may request; (iv) the Buyer will execute,
acknowledge (if appropriate), and deliver to the Sellers (A) an assumption in
form and substance consistent with the terms of this Agreement and reasonably
satisfactory to the Sellers and Buyer and (B) such other instruments of
assumption as the Sellers and their counsel reasonably may request; and (v) the
Buyer will deliver to the Sellers the consideration specified in Section 2(f)
below.
(f) Determination of Estimated Purchase Price. The Purchase Price will
be determined by Green Tree on a preliminary basis (the "Estimated Purchase
Price") as of the date of the Preliminary Closing Statement of Assets and
Liabilities and delivered, together with the Preliminary Closing Statement of
Assets and Liabilities, to the Buyer, not less than five business days prior to
the Closing. Green Tree will make appropriate personnel available to consult
with
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the Buyer in connection with the Buyer's review of the Estimated Purchase Price
prior to the Closing Date. If Buyer, based on such review, does not agree with
the amount of the Estimated Purchase Price, the Sellers and the Buyer agree that
the Chief Accounting Officer (or his designee) of Conseco and the Chief
Executive Officer (or his designee) of the Buyer will personally discuss and use
good faith efforts to resolve such disagreement. The Estimated Purchase Price
will be subject to post-Closing adjustment as provided in Section 2(g) based
upon the Final Closing Statement of Assets and Liabilities. The Estimated
Purchase Price shall be paid at Closing by Buyer's delivery of cash by wire
transfer, in accordance with the instructions of Green Tree.
(g) Post-Closing Adjustment to Estimated Purchase Price. Not later than
60 days following the Closing, Green Tree shall cause to be prepared a Final
Closing Statements of Assets and Liabilities, and Green Tree shall calculate the
Purchase Price based upon the Final Closing Statement of Assets and Liabilities.
Buyer shall provide Green Tree with such assistance as may be requested by Green
Tree in connection with the preparation of the Final Closing Statement of Assets
and Liabilities. Buyer, if it disputes the calculation of the Purchase Price or
the Final Closing Statement of Assets and Liabilities, shall notify Green Tree
in writing within 15 days after receipt of the Purchase Price computation, which
notice shall specify in reasonable detail each adjustment proposed by Buyer. If
Buyer does not so notify Green Tree, then the Purchase Price shall be as set
forth on Green Tree's computation. If Buyer gives notice of any proposed
adjustments, during the 15 day period following the date of such notice, Green
Tree and Buyer shall attempt to resolve the appropriateness of such proposed
adjustments. If at the end of such 15-day period, Green Tree and Buyer shall
have failed to reach a written agreement with respect to all such proposed
adjustments, the proposed adjustments remaining in dispute shall be referred to
arbitration to the accounting firm of Arthur Andersen LLP (the "Accounting
Firm") to determine the appropriateness of the remaining proposed adjustments.
The adjustments so determined by written agreement of Green Tree and the Buyer
or by arbitration, as the case may be, shall be reflected in the final Purchase
Price. The date that the Purchase Price is finally determined means the
"Adjustment Date." The costs of the Accounting Firm shall be borne equally by
the Buyer and Green Tree, and each of Buyer and Green Tree will promptly provide
such information to the Accounting Firm as such firm shall request.
(h) Payment of Purchase Price Adjustments. If the final Purchase Price
exceeds the Estimated Purchase Price, Buyer shall pay such excess, together with
interest thereon from the Closing Date to the date such excess is paid at a
fluctuating rate per annum which at all times shall be equal to the LIBO Rate as
in effect from time to time, within seven days after the Adjustment Date, by
wire transfer of immediately available funds to such account as Green Tree shall
designate in the amount of such excess. If the Estimated Purchase Price exceeds
the final Purchase Price, Green Tree shall pay such excess within seven days
after the Adjustment Date, by wire transfer of immediately available funds to
such account as Buyer shall designate in the amount of such excess, together
with interest thereon at the LIBO Rate from the Closing Date to the date such
excess is paid.
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(i) Allocation of Purchase Price. The Purchase Price, the Assumed
Liabilities and other relevant items shall be allocated among the Acquired
Assets and other relevant items in accordance with Section 1060 of the Code and
the Treasury Regulations thereunder as may reasonably be determined by Buyer and
agreed upon by Green Tree within 180 days following the Closing, which agreement
shall not be unreasonably withheld. Sellers and Buyer each agree to report the
sale and purchase of the Acquired Assets for all federal, state, local and
foreign Tax purposes, including the filing of IRS Form 8594, in a manner
consistent with such allocation and agree to take no position inconsistent with
such allocation. Upon any payment of any indemnification obligations hereunder
resulting in an adjustment of the Purchase Price, such allocation shall be
appropriately adjusted.
(j) Purchase and Sale of Single Division. Notwithstanding anything to
the contrary contained in this Agreement, in the event of the satisfaction or
waiver of all Closing Conditions relating to the sale and purchase of either the
AF Division Business or the FF Division Business, at such time as the Closing
Conditions relating to the sale of the business of the other Division are not
satisfied, the Parties shall be obligated to consummate the transactions
contemplated by this Agreement with respect to the Division for which the
Closing Conditions have been satisfied or waived. For purposes of determining
whether the Closing Conditions have been satisfied with respect to the AF
Division or the FF Division, the representations, warranties and covenants
contained herein shall be deemed made with respect to the AF Division Business
or the FF Division Business, as the case may be, rather than with respect to the
Business as a whole. To the extent necessary, any other provisions of this
Agreement shall be interpreted in a manner that is appropriate in the context of
the sale of one of the Divisions rather than the Business as a whole. In the
event that a Closing is held with respect to the sale of the business of one of
the Divisions and not the other Division, a second Closing shall be held with
respect to such other Division Business if the Closing Conditions with respect
to such second Closing are satisfied or waived prior to the termination of this
Agreement.
3. Representations and Warranties of the Sellers. The Sellers represent
and warrant to the Buyer as follows (except as set forth in the disclosure
schedule accompanying this Agreement and initialed by the Parties (the
"Disclosure Schedule"), which Disclosure Schedule is arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this
Agreement):
(a) Organization of the Sellers. Each of the Sellers is a corporation
duly organized, validly existing, and in good standing under the laws of the
state of its incorporation. Each of the Sellers is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where such
qualification is required and where the lack of such qualification would cause a
Material Adverse Effect. Each of the Sellers has full power and authority and
all licenses, permits, and authorizations necessary to carry on the portion of
the Business conducted by it and to own and use the properties owned and used by
the Business in compliance with applicable law, except for any licenses, permits
and authorizations which the failure to hold would not cause a Material Adverse
Effect.
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(b) Authorization of Transaction. Each of the Sellers has full power
and authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. Without
limiting the generality of the foregoing, the board of directors of each of the
Sellers has duly authorized the execution, delivery, and performance of this
Agreement by such Seller. This Agreement constitutes the valid and legally
binding obligation of each of the Sellers, enforceable in accordance with its
terms and conditions.
(c) Noncontravention. Except as set forth in Section 3(c) of the
Disclosure Schedule, neither the execution and the delivery of this Agreement,
nor the consummation of the transactions contemplated hereby (including the
assignments and assumptions referred to in Section 2 above), will (i) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which any of the Sellers is subject or any provision of the
charter or bylaws of either of the Sellers, (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under, any agreement, contract, lease, license, instrument, or other
arrangement to which any of the Sellers is a party or by which it is bound or to
which the Business is subject (or result in the imposition of any Liens upon any
of the Acquired Assets) or (iii) require the Sellers to give any notice to, make
any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement (including the assignments and
assumptions referred to in Section 2 above); provided however, that any such
conflict or lack of consent pursuant to clause (ii) or (iii) above shall not be
deemed a violation of this Section 3(c) if it does not result in a Material
Adverse Effect or materially impair Sellers' performance of their obligations
hereunder.
(d) Investment Banker's Fees. Neither of the Sellers has any Liability
or obligation to pay any fees, commissions, expenses, indemnities, or other
amounts to any investment banker, broker, finder, or agent with respect to the
transactions contemplated by this Agreement, except to J.P Morgan Securities
Inc. and Merrill Lynch & Co. for which the Sellers are responsible and shall
indemnify Buyer therefor. None of the Sellers has any Liability or obligation to
pay any fees, commissions, expenses, indemnities or other amounts to any
investment banker, broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which the Buyer could become liable or
obligated.
(e) Title to Acquired Assets; Fixed Assets; Dealer Agreements. The
Sellers have good and marketable title to, or a valid leasehold interest in, the
Acquired Assets, free and clear of all Liens, except for (i) Acquired Assets
disposed of or repaid in the Ordinary Course of Business since the date of the
Most Recent Statements of Assets and Liabilities and (ii) those exceptions set
forth in Section 3(e) of the Disclosure Schedule. As of the Closing Date, any
Liens on the Acquired Assets will secure only Assumed Liabilities. Section 3(e)
of the Disclosure Schedule also sets forth a list as of the date hereof of the
Fixed Assets and the Dealer Agreements.
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<PAGE> 21
(f) Financial Information. Included in Section 3(f) of the Disclosure
Schedule are statements of assets and liabilities for each Division as of
December 31, 1998 (the "Year-End Statements of Assets and Liabilities") and as
of May 31, 1999 (the "Most Recent Statements of Assets and Liabilities" and,
together with the Year-End Statements of Assets and Liabilities, the "Statements
of Assets and Liabilities") derived from Green Tree's unaudited consolidating
balance sheets as of such dates. All Acquired Assets, which are material and
which would be required to be recorded on the books and records of the Sellers
in accordance with Sellers' past accounting practices, are set forth in the Most
Recent Statement of Assets and Liabilities and will be set forth in the Final
Closing Statement of Assets and Liabilities. All Assumed Liabilities, which are
material and which would be required to be recorded on the books and records of
the Sellers in accordance with Sellers' past accounting practices, are set forth
in the Most Recent Statement of Assets and Liabilities and will be set forth in
the Final Closing Statements of Assets and Liabilities. The information set
forth in the financial summary relating to the AF Division for the historical
periods ended December 31, 1997 and 1998 and March 31, 1999 contained on page 17
of the Descriptive Memorandum are accurate in all material respects and are
consistent with the internal books and records of Green Tree. The information
set forth in the financial summary relating to the FF Division for the
historical periods ended December 31, 1997 and 1998 and March 31, 1999 contained
on page 70 of the Descriptive Memorandum are accurate in all material respects
and are consistent with the internal books and records of Green Tree.
(g) Subsequent Events. Since the date of the Most Recent Statements of
Assets and Liabilities, there has not been any Material Adverse Change. Without
limiting the generality of the foregoing, except as set forth in Section 3(g) of
the Disclosure Schedule, during the period from the date of the Most Recent
Financial Statements through the date hereof:
(i) none of the Sellers has sold, leased, transferred, or
assigned any of its material assets, tangible or intangible, used in
connection with the Business, other than repossessed inventory and
other assets (which are not Financial Assets) in the Ordinary Course of
Business;
(ii) none of the Sellers has entered into any agreement,
contract, lease, or license (or series of related agreements,
contracts, leases, and licenses) relating to the Business outside the
Ordinary Course of Business and involving an amount more than $25,000;
(iii) no Person (including any of the Sellers) has
accelerated, terminated, modified, or cancelled any agreement,
contract, lease or license (or series of related agreements, contracts,
leases, and licenses) relating to the Business to which any of the
Sellers is a party or by which any of them is bound outside the
Ordinary Course of Business and involving an amount more than $25,000;
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(iv) none of the Sellers has imposed any material Security
Interest upon any of the Acquired Assets or other assets, tangible or
intangible, used in connection with the Business outside the Ordinary
Course of Business;
(v) neither of the Divisions has made any capital expenditure
(or series of related capital expenditures) relating to the Business
involving more than $25,000;
(vi) except for Aircraft Loans and Franchise Loans, the
Divisions have not made any capital investment in, any loan to, or any
acquisition of the securities or assets of, any other Person (or series
of related capital investments, loans, and acquisitions) relating to
the Business, outside the Ordinary Course of Business and involving
more than $25,000;
(vii) none of the Sellers has delayed or postponed the payment
of accounts payable or other Liabilities relating to the Business
outside the Ordinary Course of Business;
(viii) none of the Sellers has cancelled, compromised, waived,
or released any right or claim (or series of related rights and claims)
relating to the Business outside the Ordinary Course of Business;
(ix) none of the Sellers has granted any license or sublicense
of any material rights under or with respect to any Intellectual
Property used in connection with the Business;
(x) none of the Sellers has experienced any material damage,
destruction, or loss whether or not covered by insurance, to property
used in connection with the Business;
(xi) none of the Sellers has made any loan to, or entered into
any transaction with, any of the directors, officers, and employees of
the Business outside the Ordinary Course of Business;
(xii) none of the Sellers has entered into any employment
contract or collective bargaining agreement, or modified the terms of
any existing such contract or agreement relating to the Business;
(xiii) none of the Sellers has granted any increase in the
base compensation of any of the officers and employees of the Divisions
outside the Ordinary Course of Business;
(xiv) none of the Sellers has adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other
plan, contract, or commitment for the
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benefit of any of the directors, officers, and employees of the
Divisions, or taken any such action with respect to any other Employee
Benefit Plan;
(xv) neither of the Divisions has made or pledged to make any
charitable or other capital contribution outside the Ordinary Course of
Business;
(xvi) no Division has paid any material amount to any third
party with respect to any Liability or obligation outside the Ordinary
Course of Business (including any costs and expenses the Sellers have
incurred or may incur in connection with this Agreement and the
transactions contemplated hereby) which would not constitute an Assumed
Liability if in existence at the Closing;
(xvii) none of the Sellers has committed to any of the
foregoing; and
(xviii) no litigation has been commenced which could be
reasonably likely to have a Material Adverse Effect.
(h) Legal Compliance. Each of the Sellers has complied with all
applicable laws (including rules, regulations, codes, plans, injunctions,
judgements, orders, decrees, rulings and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof) relating to the
Business, except where such lack of compliance would not cause a Material
Adverse Effect. As of the date hereof, no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed or
commenced with respect to the Business against the Sellers alleging any failure
to so comply, and, to the Knowledge of Sellers, none are threatened.
(i) Real Property. Except as set forth in Section 3(i) of the
Disclosure Schedule, none of the Sellers owns or leases any real estate relating
primarily to the operations of the Business.
(j) Contracts. Section 3(j) of the Disclosure Schedule contains a list
of the following documents and written or oral agreements (other than Financing
Documents) in effect as of the date hereof to which the Business is a party
(correct and complete copies of which have been delivered to the Buyer):
(i) any agreement (or group of related agreements), the
performance of which involves consideration in excess of $25,000 in a
given year or $100,000 over the term of the agreement;
(ii) any agreement concerning a partnership or joint venture
to which the Division is a party;
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(iii) any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any indebtedness
for borrowed money, or any capitalized lease obligation or under which
it has imposed a Security Interest on any of its assets, tangible or
intangible;
(iv) any agreement concerning noncompetition by the Business;
(v) any collective bargaining agreement;
(vi) any agreement to pay any portion of the interest, yield
or spread payable with respect to any of the Financial Assets to third
parties;
(vii) any commitment letter or similar document which has not
yet been funded or terminated in full;
(viii) any agreement concerning confidentiality (other than
agreements entered into with borrowers or potential borrowers with
respect to Aircraft Loans or Franchise Loans);
(ix) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance or other material plan
or arrangement for the benefit of the current or former directors,
officers and employees of either of the Divisions;
(x) any agreement for the employment of any individual on a
full-time, part-time, consulting or other basis or providing severance
benefits;
(xi) any agreement under which it has been advanced or loaned
any amount to any of the directors, officers and employees of the
Division outside of the Ordinary Course of Business; or
(xii) any other agreement (or group of related agreements) the
performance or non-performance of which could reasonably be expected to
be material to either of the Divisions.
With respect to each such agreement, to the Knowledge of Sellers, as of
the date hereof: (A) the agreement is valid and enforceable in accordance with
its terms in all material respects, subject to limitations as to enforceability
which might result from bankruptcy, insolvency, moratorium, and other similar
laws affecting creditor's rights generally and subject to the effect of public
policy and general principles of equity, including concepts of materiality,
reasonableness, good faith and fair dealing, and other similar doctrines
affecting the enforceability of agreements generally (collectively,
"Enforceability Exceptions"); (B) the agreement will continue to be valid and
enforceable to the same extent as described in clause (A), and in full force and
effect following the consummation of the transactions contemplated hereby
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(including the assignments and assumptions referred to in Section 2 above); (C)
no party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach of default, or permit termination,
modification, or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement.
(k) Financing Documents.
(i) For each Aircraft Loan and Franchise Loan of the Business
referenced in Section 3(k) of the Disclosure Schedule (which loans are
organized under separate headings for the AF Division and the FF
Division), the following information as of August 20, 1999 is set forth
on such Section 3(k) of the Disclosure Schedule:
(A) the contract number assigned by the Business;
(B) the name of the party obligated to make debt
service payments;
(C) the billing address of such obligor as reflected
in the records of the Business;
(D) the initial cost of equipment serving as
collateral;
(E) the general type and description of equipment
serving as collateral;
(F) the gross contract receivable balance related to
such transaction;
(G) the amount of debt service payments to the
Business with respect thereto;
(H) the date the related loan agreement commenced and
terminates; and
(I) the interest rate and scheduled maturity thereof.
(ii) Except as set forth in Section 3(k) of the Disclosure
Schedule:
(A) each Financing Document was originated by a
Seller in the Ordinary Course of the Business, or (in the case
of any Financing Document purchased by or assigned to a
Seller) was acquired by or assigned to a Seller for valid
consideration in the Ordinary Course of Business and was
validly assigned to a Seller by the originator or assignor of
such Financing Document;
(B) except in the Ordinary Course of Business of the
Aircraft Division, (A) Sellers have not entered into any
agreements waiving, amending, canceling or
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subordinating in any material respect the terms and conditions
of the Financing Documents and the security interests
reflected therein and (B) no obligors have been released from
any of their material obligations thereunder;
(C) as of August 20, 1999, each of the Financing
Documents identifies the proper parties thereto and is correct
as to amounts set forth therein, and, to the Knowledge of
Sellers, is genuine as to signatures, including but not
limited to makers and endorsers, and is enforceable in
accordance with its respective terms in all material respects,
subject to any Enforceability Exceptions;
(D) as of August 20, 1999, the Financing Documents
accurately reflect in all material respects the priority
status of security interests, UCC financing statements, FAA
recordation and pledge agreements with respect to the material
collateral for such Financing Documents, and such Financing
Documents are adequate for the enforcement of the material
terms (including, but not limited to, perfection and lien
priority in collateral) of each Financing Document, subject to
any Enforceability Exceptions;
(E) the first perfected security interest in favor of
a Seller in the personal and real property held as collateral
for each of the Financing Documents does not vary in any
material respect from the Lien position required under the
credit approval for each of the loans. For each of the
Financing Documents, a first priority perfected security
interest in favor of a Seller exists in all collateral
material to the respective loan; and
(F) each of the Sellers has complied in all material
respects with all applicable laws and regulations (including
consumer laws and regulations) relating to the Financing
Documents. The interest rate applicable and/or charged under
the Financing Documents is in material compliance with all
applicable laws and regulations.
(l) Powers of Attorney. Except as set forth in Section 3(l) of the
Disclosure Schedule, there are no outstanding powers of attorney executed on
behalf of any of the Sellers relating to the Business.
(m) Litigation. Section 3(m) of the Disclosure Schedule sets forth each
lawsuit pending as of the date hereof in which the Business (i) is subject to
any material outstanding injunction, judgment, order, decree or ruling or (ii)
is a party or, to the Knowledge of Sellers, is threatened to be made a party to
any action, suit, proceeding, hearing, or investigation of, in, or before any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator. Without limiting the
generality of the foregoing, as of the date hereof, except as set forth in
Section 3(m) of the Disclosure Schedule, no litigation, collection action or
foreclosure has been commenced by or against any of the Sellers in relation
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to any of the Financing Agreements, nor has any such litigation, to the
Knowledge of Sellers, been threatened by any Person. As of the date hereof, none
of the Sellers is aware of any suit or proceeding filed or threatened against it
by any Person denied a loan by such Seller. None of the actions, suits,
proceedings, hearings, and investigations set forth in Section 3(m) of the
Disclosure Schedule could reasonably be expected to result in any Material
Adverse Effect.
(n) Employee Benefits. Section 3(n) of the Disclosure Schedule lists
each Employee Benefit Plan relating to the Business maintained by the Sellers or
to which the Sellers contribute with respect to the employees of the Business.
(o) Guaranties. Except as set forth in Section 3(o) of the Disclosure
Schedule, none of the Sellers, relating to the Business, is a guarantor for any
material Liability or obligation (including indebtedness) of any other Person.
(p) Intellectual Property.
(i) Section 3(p) of the Disclosure Schedule lists all material
service marks, trade names, copyrights and proprietary software owned
by the Sellers used as of the date hereof primarily in connection with
the Business.
(ii) To the Knowledge of Sellers, neither of the Divisions has
interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of third parties,
and, as of the date hereof, none of the Sellers has ever received any
charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including
any claims that any of the Divisions must license or refrain from using
any Intellectual Property rights of any third party). As of the date
hereof, to the Knowledge of Sellers, no third party has interfered
with, infringed upon, misappropriated, or otherwise come into conflict
with any Intellectual Property rights of either of the Divisions.
(q) Employees. Included in Section 3(q) of the Disclosure Schedule is a
true and complete list as of the date hereof of all employees of the Sellers who
are primarily involved in the Business. Section 3(q) of the Disclosure Schedule
lists as of the date hereof for each such employee his or her title or position
held, hire date, base salary or wage rate and any bonus or commission
arrangements.
(r) Certain Transactions. Except as set forth in Section 3(r) of the
Disclosure Schedule or in the Ordinary Course of Business (which shall be deemed
to include employment and compensation arrangements), there is no transaction,
contract or other arrangement and no transaction, contract or other arrangement
proposed, to which the Business was or is to be a party with any director or
officer of any of the Sellers, any of the Sellers' Affiliates or their
respective directors or officers, or any Person owning of record more than 10%
of the outstanding capital stock of any class of any of the Sellers.
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(s) Acquired Assets. The Acquired Assets and the Retained Assets
together comprise all of the Financial Assets of the Divisions.
(t) Securitization. The Sellers' historical determinations to sell
Aircraft Loans in loan securitization transactions in general have been based
solely on the date of origination of each Aircraft Loan.
(u) Taxes. For all tax periods or portions thereof ending on or prior
to the Closing Date, (i) all Taxes required to be paid by Sellers with respect
to the Business have been or will be paid when required by law; (ii) the
Acquired Assets are not encumbered by any liens arising out of unpaid Taxes
which are due and payable; (iii) no claim has been made by a taxing authority in
a jurisdiction where Sellers do not file Tax Returns with respect to the
Business that it is or may be subject to taxation by that jurisdiction with
respect to the Business; (iv) Schedule 3(u) sets forth a list of all
jurisdictions in which income, franchise or sales Tax Returns were, or were
required to be, filed by Sellers with respect to the Business for the two most
recently completed taxable years; and (v) none of the Acquired Assets is
property that is required to be treated as being owned by any other Person
pursuant to the "safe harbor lease" provisions of section 168(f)(8) of the
Internal Revenue Code of 1954 and none of the Acquired Assets of Sellers are
"tax exempt use property" within the meaning of section 168(h) of the Code.
(v) Environmental Matters. To the Knowledge of the FF Division, the
Petroleum Dealers Environmental Due Diligence Report included in Section 3(v) of
the Disclosure Schedule is accurate in all material respects as of June 30, 1999
and will be supplemented and updated as of a date reasonably close to the
Closing Date.
4. Representations and Warranties of the Buyer. The Buyer represents
and warrants to the Sellers as follows:
(a) Organization of the Buyer. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(b) Authorization of Transaction. The Buyer has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the Buyer, enforceable
in accordance with its terms and conditions.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Section 2 above), will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any provision of
its charter or bylaws, (ii) conflict with, result in a breach of, constitute a
default under, result in or, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any
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<PAGE> 29
agreement, contract, lease, license, instrument, or other arrangement to which
the Buyer is a party or by which it is bound or to which any of its assets is
subject, or (iii) require the Buyer to give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement (including the assignments and assumptions
referred to in Section 2 above), except as required under the Hart-Scott-Rodino
Act; provided, however, that any such violation, conflict or lack of consent
pursuant to clauses (ii) and (iii) above shall not be deemed a violation of this
Section 4(c) if it does not materially impair Buyer's performance of its
obligations hereunder.
(d) Investment Banker's Fees. The Buyer has no Liability or obligation
to pay any fees, commissions, expenses, indemnities or other amounts to any
broker, investment banker, finder, or agent with respect to the transactions
contemplated by this Agreement, except to Donaldson Lufkin & Jenrette Securities
Corporation for which the Buyer is responsible and shall indemnify the Sellers
therefor. The Buyer has no Liability or obligation to pay any fees, commissions,
expenses, indemnitees or other amounts to any investment banker, broker, finder,
or agent with respect to the transactions contemplated by this Agreement for
which the Sellers could become liable or obligated.
5. Pre-Closing Covenants. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing:
(a) General. Each of the Parties will use all reasonable efforts to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 6 below).
(b) Notices and Consents. The Sellers will give any notices to third
parties, and the Sellers will use their reasonable efforts to obtain any third
party consents, that the Buyer reasonably may request in connection with the
matters referred to in Section 3(c) above. Each of the Parties will give any
notices to, make any filings with, and use its reasonable efforts to obtain any
authorizations, consents, and approvals of governments and governmental agencies
in connection with the matters referred to in Section 3(c) and Section 4(c)
above. Without limiting the generality of the foregoing, each of the Parties
will file any notification and report forms and related material that it may be
required to file with the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice under the Hart-Scott-Rodino Act, will
use its reasonable efforts to obtain an early termination of the applicable
waiting period, and will make any further filings pursuant thereto that may be
necessary, proper, or advisable in connection therewith; provided, however, that
the foregoing shall not require the Buyer or any of its Affiliates to make any
divestitures or consent or agree to any divestiture in order to fulfill any
condition or obtain any consent, authorization or approval or to appeal an
injunction or order, or to post a bond in respect of such appeal.
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(c) Operation of Business. Except as may reasonably be required to
comply with this Agreement, the Sellers will operate the Business in the
Ordinary Course of Business. Without limiting the generality of the foregoing,
the Sellers shall take no action or fail to take any action necessary to cause
the representations set forth in Section 3(g) to be untrue or incorrect as of
the Closing as if such representations were made as of and through the Closing
Date (rather than as of the date hereof).
(d) Preservation of Business. The Sellers will use all reasonable
efforts to keep the business and properties of the Business substantially
intact, including its present operations, physical facilities, and relationships
with lessors, licensors, dealers, vendors, suppliers, customers, and employees.
(e) Access to the Business. The Sellers will permit representatives of
the Buyer (including Buyer's independent accountants) to have access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Business to all premises, properties, personnel,
books, records (including Tax records), contracts, and documents of or
pertaining to the Business.
(f) Notice of Developments. Each Party will give prompt written notice
to the other Party of any material adverse development causing a breach of or
inaccuracy in any of its own representations and warranties in Section 3 and
Section 4 above.
(g) Updated Schedule. Without limiting the generality of Section 5(f)
above, on a date not less than five business days prior to the Closing Date nor
more than 15 days prior to the Closing Date, the Sellers shall deliver to the
Buyer updated versions of Sections 3(e), 3(g), 3(h), 3(j), 3(k)(i), (ii)(C) and
(ii)(D), 3(m), 3(p) and 3(q) of the Disclosure Schedule for the purpose of
making the representations and warranties contained in Sections 3(e), 3(g),
3(h), 3(j), 3(k)(i), (ii)(C) and (ii)(D), 3(m), 3(p) and 3(q) true and correct
in all material respects as of such date of delivery, which updated Disclosure
Schedule sections shall reflect any additional matters required to be disclosed
in such sections of the Disclosure Schedule that have occurred or arisen after
the date hereof. Any determination of whether there has been a breach of or
inaccuracy in any of the representations and warranties of the Sellers contained
in this Agreement (or any certificate delivered by Sellers pursuant hereto) as
of the Closing Date shall be made by reference to the Disclosure Schedule as
updated in accordance with this Section 5(g) and any newly disclosed Assumed
Liabilities set forth in the updated Disclosure Schedule pursuant to any
contract entered into or liability incurred or assumed in compliance with the
Agreement shall be assumed by the Buyer.
(h) Master Repurchase Agreement. Green Tree will be solely responsible
for the payment of any fees to Prudential Securities Credit Corporation relating
to the repurchase by Green Tree of any loans previously transferred to
Prudential Securities Credit Corporation pursuant to the Master Repurchase
Agreement or otherwise.
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(i) AISL Insurance Policy. Green Tree will cause its insurance policy
from American International Specialty Lines Insurance Company (Policy Number
2679958) to be assigned to the Buyer.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3
above shall be true and correct in all respects (except to the extent
such representations and warranties speak as of an earlier date) when
made and as of the Closing Date; provided, however, that for purposes of
determining satisfaction of the condition contained in this Section
6(a)(i), (A) no effect shall be given to any exception in such
representations relating to materiality, Material Adverse Change,
Material Adverse Effect or Knowledge of Sellers and (B) such
representations and warranties shall be deemed to be true and correct in
all respects unless the failure or failures of such representations and
warranties to be so true and correct, individually or in the aggregate,
results in a Material Adverse Effect;
(ii) the Sellers shall have performed and complied with all of
their covenants hereunder in all material respects through the Closing;
(iii) the Sellers shall have procured all of the third party
consents specified in Section 5(b) above except those consents, the
failure of which to obtain, would not have a Material Adverse Effect (it
being understood and agreed that the failure to procure any consent
under any agreement with Piper Aircraft shall not be deemed to have a
Material Adverse Effect);
(iv) no action, suit, or proceeding shall be pending (or
threatened by any governmental or administrative agency or authority)
before any court or quasi-judicial or administrative agency of any
federal, state, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge
would (A) prevent consummation of any of the transactions contemplated
by this Agreement, (B) cause any of the matters contemplated by this
Agreement to be rescinded following consummation, or (C) create a
Material Adverse Effect or materially and adversely affect the right of
the Buyer to own the Acquired Assets or to operate the Business (and no
such judgement, order, decree, ruling or change shall be in effect);
(v) since the date of this Agreement, there shall have been no
Material Adverse Change in, and no event, occurrence or development
that, taken together with other events, occurrences and developments
would have or would reasonably be expected to have a Material Adverse
Effect;
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<PAGE> 32
(vi) the Sellers shall have delivered to the Buyer a certificate
to the effect that each of the conditions specified above in Sections
6(a)(i) to (v) is satisfied in all respects;
(vii) all applicable waiting periods (and any extensions thereof)
under the Hart-Scott-Rodino Act shall have expired or otherwise been
terminated without conditions or restrictions;
(viii) all certificates, instruments, and other documents
required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the Buyer;
(ix) Green Tree shall have signed and delivered to Buyer the
Transitional Services Agreement in the form and substance reasonably
satisfactory to Buyer;
(x) the Buyer shall have signed and delivered to the Sellers the
Sub-servicing Agreement in the form and substance as set forth in
Exhibit A; and
(xi) the Master Repurchase Agreement shall have been terminated
without any cost, Liability or risk to Buyer (including any cost of
recording the transfer of title, if necessary).
The Buyer may waive any condition specified in this Section 6(a) if it executes
a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Sellers. The obligations of the
Sellers to consummate the transactions to be performed by each of them in
connection with the Closing are subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in Section 4
above shall be true and correct in all respects (in the case of any
representation or warranty containing materiality or knowledge
qualifiers) or in all material respects (in the case of those
representations or warranties not containing materiality or knowledge
qualifiers), as applicable, when made and as of the Closing Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending (or
threatened by any governmental or administrative agency or authority)
before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement or (B) cause any of the transactions
contemplated by this Agreement to be
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rescinded following consummation (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect);
(iv) the Buyer shall have delivered to each of the Sellers a
certificate to the effect that each of the conditions specified above in
Sections 6(b)(i) to (iii) is satisfied in all respects;
(v) all applicable waiting periods (and any extensions thereof)
under the Hart-Scott-Rodino Act shall have expired or otherwise been
terminated without conditions or restrictions;
(vi) all certificates, instruments, and other documents required
to effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Sellers;
(vii) the Buyer shall have signed and delivered to the Sellers
the Transitional Services Agreement in form and substance reasonably
acceptable to Sellers; and
(viii) the Buyer shall have signed and delivered to the Sellers
the Sub-servicing Agreement in form and substance as set forth in
Exhibit A.
The Sellers may waive any condition specified in this Section 6(b) if it
executes a writing so stating at or prior to the Closing.
7. Post-Closing Covenants.
(a) Access to Records after Closing.
(i) For a period of six years after the Closing Date, the Sellers
and their representatives shall have reasonable access to all of the
books and records of the Business to the extent that such access may
reasonably be required by the Sellers in connection with matters
relating to or affected by the operations of the Business prior to the
Closing Date. Such access shall be afforded by the Buyer upon receipt of
reasonable advance notice and during normal business hours. The Sellers
shall be solely responsible for any costs or expenses incurred pursuant
to this Section 7(a)(i). If the Buyer or the Business shall desire to
dispose of any of such books and records prior to the expiration of such
six-year period, the Buyer shall, prior to such disposition, give each
of the Sellers a reasonable opportunity, at the Sellers' expense, to
segregate and remove such books and records as the Sellers may select.
(ii) For a period of six years after the Closing Date, the Buyer
and its representatives shall have reasonable access to all of the books
and records relating to the Business which the Sellers may retain after
the Closing Date. Such access shall be
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afforded by the Sellers and their affiliates upon receipt of reasonable
advance notice and during normal business hours. The Buyer shall be
solely responsible for any costs and expenses incurred by it pursuant to
this Section 7(a)(ii). If the Sellers shall desire to dispose of any of
such books and records prior to the expiration of such six-year period,
the Sellers shall, prior to such disposition, give the Buyer a
reasonable opportunity, at the Buyer's expense, to segregate and remove
such books and records as the Buyer may select.
(b) Other Assets; Non-Assignable Rights. Subject to the terms of Section
5(b) hereof, with respect to those contracts, claims and rights of the Sellers
relating primarily to the Business which are not by their terms assignable to
Buyer and with respect to which no consent to the assignment has been obtained
prior to the Closing Date ("Non-Assignable Rights"), the Sellers shall, during
the remaining term of each respective contract pertaining to Non-Assignable
Rights, (A) use all reasonable efforts after Closing to obtain the consent of
any third party to the assignment to Buyer of such Non-Assignable Rights (it
being understood that Sellers shall not be required to give value or otherwise
incur expense, other than staff time, in connection therewith not reimbursed by
Buyer); (B) to the extent lawful, hold in trust such Non-Assignable Rights for
the benefit of Buyer or enter into with Buyer lawful arrangements reasonably
acceptable to Buyer and the Sellers to make available to Buyer substantially all
of the benefits of such Non-Assignable Rights to Buyer (it being understood that
Buyer will reimburse the Sellers for any Liabilities, including, without
limitation, continuing obligations under any contract) attendant to such
Non-Assignable Rights the benefit of which is received by Buyer (but not
out-of-pocket costs related to Sellers' efforts to transfer or otherwise make
available such benefits to Buyer) and that Sellers will not agree to any
modification of the terms of such Non-Assignable Right without the consent of
Buyer (which consent will not be unreasonably withheld or delayed); and (C)
enforce, at the request and expense of Buyer, any rights of the Sellers arising
from such Non-Assignable Rights against the other party or parties to the
applicable contract (including, without limitation, the right to elect to
terminate any such contract at Buyer's request if permitted in accordance with
the terms thereof). Any such Non-Assignable Rights shall be assigned to Buyer,
without further action, immediately upon the happening of any event which would
permit the assignment by the Sellers to Buyer of such Non-Assignable Rights,
including, without limitation, the receipt by Buyer of a duly executed consent
to the assignment of such Non-Assignable Rights to Buyer.
(c) Use of Name. Buyer acknowledges and agrees that it is not acquiring
any right to the name "Green Tree" or any variants thereof and shall not use
such names in connection with its operation of the Business or otherwise.
Notwithstanding the foregoing, Buyer shall have the right for one year following
the Closing to refer to the Business as "the business formerly known as the
Green Tree Aircraft Finance Division" and "the business formerly known as Green
Tree Franchise Finance Division" in connection with the use of the new name of
the Business. In addition, Buyer may, for a reasonable period not exceeding the
60 days following the Closing, use in connection with its operation of the
Business remaining quantities of invoices, letterhead
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and other supplies included in the Acquired Assets. Buyer agrees to make
appropriate changes to the AF Division Website in order to comply with this
Section 7(c).
(d) Mutual Assistance Regarding Taxes. Sellers and Buyer will provide
each other such assistance as may reasonably be required by either of them in
connection with the preparation of any return for Taxes, any audit or other
examination by any taxing authority or any judicial or administrative
proceedings related to Liability for taxes (including refunds) and will each
provide the other with any records or information relevant to such return, audit
or examination, proceedings or determination as are in its possession or subject
to its control. Such assistance shall include making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided pursuant hereto and shall include providing copies of any
relevant tax returns of Sellers. All information provided pursuant to this
Section 7(d) shall be held in confidence, and not be disclosed to others for any
reasons whatsoever, except to the extent that such disclosure is required in
order to effect the intent of this Section 7(d) or such disclosure is required
by the law. Neither Buyer nor Sellers shall destroy any records related to the
Business necessary for tax return preparation or support in audits or other tax
proceedings for any period up to and including the Closing without the prior
written consent of the other.
(e) Covenants Not to Compete.
(i) For a period of five years from and after the Closing Date,
none of the Sellers nor any other Conseco Entity will directly or
indirectly solicit customers for Aircraft Loans in North America,
Central America and South America (the "Noncompetition Region").
Notwithstanding the foregoing: (1) no Person owning less than 5% of the
outstanding stock of any publicly traded corporation shall be deemed to
violate such agreement solely by reason of such ownership interest; (2)
any activities of the Sellers or any other Conseco Entity as
contemplated by the Sub-Servicing Agreement shall not constitute a
violation of this Section 7(e)(i); (3) this Section 7(e)(i) shall not be
construed to preclude Sellers or any other Conseco Entity from
collecting or refinancing (provided the Sellers have first given the
Buyer the opportunity to provide such refinancing), or making extensions
with respect to, Aircraft Loans that are Retained Assets; (4) this
Section 7(e)(i) shall not be construed to prohibit the Sellers or any
other Conseco Entity from directly or indirectly acquiring a corporation
or other entity or group of corporations or other entities (an "Acquired
Person") that is engaged in a business competitive with the AF Business
(a "Competitive Aircraft Finance Business") (x) so long as the
Competitive Business is a Captive Finance Business or is a business with
Aircraft Loan originations of less than $150,000,000 per year (excluding
any Captive Finance Business Aircraft Loan originations) or (y) if the
Competitive Business is a business with Aircraft Loan originations in
excess of $150,000,000 per year (excluding any Captive Finance Business
Aircraft Loan originations), so long as such Seller or other Conseco
Entity divests itself, within a reasonable period of time not to exceed
one year from the date of such acquisition, of a sufficient portion of
the Acquired Business so that
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the annual Aircraft Loan originations attributable to the retained
portion thereof do not exceed $150,000,000 per year (excluding any
Captive Finance Business Aircraft Loan originations); and (5) this
Section 7(e)(i) shall not be construed to prohibit any Conseco Entity
from collecting, servicing, refinancing (provided the Sellers have first
given the Buyer the opportunity to provide such refinancing) or engaging
in other activities with respect to Managed Financial Assets or any
Aircraft Loans reacquired by any of the Sellers pursuant to Section
7(q). In the event any of the Sellers divests itself of a portion of an
Acquired Business in order to comply with this Section 7(e)(i), such
Seller shall provide the Buyer with an opportunity to make an offer to
acquire such portion of the Acquired Business (it being understood and
agreed that such Seller shall have no obligation to accept such offer).
(ii) For a period of two years from and after the Closing Date,
neither Green Tree nor any other Conseco Entity will directly or
indirectly solicit customers for Franchise Loans in the Noncompetition
Region. Notwithstanding the foregoing: (1) no Person owning less than 5%
of the outstanding stock of any publicly traded corporation shall be
deemed to violate such agreement solely by reason of such ownership
interest; (2) this Section 7(e)(ii) shall not be construed to preclude
the Sellers or any other Conseco Entity from engaging in the vendor
leasing finance business; (3) this Section 7(e)(ii) shall not be
construed to prohibit the Sellers or any other Conseco Entity from
directly or indirectly acquiring an Acquired Person that is engaged in a
business competitive with the FF Business (the "Competitive Franchise
Finance Business"), (x) so long as during the 12-month period ending on
the last day of the month immediately preceding the month of such
acquisition, revenues earned from the Franchise Finance Competitive
Business by such Acquired Person constituted no more than 20% of the
aggregate revenues of such Acquired Person during such 12-month period
or (y) if the Franchise Finance Competitive Business is a business whose
revenues exceed 20% of the aggregate revenues of such Acquired Person
during such 12-month period, so long as such Seller or other Conseco
Entity divests itself, within a reasonable period of time not to exceed
one year from the date of such acquisition, of a sufficient portion of
the Acquired Business so that the revenues attributable to the retained
portion thereof do not exceed such 20% threshold; and (4) this Section
7(e)(ii) shall not be construed to prohibit any Conseco Entity from
refinancing (provided the Sellers have first given the Buyer the
opportunity to provide such refinancing), servicing or undertaking any
other activities with respect to any loans reacquired by any of the
Sellers pursuant to Section 7(q). In the event any of the Sellers
divests itself of a portion of an Acquired Business in order to comply
with this Section 7(e)(ii), such Seller shall provide the Buyer with an
opportunity to make an offer to acquire such portion of the Acquired
Business (it being understood and agreed that such Seller shall have no
obligation to accept such offer).
(iii) If the final judgment of a court of competent jurisdiction
declares that any term or provision of Section 7(e)(i) or (ii) is
invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the
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power to reduce the scope, duration, or area of the term or provision,
to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid
and enforceable and that comes closest to expressing the intention of
the invalid or unenforceable term or provision, and this Agreement shall
be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
(f) Non-Solicitation of Employees.
(i) For a period of five years following the Closing Date,
without the prior approval of Buyer, none of the Sellers or any other
Conseco Entity shall solicit any Transferred Employee of the AF Division
(who has been employed by a Textron Entity during the immediately prior
six-month period) to accept employment with any of the Sellers or any
other Conseco Entity.
(ii) For a period of five years following the Closing Date,
without the prior approval of Buyer, neither Green Tree nor any other
Conseco Entity shall solicit any Transferred Employee of the FF Division
(who has been employed by a Textron Entity during the immediately prior
six-month period) to accept employment with any of the Sellers or any
other Conseco Entity.
(g) Non-Interchange of Customers.
(i) For a period of five years from the Closing Date, none of the
Sellers or any other Conseco Entity, either directly or indirectly,
alone or in conjunction with another party, shall intentionally induce
(or seek to induce), any Person who is a customer of the AF Business as
of the Closing Date to cease obtaining Aircraft Loans from the Buyer.
(ii) For a period of two years from the Closing Date, neither
Green Tree nor any other Conseco Entity, either directly or indirectly,
alone or in conjunction with another party, shall intentionally induce
(or seek to induce), any Person who is a customer of the FF Business as
of the Closing Date to cease obtaining Franchise Loans from the Buyer.
(h) Employee Benefits and Employment.
(i) Hiring of Employees. The current and former employees of the
Sellers relating to the Business shall be referred to herein as the
"Employees." On or before the Closing Date, Sellers shall prepare
Section 7(h)(i) of the Disclosure Schedule, which shall set forth those
Employees of the Sellers whose employment with the Sellers has not ended
as of the Closing Date (the "Current Employees"), and shall also
indicate that subset of the Current Employees who are not actively at
work on the Closing Date due to a physical or mental illness or
disability that entitled such employee to workers'
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compensation or other wage replacement benefits under a plan, policy or
arrangement maintained by Sellers (such subset being referred to herein
as the "Inactive Employees"). Effective on the Closing Date immediately
prior to the Closing, each of the Current Employees shall cease to be
employed by the Sellers, and Buyer shall offer employment with the Buyer
to each Current Employee who is not an Inactive Employee. If an Inactive
Employee becomes able and willing to return to work to perform the same
services performed by such Inactive Employee prior to his or her illness
or disability within 60 days after the Closing Date, the Buyer shall
offer such Inactive Employee employment with the Buyer. Each such
employee who accepts, as of the Closing Date, such offer of employment
(and each Inactive Employee upon being offered and accepting such
employment) shall be referred to herein as a "Transferred Employee."
(ii) (A) General. Buyer shall provide the Transferred Employees
with the employee benefits being provided to Buyer's own employees,
subject to the terms of those plans (the "Buyer's Employee Benefits"),
and shall credit Transferred Employees' service with Sellers for
purposes of eligibility and vesting under all of Buyer's welfare benefit
plans and qualified pension and profit sharing plans to the extent that
such service credit would be relevant. No exclusions for pre-existing
conditions shall apply to any disability or medical benefit plan for
which Transferred Employees may be eligible with respect to any
condition for which the Transferred Employees were covered under the
Sellers' disability or medical benefit plans.
(B) Notice. Except as otherwise expressly provided in this
Section 7(h)(ii)(B), Sellers shall give notice to all Transferred
Employees that, except as otherwise expressly provided herein, all
benefits and/or accruals previously provided under the Seller's employee
benefit plans will terminate on the Closing Date.
(iii) Vacation. Transferred Employees shall receive credit for
service with Sellers for purposes of computing vacation benefits to
which similarly situated employees of Buyer are or may become entitled
under the terms of Buyer's vacation policies. Buyer shall assume the
Liability for any accrued but unused vacation benefits of Transferred
Employees under Sellers' vacation policy as of the Closing Date but only
to the extent such Liability is treated as a Book Liability.
(iv) Severance and WARN Act Liability. Sellers shall pay and be
solely liable and shall indemnify and hold Buyer harmless for all
obligation, cost or expense for severance pay, termination indemnity
pay, salary continuation, special bonuses or like compensation (whether
such amounts arise from any event, occurrence or circumstance or
otherwise become due or payable before or after the Closing) under
Sellers' plans, policies or arrangements, including, without limitation
any claim or constructive termination due to the sale of the Acquired
Assets. Sellers shall pay and be solely liable and shall indemnify and
hold Buyer harmless for all obligation, cost or expense for liability
under the Workers Adjustment and Retraining Notification Act (the "WARN
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Act"), arising from, relating to or claimed which results from or
relates to actions taken by Sellers on or before the Closing Date. Buyer
shall pay and be solely liable and shall indemnify and hold Sellers
harmless for all obligation, cost or expense for liability under the
WARN Act, arising from, relating to or claimed which results from or
relates to actions taken by Buyer after the Closing Date.
(v) Indemnification. Buyer waives any and all claims against
Sellers or Sellers' employee benefit plans (including, without
limitation, the trustees of such plans) it may have under ERISA, with
respect to employee benefits, or any benefit-related claims it may
assert on behalf of Transferred Employees against Sellers or Sellers'
employee benefit plans (including, without limitation, the trustees of
such plans). Buyer agrees to indemnify Sellers, Sellers' employee
benefits plan, trustees of Sellers' employee benefit plans and Sellers'
directors, officers and employees, from any claim, lawsuit, settlement
or judgment (including reasonable attorneys' fees) and other expenses in
connection therewith, relating to any claim concerning Liability for
employee benefits which Buyer has assumed pursuant to Section 7(h),
except to the extent such claim is caused by the intentional misconduct
or the gross negligence of Sellers or trustees of Sellers' employee
benefit plans, as determined by a court or regulatory agency having
jurisdiction of the matter. Notwithstanding the first sentence of this
Section 7(h)(v), Sellers agree to indemnify Buyer, Buyer's employee
benefit plans, trustees of Buyer's employee benefit plans and Buyer's
directors, officers and employees, from any claim, lawsuit, settlement
or judgment (including reasonable attorneys' fees) and other expenses in
connection therewith, relating to any claim concerning Liability for
employee benefits under Sellers' plans and as to which Buyer has not
assumed responsibility under this Agreement, except to the extent such
claim is caused by the intentional misconduct or the gross negligence of
Buyer or trustees of Buyer's employee benefit plans, as determined by a
court or regulatory agency having jurisdiction of the matter.
(vi) Retirement Plans.
(A) Sellers shall be responsible for delivering benefits
accrued by Transferred Employees under their defined benefit
pension plan ("Sellers' Pension Plan") through the Closing Date.
No assets or Liabilities shall be transferred from Sellers'
Pension Plan to any plan maintained by Buyer. Transferred
Employees shall participate in any defined benefit plan
maintained by Buyer on and after the Closing Date consistent with
the terms of such plan but with full recognition for service
credited under Sellers' Pension Plan for purposes of vesting,
eligibility to participate and eligibility for early retirement
(but not for purposes of benefit accrual). Transferred Employees
in Sellers' Pension Plan shall have no further eligibility
service under those plans toward early retirement subsidies
following the Closing Date.
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(B) Sellers shall retain and be responsible for
retirement benefits under their 401(k) plans for former employees
(including Transferred Employees) and for retirees of Sellers as
of the Closing Date. Sellers shall cause its 401(k) plan to make
distributions of vested account balances to Transferred
Employees.
(C) If Buyer provides a qualified defined contribution
plan in which Transferred Employees are eligible to participate,
such plan shall provide (or shall be amended by Buyer to so
provide) for acceptance in cash of eligible rollover
distributions to Transferred Employees from Sellers' Pension
Plans and 401(k) plans. Prior to the Closing Date, Buyer shall
amend its 401(k) plan to the extent necessary to provide for
Transferred Employees to be eligible to participate as soon as
administratively feasible on or after the first date after the
Closing Date.
(vii) Cooperation.
(A) With respect to all benefits for which Sellers are
liable under this Section 7(h), Buyer shall cooperate with
Sellers by promptly providing the information reasonably
requested by Sellers to enable Sellers to perform its
obligations. Buyer shall direct all claimants and claims for such
benefits to Sellers. Sellers shall provide Buyer with such
reasonable access prior to the Closing Date as may be necessary
or appropriate to enable Buyer to enroll Transferred Employees
into Buyer's Employee Benefits plan and otherwise fulfill its
obligations under this Section 7(h).
(B) With respect to all benefits for which Buyer is
liable under this Section 7(h) or otherwise provides to
Transferred Employees, Sellers shall cooperate with Buyer by
promptly providing the information reasonably requested by Buyer
to enable Buyer to perform its obligations. Sellers shall direct
all claimants and claims for such benefits to Buyer.
(C) After the Closing Date, Sellers and Buyer each will
cooperate with the other in providing reasonable access to all
information required for the operation of, or the preparation and
submission of, reports or notices required in connection with the
operation of the employee benefit programs maintained by Sellers
or Buyer or their affiliates which covers any of the Transferred
Employees, including, without limitation, the preparation and
submission of reports or notices to the PBGC, the Department of
Labor, the Internal Revenue Service, or any other agency of the
U.S. Government.
(D) The provisions of any employee benefit plan or
program of Sellers relating to the amendment or termination by
any employer sponsor or other party to such plan or program shall
not be abridged by this Agreement.
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(viii) SERP. Buyer shall have no obligation for Liabilities of
Sellers under any non-qualified deferred compensation plans of the
Sellers.
(ix) No Assumption of Employment-Related Liabilities. Except as
specifically provided in Section 7(h)(iii), with respect to vacation pay
and Section 7(h)(vi)(C) with respect to rollovers, Buyer does not assume
any employment-related Liabilities (including, but not limited to,
liabilities for compensation, employee benefits or any
employment-related claims) of the Seller with respect to any former
employee of the Sellers or to the Employees (including the Transferred
Employees) related to any event occurring on or before the Closing Date,
and Seller agrees to retain all such Liabilities.
(i) Further Assurances of Sellers. From time to time after the Closing
Date and without further consideration from Buyer, Sellers shall execute and
deliver, or cause to be executed and delivered, to Buyer such further
instruments (including powers of attorney) of sale, conveyance, assignment,
transfer and delivery or take such other action as Buyer may reasonably request
in order to more effectively sell, convey, assign, transfer and deliver and
reduce to the possession of Buyer any and all of the Acquired Assets and
consummate the transactions contemplated by this Agreement.
(j) Further Assurances of Buyer. From time to time after the Closing
Date and without further consideration from Sellers, Buyer shall execute and
deliver, or cause to be executed and delivered, to Sellers such further
instruments of assumption, conveyance, assignment, transfer and delivery or take
such other action as Sellers may reasonably request in order to have Buyer more
effectively assume any and all of the Assumed Liabilities and consummate the
transactions contemplated by this Agreement.
(k) Transfer Taxes. Buyer and Green Tree shall each pay one-half of all
sales, use, transfer, real property transfer, documentary, recording, gains,
stock transfer and similar taxes (but not any income, franchise or similar tax),
and any deficiency, interest or penalty asserted with respect thereto
(collectively, "Transfer Taxes"), arising out of or in connection with the
transactions effected pursuant to this Agreement. Buyer shall, at its own
expense, prepare and file any Tax Returns and other filings relating thereto,
and pay all out-of-pocket expenses associated therewith. Sellers will cooperate
with Buyer in the preparation of such Tax Returns and filings and jointly
control with Buyer any contests or controversies with respect thereto.
(l) Litigation Assistance.
(i) The Buyer acknowledges that from time to time after the
Closing Date the Sellers may require, in connection with the defense of
any litigation, proceeding or other claim related to the Business as
conducted prior to the Closing, the assistance of the Buyer. The Buyer
agrees to provide such assistance as may be reasonably requested by any
of the Sellers. The Sellers agree to reimburse the Buyer for all
out-of-pocket expenses incurred by the Buyer in providing any such
assistance.
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(ii) The Sellers acknowledge that from time to time after the
Closing Date the Buyer may require, in connection with the defense of
any litigation, proceeding or other claim related to the Business as
conducted prior to the Closing, the assistance of the Sellers. The
Sellers agree to provide such assistance as may be reasonably requested
by the Buyer. The Buyer agrees to reimburse the Sellers for all
out-of-pocket expenses incurred by the Sellers in providing any such
assistance.
(m) Separate Subsidiary for Piper Aircraft Business. Buyer agrees that
after the Closing the portion, if any, of the AF Business relating to loans made
to finance aircraft manufactured by Piper Aircraft shall be conducted through a
wholly owned subsidiary of the Buyer (to the extent that the AF Business is
currently conducted through PFS) that will have been formed solely for the
purpose of conducting such business and that will not conduct any other
business.
(n) Nonsolicitation of Servicing Portfolio. For a period of five years
from the Closing Date or the period during which the Sub-servicing Agreement
remains in effect (whichever period is longer), the Buyer shall not
intentionally induce (or seek to induce) any Person which is a borrower under
Financing Documents relating to any Managed Financial Assets to refinance or
otherwise replace an Aircraft Loan made by any of the Sellers. During such
period, the Buyer will not provide any information relating to the Managed
Financial Assets to any other Textron Entity or in any way facilitate or
encourage any such Textron Entity to induce (or seek to induce) any such Person
to refinance or otherwise replace such an Aircraft Loan.
(o) Collection of Certain Receivables. After the closing, the Buyer
agrees to use reasonable efforts in the ordinary course of its business (without
being obligated to commence any litigation) to collect and, to the extent
actually received, to promptly remit to Green Tree any "Miscellaneous charge
receivables" and "Assessed late charge receivables" as set forth on the Final
Closing Statements of Assets and Liabilities. In the event that the Buyer elects
not to commence litigation to collect any such receivables, Buyer shall (i)
promptly pay Seller an amount equal to all such receivables or (ii) assign to
the Sellers the Buyer's rights to collect the receivables (in which case the
Sellers may commence litigation on their own behalf to collect such
receivables).
(p) Review of Files. Buyer agrees to review the Financing Document files
within the 12 months after the Closing Date. Prior to the end of such period,
the Buyer will notify the Sellers of any indemnification claim to be made
against Sellers as a result of the representations and warranties contained in
Section 3(k)(ii)(E) being inaccurate.
(q) Repurchase of Loans. In the event the Buyer notifies the Sellers of
the breach of any representations or the inaccuracy of any warranties of Sellers
contained in Section 3(k)(ii)(E) within the time period specified in Section
7(p), the Parties agree that, in lieu of Sellers making any indemnification
payment to the Buyer with respect to such breach or inaccuracy, Sellers may
repurchase the loan that is the subject of the breach or inaccuracy from the
Buyer at an amount
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equal to the principal amount of the loan as of, plus accrued interest through,
the date of such repurchase.
(r) Hotlink to AF Division Website. As of the Closing Date, Green Tree
shall provide a "hotlink" from the commercial and equipment financing page of
GTFC's website located at www.gtfc.com to the AF Division Website. Green Tree
agrees to keep such hotlink in effect during the period ending one year after
the Closing Date. Green Tree agrees to provide reasonable assistance to Buyer in
maintaining any existing hotlinks between the AF Division Website and third
party websites.
8. Termination.
(a) Termination of Agreement. This Agreement may be terminated as
follows:
(i) the Buyer and the Sellers may terminate this Agreement by
mutual written agreement at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving written
notice to the Sellers at any time prior to the Closing in the event the
Sellers have breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, the Buyer has
notified each of the Sellers of the breach, and the breach has continued
without cure for a period of 30 days after the notice of breach;
(iii) the Sellers may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Closing in the event the
Buyer has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, the Sellers have
notified the Buyer of the breach, and the breach has continued without
cure for a period of 30 days after the notice of breach; or
(iv) any party may give notice of termination of the Agreement if
the Closing does not occur on or before December 31, 1999.
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section 8(a) above, all rights and obligations of the Parties
hereunder shall terminate without any Liability of any Party to any other Party
(except for any Liability of any Party then in breach).
9. Indemnification.
(a) Indemnification by the Sellers.
(i) The Sellers agree to indemnify and hold harmless the Buyer
and its Affiliates and each of their subsidiaries, shareholders,
directors, officers, managers, employees, agents, successors and assigns
from and against any and all monetary
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damages, charges, losses, deficiencies, Liabilities, obligations, costs,
fees and expenses (including, without limitation, reasonable fees and
disbursements of counsel incident to the enforcement of rights
hereunder) (collectively "Damages") in connection with or arising from
any (A) breach of any warranty or the inaccuracy of any representation
of the Sellers contained in this Agreement or any certificate delivered
by the Sellers pursuant hereto (other than the representations and
warranties contained in Section 3(b), (c)(i), (d) or (e)) (it being
understood and agreed that any such breach or inaccuracy shall be
determined without regard to any materiality or knowledge qualification
contained in any representation or warranty) or (B) Consumer Finance Law
Violation Damages of the type specified in clause (ii) of the definition
thereof in Section 1 above; provided, however, that the Sellers shall be
required to indemnify and hold harmless the Buyer under this Section
9(a)(i) only to the extent that the aggregate amount of such
indemnification exceeds $1,000,000; and provided, further, however, that
the aggregate amount required to be paid by the Sellers pursuant to this
Section 9(a)(i) (other than amounts payable pursuant to Section
9(a)(i)(B)) above) shall not exceed $10,000,000.
(ii) The Sellers further agree to indemnify and hold harmless the
Buyer and its Affiliates and each of their subsidiaries, shareholders,
directors, officers, managers, employees, agents, successors and assigns
from and against any and all Damages in connection with or arising from
(A) any breach of any warranty or the inaccuracy of any representation
contained in Section 3(b), (c)(i), (d) or (e), (B) Liabilities of
Sellers and their Affiliates, other than the Assumed Liabilities, (C)
breach or non-fulfillment of any covenant, agreement or other obligation
of the Sellers or any of their Affiliates under this Agreement, (D)
Liabilities to the extent relating to Retained Assets and (E) Consumer
Finance Law Violation Damages of the type specified in clause (i) of the
definition thereof in Section 1.
(iii) All of the representations and warranties of the Sellers
contained in this Agreement shall survive the Closing and continue in
full force and effect until the date one year after the date of the
Closing, except for (A) those representations and warranties of the
Sellers contained in Section 3(b), (c) (i), (d) or (e), which shall
survive the Closing and continue in full force and effect forever
thereafter, (B) those representations and warranties of the Sellers
contained in Section 3(k)(ii) (other than in Section 3(k)(ii)(E)), which
shall survive the Closing and continue in full force and effect until
the date three years after the date of the Closing, and (C) those
representations and warranties of the Sellers contained in Section
3(k)(ii)(E) with respect to any Financing Documents shall survive the
Closing and continue in full force and effect until the later of (x) the
date one year after the date of the Closing, or (y) with respect to any
Financial Asset for which such claim has been made within such one-year
period and Sellers have elected not to repurchase such Financial Asset
pursuant to Section 7(q) forever thereafter. Notwithstanding the
preceding sentence, the indemnification by the Sellers shall continue as
to any Damages in connection with or arising from any breach of any
warranty or the inaccuracy of any representation of which the Buyer has
notified the Sellers in accordance
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with the requirements of Section 9(c) on or prior to the date such
indemnification would otherwise terminate in accordance with this
Section 9(a), as to which the obligation of the Sellers shall continue
until the Liability of the Sellers shall have been determined pursuant
to this Section 9, and the Sellers shall have reimbursed the Buyer for
such Damages in accordance with this Section 9. The indemnification
obligations set forth in Sections 9(a)(i)(B) and 9(a)(ii) shall survive
the Closing and continue in full force and effect forever thereafter.
(b) Indemnification by the Buyer.
(i) The Buyer agrees to indemnify and hold harmless each of the
Sellers from and against any and all Damages incurred by the Sellers in
connection with or arising from (A) any breach of any warranty or the
inaccuracy of any representation of the Buyer contained or referred to
in this Agreement or in any certificate or other document delivered by
or on behalf of the Buyer pursuant hereto, (B) any Assumed Liabilities,
(C) any breach or non-fulfillment of any covenant, agreement or other
obligation of the Buyer or any of its Affiliates under this Agreement
and (D) the operations of the Business following the Closing.
(ii) All of the representations and warranties of the Buyer
contained in this Agreement shall survive the Closing and continue in
full force and effect forever. The indemnification provided for in
Section 9(b) shall survive the Closing and continue in full force and
effect forever thereafter (subject to applicable statutes of
limitations).
(c) Notice of Claims; Insurance Benefit.
(i) The party (the "Indemnified Party") seeking indemnification
hereunder shall give promptly to the party obligated to provide
indemnification to such Indemnified Party (the "Indemnitor") a notice (a
"Claim Notice") describing in reasonable detail the facts (to the extent
known) giving rise to the alleged basis of the claim for indemnification
hereunder and shall include in such Claim Notice (if then known) the
amount or the method of computation of the amount of such claim, and a
reference to the provision of this Agreement or any other agreement,
document or instrument executed hereunder or in connection herewith upon
which such claim is based.
(ii) In calculating any Damages there shall be deducted any
insurance actually recovered from an insurer or other third person in
respect thereof (and no right of subrogation shall accrue hereunder to
any insurer or other person); provided, however, that if an Indemnified
Party receives any insurance recovery after an indemnification payment
is made by the Indemnitor to the Indemnified Party, such Indemnified
Party shall pay over promptly the amount of such insurance recovery to
the Indemnitor. Each Indemnified Party will prosecute diligently and in
good faith any claim recovery against
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<PAGE> 46
any insurer or other third person with respect to such matters as to
which such Indemnified Party has sought or may seek indemnification
against an Indemnitor.
(iii) After the giving of any Claim Notice pursuant hereto, the
amount of indemnification to which an Indemnified Party shall be
entitled under this Section 9 shall be determined:
(A) by the written agreement between the Indemnified
Party and the Indemnitor;
(B) by a final judgment or decree of any court of
competent jurisdiction; or
(C) by any other means to which the Indemnified Party
and the Indemnitor shall agree. The judgment or decree of a
court shall be deemed final when the time for appeal, if any,
shall have expired and no appeal shall have been taken or when
all appeals taken shall have been finally determined. The
Indemnified Party shall have the burden of proof in establishing
the amount of Damages suffered by it.
(d) Third Person Claims.
(i) In order for a Party to be entitled to any indemnification
provided for under this Agreement in respect of, arising out of or
involving a claim or demand made by any third Person against the
Indemnified Party, such Indemnified Party must notify the Indemnitor in
writing, and in reasonable detail, of the third person claim within
fifteen (15) days after receipt by such Indemnified Party of written
notice of the third person claim. Thereafter, the Indemnified Party
shall deliver to the Indemnitor, within five (5) business days after the
Indemnified Party's receipt thereof, copies of all notices and documents
(including court papers) received by the Indemnitor relating to the
third person claim. Notwithstanding the foregoing, should a party be
physically served with a complaint with regard to a third person claim,
the Indemnified Party must notify the Indemnitor with a copy of the
complaint within five (5) business days after receipt thereof and shall
deliver to the Indemnitor within seven (7) business days after the
receipt of such complaint copies of notices and documents (including
court papers) received by the Indemnified Party relating to the third
person claim.
(ii) In the event any legal proceeding shall be threatened or
instituted or any claim or demand shall be asserted by any person in
respect of which payment may be sought by one party hereto from another
party under the provisions of this Section 9(d), the Indemnified Party
shall promptly cause written notice of the assertion of any such claim
of which it has actual knowledge which is covered by this indemnity to
be forwarded to the Indemnitor. In the event of the initiation of any
legal proceeding against
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<PAGE> 47
the Indemnified Party by a third person, the Indemnitor shall have the
sole and absolute right after the receipt of notice, at its option and
at its own expense, to be represented by counsel of its choice and to
control, defend against, negotiate, settle or otherwise deal with any
proceeding, claim, or demand which relates to any loss, Liability or
damage indemnified against hereunder; provided, however, that the
Indemnified Party may participate in any such proceeding with counsel of
its choice and at its expense. The parties hereto agree to cooperate
fully with each other in connection with the defense, negotiation or
settlement of any such legal proceeding, claim or demand. To the extent
the Indemnitor elects not to defend such proceeding, claim or demand,
and the Indemnified Party defends against or otherwise deals with any
such proceeding, claim or demand, the Indemnified Party may retain
counsel, at the expense of the Indemnitor, and control the defense of
such proceeding. Neither the Indemnitor nor the Indemnified Party may
settle any such proceeding which settlement obligates the other party to
pay money, to perform obligations or to admit Liability or fault without
the consent of the other party, such consent not to be unreasonably
withheld or delayed; provided, that an Indemnitor may settle any such
proceeding without the consent of the Indemnified Party so long as such
settlement releases the Indemnified Party from all Liability with
respect to such proceeding and does not provide for any injunctive or
other continuing obligation of the Indemnified Party or admit fault if
such admission would materially damage the reputation of the Business.
After any final judgment or award shall have been rendered by a court,
arbitration board or administrative agency of competent jurisdiction and
the time in which to appeal therefrom has expired, or a settlement shall
have been consummated, or the Indemnified Party and the Indemnitor shall
arrive at a mutually binding agreement with respect to each separate
matter alleged to be indemnified by the Indemnitor hereunder, the
Indemnified Party shall forward to the Indemnitor notice of any sums due
and owing by it with respect to such matter and the Indemnitor shall pay
all of the sums so owning to the Indemnified Party by wire transfer,
certified check or bank cashier's check within 30 days after the date of
such notice.
(e) Limitations.
(i) In any case where an Indemnified Party recovers from third
persons (including, without limitation, insurers) any amount in respect
of a matter with respect to which an Indemnitor has indemnified it
pursuant to this Section 9, such Indemnified Party shall promptly pay
over to the Indemnitor the amount so recovered (after deducting
therefrom the full amount of the expenses incurred by it in procuring
such recovery), but not in excess of the sum of (a) any amount
previously so paid by the Indemnitor to or on behalf of the Indemnified
Party in respect of such matter and (b) any amount expended by the
Indemnitor in pursuing or defending any claim arising out of such
matter.
(ii) Except for remedies that cannot be waived as a matter of law
and injunctive and provisional relief, if the Closing occurs, this
Section 9 shall be the exclusive remedy for (A) any breach of any
warranty or the inaccuracy of any
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<PAGE> 48
representation of a Party contained in this Agreement or any certificate
delivered pursuant hereto (absent intentional fraud, reckless conduct or
willful misstatements) or (B) any breach or nonfulfillment of any
covenant, agreement or other obligation of a Party under this Agreement.
(f) Adjustment to Purchase Price. The parties agree to treat all payment
made pursuant to this Article 9 as an adjustment to the Purchase Price for Tax
purposes.
10. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other Party (which
approval shall not be unreasonably withheld or delayed); provided, however, that
any Party may make any public disclosure it believes in good faith is required
by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
reasonable efforts to advise the other Party prior to making the disclosure).
(b) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof, provided that this Agreement shall not supercede the
confidentiality provisions relating to information about the Business (but not
those provisions relating to disclosure of this Agreement or the transactions
contemplated hereby) or the provisions relating to non-solicitation of employees
set forth in the confidentiality agreement entered into by Green Tree Financial
Corporation and Buyer dated April 27, 1999 relating to the possible sale of the
Business.
(d) No Additional Representations and Warranties. EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT, SELLERS ARE SELLING
THE ACQUIRED ASSETS "AS IS, WHERE IS" AND DISCLAIM ALL OTHER REPRESENTATIONS AND
WARRANTIES, WHETHER EXPRESS OR IMPLIED. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, SELLERS MAKE NO REPRESENTATIONS OR WARRANTIES AS TO MERCHANTABILITY
OR FITNESS OF THE FIXED ASSETS FOR ANY PARTICULAR PURPOSE AND NO IMPLIED
REPRESENTATIONS OR WARRANTIES WHATSOEVER.
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<PAGE> 49
(e) Seller Joint Responsibility; Succession and Assignment. The
representations, warranties and obligations of the Sellers under this Agreement
are joint and several. This Agreement shall be binding upon and inure to the
benefit of the Parties named herein and their respective successors and
permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party, except a Party (i) may assign its rights and interests
hereunder to one or more of its Affiliates, (ii) may, after the Closing, assign
its rights and interests hereunder to a Person which acquires all or
substantially all of the Business (or all or substantially all of the business
of either Division) and (iii) may designate one or more of its Affiliates or
Person (after the Closing) referred to in clause (ii) of this Section 10(e) to
perform its obligations hereunder (in any or all of which cases such Party
nonetheless shall remain responsible for the performance of all of its
obligations hereunder at or prior to the Closing).
(f) Counterparts. This Agreement may be executed in one or more
counterparts (including by facsimile signatures), each of which shall be deemed
an original but all of which together will constitute one and the same
instrument.
(g) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices and other communications under this Agreement
must be in writing and will be deemed to have been duly given if delivered,
telecopied or mailed, by certified mail, return receipt requested, first-class
postage prepaid, to the parties at the following addresses:
If to the Buyer, to: Textron Financial Corporation
40 Westminster Street
Providence, Rhode Island 02903
Attention: General Counsel
Telephone: (401) 621-4200
Telecopy: (401) 621-5040
with a copy to: Fried, Frank, Harris, Shriver & Jacobson
One New York Place
New York, New York 10004
Attention: Craig F. Miller, Esq.
Telephone: (212) 859-8108
Telecopy: (212) 859-4000
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<PAGE> 50
If to Green Tree,
Green Tree FLC
or PFS, to: Green Tree Financial Corporation
1100 Landmark Towers
345 St. Peter Street
Saint Paul, Minnesota 55102-1639
Attention: General Counsel
Telephone: (651) 293-3400
Telecopy: (651) 293-5746
with a copy to: Conseco, Inc.
11825 North Pennsylvania Street
Carmel, Indiana 46032-4555
Attention: John J. Sabl, Esq.
Executive Vice President, General Counsel and
Secretary
Telephone: (317) 817-6100
Telecopy: (317) 817-6327
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Section will, if delivered personally, be
deemed given upon delivery, will, if delivered by telecopy, be deemed delivered
when confirmed and will, if delivered by mail in the manner described above, be
deemed given on the third business day after the day it is deposited in a
regular depository of the United States mail. Any party from time to time may
change its address for the purpose of notices to that party by giving a similar
notice specifying a new address, but no such notice will be deemed to have been
given until it is actually received by the party sought to be charged with the
contents thereof.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Delaware without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Delaware.
(j) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and each of the Sellers. The Sellers may consent to any such amendment at
any time prior to the Closing with the prior authorization of its board of
directors. No waiver by any Party of any default, misrepresentation, or breach
of warranty or covenant hereunder, whether intentional or not, shall be deemed
to extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of
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<PAGE> 51
the remaining terms and provisions hereof or the validity or enforceability of
the offending term or provision in any other situation or in any other
jurisdiction.
(l) Expenses. Except as otherwise provided in this Agreement, each of
the Buyer and the Sellers will bear its own costs and expenses (including legal
fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby.
(m) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(o) Specific Performance. Each of the Parties acknowledges and agrees
that the other Party would be damaged irreparably in the event any of the
provisions of Section 5 and Section 7 of this Agreement are not performed in
accordance with their specific terms or otherwise are breached. Accordingly,
each of the Parties agrees that the other Party shall be entitled to seek an
injunction or injunctions to prevent breaches of those provisions of this
Agreement and to enforce specifically those provisions of this Agreement and the
terms and provisions hereof in any action instituted in any court of the United
States or any state thereof having jurisdiction over the Parties and the matter,
in addition to any other remedy to which it may be entitled, at law or in
equity.
(p) Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Wilmington, Delaware, in
any action or proceeding arising out of or relating to this Agreement and agrees
that all claims in respect of the action or proceeding may be heard and
determined in any such court. If such court exercises personal and subject
matter jurisdiction (which jurisdiction the Buyer and the Sellers agree not to
contest) within a 90-day period after the commencement of such action or
proceeding, each Party also agrees not to bring such action or proceeding in any
other court. If the court in which such action or proceeding was commenced does
not exercise personal and subject matter jurisdiction within such period, then
any of the Parties may bring any action or proceeding arising out of or relating
to this Agreement in any other court. Each of the Parties waives any defense of
inconvenient forum to the maintenance of any action or proceeding so brought and
waives any bond, surety, or other security that might be required of any other
Party with respect thereto. Any Party may make service on another Party by
sending or delivering a copy of the process to the Party to be served at the
address and in the manner provided for the giving of notices in Section 10(h)
above. Each Party agrees that a final non-appealable judgment in any action or
proceeding so brought shall be
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<PAGE> 52
conclusive and may be enforced by suit on the judgment or in any other manner
provided by law or in equity.
(q) Agreement Provisions Not related to Retained Assets;
Confidentiality. Notwithstanding any provision of this Agreement to the
contrary, the Parties agree that Sellers are not making any representations or
warranties to Buyer or entering into any covenants, agreements or obligations
with or to Buyer herein with respect to any business, operations or assets
relating primarily to the Retained Assets. Buyer agrees that Buyer and all other
Textron Entities will maintain the confidentiality of any information relating
to the Retained Assets received by the Buyer from the Sellers.
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<PAGE> 53
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the date first above written.
TEXTRON FINANCIAL CORPORATION
By: /s/ John W. Mayers
------------------------------------
Title: Senior Vice President,
Corporate Development
------------------------------------
GREEN TREE FINANCIAL SERVICING
CORPORATION
By: /s/ Phyllis A. Knight
------------------------------------
Senior Vice President and Treasurer
GREEN TREE FINANCIAL LOAN
COMPANY
By: /s/ Phyllis A. Knight
------------------------------------
Senior Vice President and Treasurer
PIPER FINANCIAL SERVICES, INC.
By: /s/ Phyllis A. Knight
------------------------------------
Senior Vice President and Treasurer
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<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
TEXTRON FINANCIAL CORPORATION
Textron Financial Corporation, a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
1. The original name of which Textron Financial Corporation was
incorporated under was Northeast Financial Corporation.
The date of filing of its original Certificate of Incorporation with
the Secretary of State was February 5, 1962.
2. This Restated Certificate of Incorporation only restates and
integrates and does not further amend the provisions of the Certificate of
Incorporation of this corporation as heretofore amended or supplemented and
there is no discrepancy, between those provisions and the provisions of this
Restated Certificate of Incorporation.
3. The text of the Certificate of Incorporation as amended or
supplemented heretofore is hereby restated without further amendments or changes
to read as herein set forth in full:
FIRST: The name of the Corporation is TEXTRON FINANCIAL CORPORATION.
SECOND: The registered office of the Corporation in the State of Delaware
is to be located in the City of Wilmington, in the County of New
Castle. The name of its registered agent is The Corporation Trust
Company, whose address is 1209 Orange Street in said city.
THIRD: The nature of the business of the Corporation and the objects or
purposes proposed to be transacted, promoted or carried on by it,
are as follows:
(1) To finance the acquisition by others of personal
property, goods and chattels of every, nature and
description and to buy, sell, lease or sublease (either as
lessor or as lessee), import, export, distribute, exchange
and in any other manner own, hold and deal in the same;
engage in the business of buying, selling or otherwise
dealing in notes, open accounts and other similar evidences
of debt, and any and all other forms of real, personal or
mixed property choses in action; to receive and accept
transfers, pledges, mortgages, and conditional sales
contracts and to deal with the same as owner, lender,
factor, or otherwise as a means of security or of recovering
money or property advanced, invested or loaned; to acquire,
purchase, own, hold, pledge, exchange, sell, transfer,
invest, trade or otherwise deal
<PAGE> 2
2
in stocks, bonds, securities, choses in action or any
interest therein; to draw, make, accept, endorse, execute
and issue promissory notes, drafts, warrants, bonds,
securities, choses in negotiable and non-negotiable
instruments; to enter into contracts of any and every kind
for the carrying out of its purposes and objects; to enter
into profit sharing arrangements, promote organizations or
cause to be organized any corporation, firm or partnership
in aid of its business; to finance and aid by loan, subsidy,
consignment or otherwise any corporation, association,
syndicate or entity, and to conduct or co-operate in
conducting any business or enterprise; and to repossess by
legal process or otherwise for the enforcement of any
property rights, liens or interests it may be entitled to.
(2) To make, enter into, perform and carry out contracts of
every kind, nature and description, and with any one or more
persons, firms, associations, corporations, or governments
or subdivisions thereof, or with the United States
Government, and whether as prime contractor, subcontractor
or otherwise, and to represent and act on behalf of others
in the negotiation, procurement, and performance of
contracts and subcontracts.
(3) To make, manufacture, produce, process, purchase or
otherwise acquire, and to sell, lease, use, import, export,
or otherwise trade or deal in and with, goods, wares,
products and merchandise of every kind, nature and
description; and to engage or participate in any
manufacturing, mercantile or trading business of any kind or
character whatsoever.
(4) To purchase, lease, construct or otherwise acquire, and
to hold, own, use, maintain, lease, manage and operate, and
to sell or otherwise dispose of, or otherwise trade or deal
in and with, plants, buildings, mills, factories,
warehouses, roads, mines, wells, docks, piers, wharves,
stores, shops, boats, rolling stock and other structures,
establishments and facilities of every kind, nature or
description used or useful in the conduct of the business of
the Corporation.
(5) To adopt, apply for, obtain, register, purchase, lease
or otherwise acquire, to maintain, protect, hold, use, own,
exercise, develop, manufacture under, operate and introduce,
and to sell and grant licenses or other rights in respect
of, assign, or otherwise dispose of, turn to account, or in
any manner deal with and contract with reference to, any
trademarks, trade names, patents, patent rights,
concessions, franchises, designs, copyrights and distinctive
marks and rights analogous thereto, and inventions, devices,
improvements, processes, formulae and
<PAGE> 3
3
the like, including such thereof as may be covered by, used
in connection with, or secured or received under, Letters
Patent of the United States of America or elsewhere or
otherwise, and any licenses and rights in respect thereof,
in connection therewith or appertaining thereto.
(6) To purchase or otherwise acquire, and to hold, pledge,
sell, exchange or otherwise dispose of, securities (which
term, for the purpose of this Article THIRD, includes,
without limitation of the generality thereof, any shares of
stock, bonds, debentures, notes, mortgages or other
obligations, and any certificates, receipts or other
instruments representing rights to receive, purchase or
subscribe for the same, or representing any other rights or
interest therein or in any property or assets) created or
issued by any person, firm, association, corporation or
government or subdivision or agency or instrumentality
thereof; to make payment therefor in any lawful manner; and
to exercise as owner or holder of any securities, any and
all rights, powers and privileges in respect thereof.
(7) To endorse or guarantee the payment of principal,
interest or dividends upon, and to guarantee the performance
of sinking fund or other obligations of any securities, and
to guarantee in any way permitted by law the performance of
any of the contracts or other undertakings in which the
Corporation may otherwise be or become interested, of any
one or more persons, firms, associations, corporations,
governments or subdivisions thereof.
(8) To acquire by purchase, exchange or otherwise, all or
any part of, or any interest in, the properties, assets,
business and good will of any one or more persons, firms,
associations or corporations heretofore or hereafter engaged
in any business for which a corporation may now or hereafter
be organized under the laws of the State of Delaware; to pay
for the same in cash, property or its own or other
securities; to hold, operate, lease, reorganize, liquidate,
sell or in any manner dispose of the whole or any part
thereof; and, in connection therewith, to assume or
guarantee performance of any liabilities, obligations or
contracts of such persons, firms, associations or
corporations, and to conduct the whole or any part of any
business thus acquired.
(9) To lend its uninvested funds from time to time to such
extent, to such persons, firms, associations, corporations,
governments or subdivisions thereof, and on such terms and
on
<PAGE> 4
4
such security, if any, as the Board of Directors of the
Corporation may determine.
(10) To borrow money for any of the purposes of the
Corporation, from time to time, and without limit as to
amount; from time to time to issue and sell its own
securities in such amounts, on such terms and conditions,
for such purposes and for such prices, now or hereafter
permitted by the laws of the State of Delaware and by this
Certificate of Incorporation, as the Board of Directors of
the Corporation may determine; and to secure such securities
by mortgage upon, or the pledge of, or the conveyance or
assignment in trust of, the whole or any part of the
properties, assets, business and good will of the
Corporation, then owned or thereafter acquired.
(11) To purchase, hold, cancel, reissue, sell, exchange,
transfer or otherwise deal in its own securities from time
to time to such an extent and in such manner and upon such
terms as the Board of Directors of the Corporation shall
determine; provided that the Corporation shall not use its
funds or property for the purchase of its own shares of
capital stock when such use would cause any impairment of
its capital, except to the extent permitted by law; and
provided further that shares of its own capital stock
belonging to the Corporation shall not be voted upon
directly or indirectly.
(12) To promote, organize, manage, aid or assist,
financially or otherwise, persons, firms, associations or
corporations engaged in any business whatsoever, to such
extent as a corporation organized under the General
Corporation Law of the State of Delaware may now or
hereafter lawfully do; and, to a like extent, to assume,
guarantee or underwrite their securities as to principal,
interest, dividends or sinking fund obligations in respect
thereof or all or any thereof, or the performance of all or
any of their other obligations.
(13) To conduct its business in any and all of its branches
and maintain offices both within and without the State of
Delaware, in any and all States of the United States of
America, in the District of Columbia, in any or all
territories, dependencies, colonies or possessions of the
United States of America, and in foreign countries.
(14) To such extent as a corporation organized under the
General Corporation Law of the State of Delaware may now or
hereafter lawfully do, to do, either as principal or agent
and either alone or through subsidiaries or in connection
with other
<PAGE> 5
5
persons, firms, associations or corporations, all and
everything necessary, suitable, convenient or proper for, or
in connection with, or incident to, the accomplishment of
any of the purposes or the attainment of any one or more of
the objects herein enumerated, or designed directly or
indirectly to promote the interests of the Corporation or to
enhance the value of its properties; and in general to do
any and all things and exercise any and all powers, rights
and privileges which a corporation may now or hereafter be
organized to do or to exercise under the General Corporation
Law of the State of Delaware or under any act amendatory
thereof, supplemental thereto or substituted therefor.
The foregoing provisions of this Article THIRD shall be construed
both as purposes and powers and each as an independent purpose
and power. The foregoing enumeration of specific purposes and
powers of the Corporation, and the purposes and powers therein
specified shall, except when otherwise provided in this Article
THIRD, be in no wise limited or restricted by reference to, or
inference from, the terms of any provision of this or any other
Article of this Certificate of Incorporation; provided that
nothing herein contained shall be construed as authorizing the
Corporation to issue bills, notes or other evidences of debt for
circulation as money, or to carry on the business of receiving
deposits of money or the business of buying gold or silver
bullion or foreign coins or as authorizing the Corporation to
engage in the business of banking or insurance or to carry on the
business of constructing, maintaining or operating public
utilities in the State of Delaware; and provided, further, that
the Corporation shall not carry on any business or exercise any
power in any state, territory or country which under the laws
thereof the Corporation may not lawfully carry on or exercise.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is Four Thousand (4,000) and the par
value of each of such shares shall be One Hundred Dollars
($100.00). All such shares are of one class and are designated as
Common Stock.
The minimum amount of capital with which the Corporation will
commence business is One Thousand Dollars ($1,000.).
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The private property of the stockholders of the Corporation shall
not be subject to the payment of corporate debts to any extent
whatever.
SEVENTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation
and regulation
<PAGE> 6
6
of the powers of the Corporation and of its directors and
stockholders, it is further provided:
1. The number of directors of the Corporation which shall
constitute the whole Board of Directors shall be such as
from time to time shall be fixed in the manner provided in
the by-laws of the Corporation, but in no case shall the
number be less than three. In the case of any increase in
the number of directors of the Corporation, any additional
directorship created may be filled in the first instance in
the same manner as a vacancy in the Board of Directors. The
directors need not be stockholders. The election of
directors of the Corporation need not be by ballot unless
the by-laws so require. The directors may hold their
meetings and have an office or offices outside the State of
Delaware if the by-laws so provide.
2. A majority of the directors shall constitute a quorum for
the transaction of business, unless the by-laws shall
provide that a different number shall constitute a quorum,
which in no case shall be less than one-third of the total
number of directors nor less than two directors.
3. In furtherance and not in limitation of the powers conferred
by the laws of the State of Delaware, the Board of Directors
is expressly authorized and empowered:
(a) To make, alter, amend or repeal the by-laws in any
manner not inconsistent with the laws of the State of
Delaware or the Certificate of Incorporation of the
Corporation, subject to the power of the stockholders to
amend, alter or repeal the by-laws made by the Board of
Directors or to limit or restrict the power of the Board of
Directors so to make, alter, amend or repeal the by-laws.
(b) Subject to the applicable provisions of the by-laws, to
determine, from time to time, whether and to what extent and
at what times and places and under what conditions and
regulations the accounts and books and documents of the
Corporation, or any of them, shall be open to the inspection
of the stockholders, and no stockholder shall have any fight
to inspect any account or book or document of the
Corporation, except as conferred by the laws of the State of
Delaware, unless and until authorized so to do by resolution
of the Board of Directors or of the stockholders of the
Corporation.
(c) Without the assent or vote of the stockholders to
authorize and issue obligations of the Corporation, secured
or unsecured,
<PAGE> 7
7
to include therein such provisions as to redeemability,
convertability or otherwise, as the Board of Directors in
its sole discretion may determine, and to authorize the
mortgaging or pledging, as security therefor, of any
property of the Corporation, real or personal, including
after-acquired property.
(d) To designate one or more committees, each committee to
consist of two (2) or more of the directors of the
Corporation, which to the extent provided in said resolution
or resolutions or in the by-laws, shall have and may
exercise the powers of the Board of Directors in the
management of the business and affairs of the Corporation
and may have power to authorize the seal of the Corporation
to be affixed to all papers which may require it, such
committee or committees to have such name or names as may be
stated in the by-taws or as may be determined from time to
time by resolution adopted by the Board of Directors.
(e) To determine whether any, and, if any, what part, of the
net profits of the Corporation or of its net assets in
excess of its capital shall be declared in dividends and
paid to the stockholders, and to direct and determine the
use and disposition of any such net profits or such net
assets in excess of capital.
(f) To fix from time to time the amount of profits of the
Corporation to be reserved as working capital or for any
other lawful purpose.
In addition to the powers and authorities hereinbefore or by
statute expressly conferred upon it, the Board of Directors
may exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation, subject,
nevertheless, to the provisions of the laws of the State of
Delaware, of the Certificate of Incorporation and of the
by-laws of the Corporation.
4. Any director or any officer elected or appointed by the
stockholders or by the Board of Directors may be removed at
any time in such manner as shall be provided in the by-laws
of the Corporation.
5. No contract or other transaction between the Corporation and
any other corporation and no other act of the Corporation
shall, in the absence of fraud, in any way be affected or
invalidated by the fact that any of the directors of the
Corporation are pecuniarily or otherwise interested in, or
are directors or
<PAGE> 8
8
officers of, such other corporation. Any director of the
Corporation individually, and any firm or association of
which any director may be a member, may be a party to, or
may be pecuniarily or otherwise interested in, any contract
or transaction of the Corporation, provided that the fact
that he individually or such firm or association is so
interested shall be disclosed or shall have been known to
the Board of Directors or a majority of such members thereof
as shall be present at any meeting of the Board of Directors
at which action upon any such contract or transaction shall
be taken. Any director of the Corporation who is also a
director or officer of such other corporation or who is so
interested may be counted in determining the existence of a
quorum at any meeting of the Board of Directors which shall
authorize any such contract or transaction, and may vote
thereat to authorize any such contract or transaction, with
like force and effect as if he were not such director or
officer of such other corporation or not so interested. Any
director of the Corporation may vote upon any contract or
other transaction between the Corporation and any subsidiary
or affiliated corporation without regard to the fact that he
is also a director of such subsidiary or affiliated
corporation.
Any contract, transaction or act of the Corporation or of
the directors, which shall be ratified by a majority of a
quorum of the stockholders of the Corporation at any annual
meeting, or at any special meeting called for such purpose,
shall, in so far as permitted by law or by this Certificate
of Incorporation, be as valid and as binding as though
ratified by every stockholder of the Corporation; provided,
however, that any failure of the stockholders to approve or
ratify any such contract, transaction or act, when and if
submitted, shall not be deemed in any way to invalidate the
same, or deprive the Corporation, its directors, officers or
employees, of its or their right to proceed with such
contract, transaction or act.
6. From time to time any of the provisions of this Certificate
of Incorporation may be amended, altered or repealed, and
other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted in
the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the
Corporation by this Certificate of Incorporation are granted
subject to the provisions of this Paragraph 6.
EIGHTH: No holder of stock of the Corporation shall, as such holder, have
any right to purchase or subscribe for any shares of stock of the
<PAGE> 9
9
Corporation of any class, now or hereafter authorized, or any
obligations or instruments which the Corporation may issue or
sell that shall be convertible into or exchangeable for or
entitle the holders thereof to subscribe for or purchase any
shares of stock of the Corporation of any class, now or hereafter
authorized, other than such right, if any, as the Board of
Directors in its discretion may determine.
4. This Restated Certificate of Incorporation was duly adopted in
accordance with the applicable provisions of Sections 228 and 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Textron Financial Corporation has caused this
Certificate to be signed by Stephen J. Davis, its President and attested by John
H. Bracken, its Secretary this 15th day of July, 1993.
TEXTRON FINANCIAL CORPORATION
By: /s/ Stephen J. Davis
------------------------------------
Stephen J. Davis
President
ATTEST:
By: /s/ John H. Bracken
--------------------------------
John H. Bracken
Secretary
<PAGE> 1
Exhibit 3.2
TEXTRON FINANCIAL CORPORATION
(a Delaware corporation)
BY-LAWS
AS OF MAY 4, 1999
ARTICLE I
OFFICES
SECTION 1.01. REGISTERED OFFICE. The registered office of the
Corporation in the State of Delaware shall be at 1013 Centre Road, City of
Wilmington, County of New Castle. The name of the resident agent in charge
thereof shall be Corporation Service Company.
SECTION 1.02. OTHER OFFICES. The Corporation may also have an office or
offices in the City of Providence, State of Rhode Island, and at such other
place or places either within or without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01. PLACE OF MEETINGS. All meetings of the stockholders of
the Corporation shall be held at such place either within or without the State
of Delaware as shall be fixed by the Board of Directors and specified in the
respective notices or waivers of notice of said meetings.
SECTION 2.02. ANNUAL MEETINGS. (a) The annual meeting of the
stockholders for the election of directors and for the transaction of such other
business as properly may come before the meeting shall be held at the principal
office of the Corporation in the State of Delaware, or such place as shall be
fixed by the Board of Directors, at three o'clock in the afternoon, local time,
on the first Tuesday in May in each year, if not a legal holiday at the place
where such meeting is to be held, and, if a legal holiday, then on the next
succeeding business day not a legal holiday at the same hour. (b) In respect of
the annual meeting for any particular year, the Board of Directors may, by
resolution, fix a different day, time or place (either within or without the
State of Delaware) for the annual meeting. (c) If the election of directors
shall not be held on the day designated herein or the day fixed by the Board, as
the case may be, for any annual meeting, or on the day of any adjourned session
thereof, the Board of Directors shall cause the election to be held at a special
meeting as soon thereafter as may conveniently be scheduled. At such special
<PAGE> 2
meeting the stockholders may elect the directors and transact other business
with the same force and effect as at an annual meeting duly called and held.
SECTION 2.03. SPECIAL MEETINGS. A special meeting of the stockholders
for any purpose or purposes may be called at any time by the Chairman of the
Board or the President or by order of the Board of Directors and must be called
by the Secretary upon the request in writing of a stockholder or stockholders
holding of record at least thirty-five percent (35%) of the outstanding shares
of stock of the Corporation entitled to vote at such meeting.
SECTION 2.04. NOTICE OF MEETINGS. (a) Except as otherwise required by
statute, notice of each annual or special meeting of the stockholders shall be
given to each stockholder of record entitled to vote at such meeting not less
than ten (10) days nor more than sixty (60) days before the day on which the
meeting is to be held by delivering written notice thereof to its offices
personally or by mailing such notice, postage prepaid, addressed to him or her
at his or her post office address last shown in the records of the Corporation
or by transmitting notice thereof to him or her at such address by telephone,
facsimile, electronic mail or any other available method, PROVIDED that notice
of a meeting called at the request of a shareholder pursuant to Section 2.03
shall be given not less than twenty (20) days before the day on which the
meeting is to be held. Every such notice shall state the time and place of the
meeting and, in case of a special meeting, shall state briefly the purposes
thereof. (b) Except as otherwise required by statute, notice of any meeting of
stockholders shall not be required to be given to any stockholders who shall
attend such meeting in person or by proxy or who shall, in person or by attorney
thereunto authorized, waive such notice in writing or by telephone, facsimile,
electronic mail or any other available method either before or after such
meeting. Notice of any adjourned meeting of the stockholders shall not be
required to be given except when expressly required by law.
SECTION 2.05. QUORUM. (a) At each meeting of the stockholders, except
where otherwise provided by statute, the Certificate of Incorporation or these
By-Laws, the holders of record of a majority of the issued and outstanding
shares of stock of the Corporation entitled to vote at such meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business. (b) In the absence of a quorum, a majority in interest of the
stockholders of the Corporation entitled to vote, present in person or
represented by proxy or, in the absence of all such stockholders, any officer
entitled to preside at, or act as secretary of, such meeting, shall have the
power to adjourn the meeting from time to time, until stockholders holding the
requisite amount of stock shall be present or represented. At any such adjourned
meeting at which a quorum shall be present any business may be transacted which
might have been transacted at the meeting as originally called.
SECTION 2.06. ORGANIZATION. At each meeting of the stockholders the
Chairman of the Board or, in his or her absence, the President, any Executive,
Senior or Vice President or, in the absence of each of them, a chairman chosen
by a majority vote of the stockholders entitled to vote thereat, present in
person or by proxy, shall act as chairman, and the Secretary or an Assistant
Secretary of the Corporation or, in the absence of the Secretary and all
Assistant Secretaries, a person whom the chairman of such meeting shall appoint
shall act as secretary of the meeting and keep the minutes thereof.
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<PAGE> 3
SECTION 2.07. VOTING. (a) Except as otherwise provided by law or by the
Certificate of Incorporation or these By-Laws, at every meeting of the
stockholders each stockholder shall be entitled to one (1) vote, in person or by
proxy, for each share of capital stock of the Corporation registered in its name
on the books of the Corporation:
(i) on the date fixed pursuant to Section 8.03 of these By-Laws as the
record date for the determination of stockholders entitled to vote at
such meeting; or
(ii) if no such record date shall have been fixed, then the record date
shall be at the close of business on the day next preceding the day on
which notice of such meeting is given.
(b) Persons holding stock in a fiduciary capacity shall be entitled to
vote the shares so held. In the case of stock held jointly by two (2) or more
executors, administrators, guardians, conservators, trustees or other
fiduciaries, such fiduciaries may designate in writing one (1) or more of their
number to represent such stock and vote the shares. No proxy shall be voted
after three (3) years from its date, unless said proxy provides for a longer
period. (c) At all meetings of the stockholders, all matters (except where other
provision is made by law or by the Certificate of Incorporation or these
By-Laws) shall be decided by the vote of a majority in interest of the
stockholders entitled to vote thereon, present in person or by proxy at such
meeting, a quorum being present.
SECTION 2.08. INSPECTORS. The chairman of the meeting may at any time
appoint two (2) or more inspectors to serve at any meeting of the stockholders.
Such inspectors shall decide upon the qualifications of voters, accept and count
the votes for and against the questions presented, report the results of such
votes, and subscribe and deliver to the secretary of the meeting a certificate
stating the number of shares of stock issued and outstanding and entitled to
vote thereon and the number of shares voted for and against the questions
presented. The inspectors need not be stockholders of the Corporation, and any
director or officer of the Corporation may be an inspector on any question other
than a vote for or against his or her election to any position with the
Corporation or on any other question in which he or she may be directly
interested. Before acting as herein provided, each inspector shall subscribe an
oath faithfully to execute the duties of an inspector with strict impartiality
and according to the best of his or her ability.
SECTION 2.09. LIST OF STOCKHOLDERS. (a) It shall be the duty of the
Secretary or other officer of the Corporation who shall have charge of its stock
ledger to prepare and make, or cause to be prepared and made, at least ten (10)
days before every meeting of the stockholders, a complete list of the
stockholders entitled to vote thereat, arranged in alphabetical order and
showing the address of each stockholder and the number of shares registered in
the name of the stockholder. Such list shall be open during ordinary business
hours to the examination of any stockholder for any purpose germane to the
meeting for a period of at least ten (10) days prior to the election, either 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 a place where
the meeting is to be held. (b) Such list 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. (c) Upon the willful
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neglect or refusal of the directors to produce such list at any meeting for the
election of directors, they shall be ineligible for election to any office at
such meeting. (d) The stock ledger shall be conclusive evidence as to who are
the stockholders entitled to examine the stock ledger and the list of
stockholders required by this Section 2.09 on the books of the Corporation or to
vote in person or by proxy at any meeting of stockholders.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01. GENERAL POWERS. The business, property and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors.
SECTION 3.02. NUMBER, QUALIFICATIONS AND TERM OF OFFICE. (a) The number
of directors of the Corporation which shall constitute the whole Board of
Directors shall be such number, not less than three (3), as from time to time
shall be fixed by the stockholders at any annual meeting or at any special
meeting called for the purpose; provided, however, that between such meetings of
stockholders the number so fixed may at any time be increased by the affirmative
vote of a majority of the Board of Directors. (b) Each director shall hold
office until the annual meeting of the stockholders next following his or her
election and until his or her successor shall have been elected and shall
qualify, or until his or her death, or until he or she shall resign, or until he
or she shall have been removed in the manner hereinafter provided.
SECTION 3.03. ELECTION OF DIRECTORS. At each meeting of the
stockholders for the election of directors at which a quorum is present, the
persons, not exceeding the authorized number of directors, receiving the
greatest number of votes of the stockholders entitled to vote thereon, present
in person or by proxy, shall be the directors. In the case of any increases in
the number of directors, the additional director or directors may be elected
either at the meeting of the Board of Directors or of the stockholders at which
each increase is voted, or at any subsequent annual, regular or special meeting
of the Board of Directors or stockholders.
SECTION 3.04. QUORUM AND MANNER OF ACTING. (a) Except as otherwise
provided by statute or by the Certificate of Incorporation, a majority of the
directors at the time in office shall constitute a quorum for the transaction of
business at any meeting and the affirmative action of a majority of the
directors present at any meeting at which a quorum is present shall be required
for the taking of any action by the Board of Directors. (b) In the event the
Secretary is informed that one (1) or more directors will be out of the
continental limits of the United States at the date of any regular or special
meeting of the Board, or if one (1) or more of the directors shall be
disqualified to vote at such meeting, then the required quorum shall be reduced
by one (1) for each such director so absent or disqualified; provided, however,
that in no event shall the quorum as adjusted be less than one third of the
total number of directors. (c) In the absence of a quorum at any meeting of the
Board such meeting need not be held, or a majority of the directors present
thereat or, if no director be present, the Secretary may adjourn such meeting
from time to time until a quorum shall be present. Notice of any adjourned
meeting need not be given.
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<PAGE> 5
SECTION 3.05. OFFICES, PLACE OF MEETING AND RECORDS. The Board of
Directors may hold meetings, have an office or offices and keep the books and
records of the Corporation at such place or places within or without the State
of Delaware as the Board may from time to time determine. The place of meeting
shall be specified or fixed in the respective notices or waivers of notice
thereof, except where otherwise provided by statute, by the Certificate of
Incorporation or these By-Laws.
SECTION 3.06. ANNUAL MEETING. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable following each annual election of directors.
Such meeting shall be called and held at the place and time specified in the
notice or waiver of notice thereof as in the case of a special meeting of the
Board of Directors.
SECTION 3.07. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such places and at such times as the Board shall from
time to time by resolution determine. If any day fixed for a regular meeting
shall be a legal holiday at the place where the meeting is to be held, then the
meeting which would otherwise be held on that day shall be held at said place at
the same hour on the next succeeding business day.
Notice of regular meetings need not be given.
SECTION 3.08. SPECIAL MEETINGS; NOTICE. Special meetings of the Board
of Directors shall be held whenever called by the Chairman of the Board or the
President or by any two of the directors. Notice of each such meeting shall be
mailed to each director, addressed to him or her at his or her residence or
usual place of business, at least three (3) days before the day on which the
meeting is to be held, or shall be sent to him or her at his or her residence or
at such place of business by facsimile, electronic mail or other available
means, or shall be delivered personally or by telephone, not later than two days
before the day on which the meeting is to be held. Each such notice shall state
the time and place of the meeting but need not state the purposes thereof except
as otherwise herein expressly provided. Notice of any such meeting need not be
given to any director, however, if waived by him or her in writing or by
telephone, facsimile, electronic mail or otherwise, whether before or after such
meeting shall be held, or if he or she shall be present at such meeting.
SECTION 3.09. ORGANIZATION. At each meeting of the Board of Directors,
the Chairman of the Board or, in his or her absence, the President or, in the
absence of each of them, a director chosen by a majority of the directors
present shall act as chairman. The Secretary or, in his or her absence an
Assistant Secretary or, in the absence of the Secretary and all Assistant
Secretaries, a person whom the chairman of such meeting shall appoint shall act
as secretary of such meeting and keep the minutes thereof.
SECTION 3.10. ORDER OF BUSINESS. At all meetings of the Board of
Directors business shall be transacted in the order determined by the Board.
SECTION 3.11. REMOVAL OF DIRECTORS. Except as otherwise provided in the
Certificate of Incorporation or in these By-Laws, any director may be removed,
either with or without cause, at
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any time, by the affirmative vote of the holders of record of a majority of the
issued and outstanding stock entitled to vote for the election of directors of
the Corporation given at a special meeting of the stockholders called and held
for the purpose; and the vacancy in the Board caused by any such removal may be
filled by such stockholders at such meeting in the manner hereinafter provided
or, if the stockholders at such meeting shall fail to fill such vacancy, as in
these By-Laws provided.
SECTION 3.12. RESIGNATION. Any director of the Corporation may resign
at any time by giving written notice of his or her resignation to the Board of
Directors, to the President, any Vice President or the Secretary of the
Corporation. Such resignation shall take effect at the date of receipt of such
notice or at any later time specified therein; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
SECTION 3.13. VACANCIES. Any vacancy in the Board of Directors caused
by death, resignation, removal, disqualification, an increase in the number of
directors, or any other cause, may be filled by majority action of the remaining
directors then in office, though less than a quorum, or by the stockholders of
the Corporation at the next annual meeting or any special meeting called for the
purpose, and each director so elected shall hold office until the next annual
election of directors and until his or her successor shall be duly elected and
qualified, or until his or her death or until he or she shall resign or shall
have been removed in the manner herein provided.
SECTION 3.14. COMPENSATION. Each director, in consideration of his or
her serving as such, shall be entitled to receive from the Corporation such
amount per annum or such fees for attendance at directors' meetings, or both, as
the Board of Directors shall from time to time determine, together with
reimbursement for the reasonable expenses incurred by him or her in connection
with the performance of his or her duties; provided that nothing herein
contained shall be construed to preclude any director from serving the
Corporation or its subsidiaries in any other capacity and receiving proper
compensation therefor.
ARTICLE IV
COMMITTEES
SECTION 4.01. STANDING COMMITTEES. The Board of Directors may from time
to time, by resolution passed by a majority of the whole Board, designate one
(1) or more committees which shall be standing in nature, each Standing
Committee to consist of one (1) or more directors and any number of officers of
the Corporation. Any such Standing Committee shall have and may exercise the
powers of the Board of Directors in the management of the business and affairs
of the corporation for whatever purpose they see fit.
A majority of all of the members of any such Standing Committee may
determine its action and fix the time and place of its meetings, unless the
Board of Directors shall otherwise provide. The Board of Directors shall have
the power to change the members of any Standing Committee at any time, to fill
vacancies and to discharge any such Standing Committee, either
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with or without cause, at any time. The Board of Directors may delegate such
power to the members of any Standing Committee or one (1) or more principal
officers.
SECTION 4.02. ALTERNATES. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one (1) or more directors as
alternate members of any committee who may replace any absent or disqualified
member at any meeting of the committee; provided, however, that in the absence
of any such designation of alternates the member or members of any committee
present at any meeting and not disqualified from acting, whether or not he, she
or they constitute a quorum, may unanimously appoint another member of the Board
to act at the meeting in the place of any absent or disqualified member.
SECTION 4.03. ADDITIONAL COMMITTEES. The Board of Directors, any
Standing Committee, or any principal officer or director may from time to time
create such additional committees of directors, officers, employees or other
persons designated by it (or any combination of such persons) for such business
purposes as they deem necessary and for advising with the Board and the
principal officers of the Corporation in all such matters as the Board and the
principal officers shall deem advisable.
A majority of all the members of any such committee may determine its
action and fix the time and place of its meetings, unless the Board of Directors
or any Standing Committee shall otherwise provide. The Board of Directors, any
Standing Committee, or any principal officer or director shall have power to
change the members of any additional committee at any time, to fill vacancies
and to discharge any such committee, with or without cause, at any time.
ARTICLE V
ACTION BY CONSENT OR TELEPHONE
SECTION 5.01. CONSENT BY DIRECTORS. Any action required or permitted to
be taken at any meeting of the Board of Directors may be taken without a meeting
if prior to such action a written consent thereto is signed by all members of
the Board and such written consent is filed with the minutes of the proceedings
of the Board.
SECTION 5.02. CONSENT BY STOCKHOLDERS. Any action required or permitted
to be taken at any meeting of the stockholders may be taken without a meeting
upon the written consent of the holders of shares of stock entitled to vote who
hold the number of shares which in the aggregate are at least equal to the
percentage of the total vote required by statute or the Certificate of
Incorporation or these By-Laws for the proposed corporate action.
SECTION 5.03. TELEPHONE MEETINGS. Members of the Board of Directors may
participate in a meeting of such Board by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other.
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ARTICLE VI
OFFICERS
SECTION 6.01. NUMBER. The principal officers of the Corporation shall
be a President, one (1) or more Executive, Senior or Vice Presidents (the number
thereof and variations in title to be determined by the Board of Directors), a
Treasurer, a Controller and a Secretary. In addition, there may be such other or
subordinate officers, agents and employees as may be appointed in accordance
with the provisions of Section 6.03. Any two (2) or more offices, except those
of President and Secretary, may be held by the same person.
SECTION 6.02. ELECTION, QUALIFICATIONS AND TERM OF OFFICE. Each officer
of the Corporation, except such officers as may be appointed in accordance with
the provisions of Section 6.03, shall be elected annually by the Board of
Directors and shall hold office until his or her successor shall have been duly
elected and qualified, or until his or her death, or until he or she shall have
resigned or shall have been removed in the manner herein provided. The Chairman
of the Board and the President may serve and remain as directors.
SECTION 6.03. OTHER OFFICERS. The Corporation may have such other
officers, agents, and employees as the Board of Directors may deem necessary,
including one (1) or more Assistant Vice Presidents, Assistant Controllers,
Assistant Treasurers and Assistant Secretaries, each of whom shall hold office
for such period, have such authority, and perform such duties as the Board of
Directors, the Chairman of the Board or the President may from time to time
determine. The Board of Directors may delegate to any principal officer the
power to appoint or remove any subordinate officers, agents or employees.
SECTION 6.04. REMOVAL. Any officer may be removed, either with or
without cause, by the vote of a majority of the whole Board of Directors, the
Chairman of the Board or, except in case of any officer elected by the Board of
Directors, by any committee or officer upon whom the power of removal may be
conferred by the Board of Directors.
SECTION 6.05. RESIGNATION. Any officer may resign at any time by giving
written notice to the Board of Directors, the Chairman of the Board or the
President. Any such resignation shall take effect at the date of receipt of such
notice or at any later time specified therein; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
SECTION 6.06. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed in these By-Laws for
regular election or appointment to such office.
SECTION 6.07. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
there be one, shall be the chief executive officer of the Corporation (unless
the Board of Directors shall designate the President as chief executive officer)
and shall have direct charge of the business and affairs of the Corporation,
subject to the control of the Board of Directors. He or she shall,
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when present, preside at all meetings of the Board of Directors and at all
meetings of the stockholders and shall have such additional powers and shall
perform such further duties as may, from time to time, be assigned to him or her
by the Board of Directors.
SECTION 6.08. PRESIDENT. The President shall be the chief operating
officer of the Corporation and shall have general direction of the operations of
the Corporation, subject to the control of the Chairman of the Board (unless the
Board of Directors has designated the President as chief executive officer of
the Corporation) and the Board of Directors. The President shall be the chief
executive officer of the Corporation if there be no Chairman of the Board or if
the Board of Directors shall designate the President as such chief executive
officer. If there be no Chairman of the Board or, in the absence of the Chairman
of the Board, the President shall preside at all meetings of the Board of
Directors and at all meetings of the stockholders and shall have such additional
powers and shall perform such further duties as may from time to time be
assigned to him or her by the Board of Directors.
SECTION 6.09. EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS AND
VICE PRESIDENTS. Each Executive Vice President, Senior Vice President and Vice
President shall have such powers and perform such duties as the Board of
Directors may from time to time prescribe or as shall be assigned to him or her
by the Chairman of the Board.
SECTION 6.10. TREASURER. The Treasurer shall have charge and custody
of, and be responsible for, all funds and securities of the Corporation, and
shall deposit all such funds to the credit of the Corporation in such banks,
trust companies or other depositories as shall be selected in accordance with
the provisions of these By-Laws; he or she shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, making proper vouchers
for such disbursements, and shall render to the Board of Directors or the
stockholders, whenever the Board may require him or her so to do, a statement of
all his or her transactions as Treasurer or the financial condition of the
Corporation; and, in general, he or she shall perform all the duties incident to
the office of Treasurer and such other duties as from time to time may be
assigned to him or her by the Board of Directors and any committee of the Board
designated by it so to act.
SECTION 6.11. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall
record or cause to be recorded in books provided for the purpose the minutes of
the meetings of the stockholders, the Board of Directors, and all committees of
which a secretary shall not have been appointed; shall see that all notices are
duly given in accordance with the provisions of these By-Laws and as required by
law; shall be custodian of all corporate records (other than financial) and of
the seal of the Corporation and see that the seal is affixed to all documents
the execution of which on behalf of the Corporation under its seal is duly
authorized in accordance with the provisions of these By-Laws; shall keep, or
cause to be kept, the list of stockholders as required by Section 2.09, which
shall include the post office addresses of the stockholders and the number of
shares held by them, respectively, and shall make or cause to be made, all
proper changes therein; shall see that the books, reports, statements,
certificates and all other documents and records required by law are properly
kept and filed; and, in general, shall perform all duties incident to the office
of Secretary and such other duties as may from time to time be assigned to him
or her by the Board of Directors.
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The Assistant Secretaries in order of their seniority shall, in the
absence or disability of the Secretary, perform the duties and exercise the
powers of the Secretary and shall perform such other duties as the Board of
Directors shall prescribe.
SECTION 6.12. CONTROLLER AND ASSISTANT CONTROLLERS. The Controller
shall be in charge of the books and records of account of the Corporation and of
its statistical records. He or she shall keep or cause to be kept at such office
or offices as the Board of Directors may from time to time designate complete
and accurate accounts of all assets, liabilities, receipts, disbursements and
other transactions of the Corporation; shall cause regular audits of such books
and records to be made; shall be responsible for the preparation and filing of
all reports and actions related to or based upon the books and records of the
Corporation; shall render financial statements at the annual meeting of
stockholders, if called upon so to do, or at the request of any director or the
Board of Directors; shall render to the Board of Directors such statistical
reports and analyses as the Board from time to time may require; and, in
general, shall perform all the duties incident to the office of Controller and
such other duties as from time to time may be assigned to him or her by the
Board of Directors.
The Assistant Controllers in order of their seniority shall, in the
absence or disability of the Controller, perform the duties and exercise the
powers of the Controller and shall perform such other duties as the Board of
Directors shall prescribe.
ARTICLE VII
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 7.01. EXECUTION OF CONTRACTS. Unless the Board of Directors
shall otherwise determine, the Chairman of the Board, the President, any
Executive Vice President, Senior Vice President, Vice President or the Treasurer
and the Secretary or any Assistant Secretary may enter into any contract or
execute any contract or other instrument, the execution of which is not
otherwise specifically provided for, in the name and on behalf of the
Corporation. The Board of Directors, or any committee designated thereby with
power so to act, except as otherwise provided in these By-Laws, may authorize
any other or additional officer or officers, employees or agent or agents of the
Corporation to enter into any contract or execute and deliver any instrument in
the name and on behalf of the Corporation, and such authority may be general or
confined to specific instances. Unless authorized so to do by these By-Laws or
by the Board of Directors or by any such committee, no officer, agent or
employee shall have any power or authority to bind the Corporation by any
contract or engagement or to pledge its credit or to render it liable
pecuniarily for any purpose or to any amount.
SECTION 7.02. LOANS. No loan shall be contracted on behalf of the
Corporation, and no evidence of indebtedness shall be issued, endorsed or
accepted in its name, unless authorized by the Board of Directors or any
committee designated by the Board so to act. Such authority may
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be general or confined to specific instances. When so authorized, the officer or
officers thereunto authorized may effect loans and advances at any time for the
Corporation from any bank, trust company or other institution, or from any firm,
corporation or individual, and for such loans and advances may certify or
execute, in the name of the Board of Directors and pursuant to its prior
authorizing resolution, such other resolutions as may be required by any lender,
may make, execute and deliver promissory notes or other evidences of
indebtedness of the Corporation, and, when authorized as aforesaid, as security
for the payment of any and all loans, advances, indebtedness and liabilities of
the Corporation, may mortgage, pledge, hypothecate or transfer any real or
personal property at any time owned or held by the Corporation, and to that end
execute instruments of mortgage or pledge or otherwise transfer such property.
SECTION 7.03. CHECKS, DRAFTS, ETC. All checks, drafts, bills of
exchange or other orders for the payment of money, obligations, notes, or other
evidences of indebtedness, bills of lading, warehouse receipts and insurance
certificates of the Corporation, shall be signed or endorsed by such officer or
officers, agent or agents, attorney or attorneys, employee or employees, of the
Corporation as shall from time to time be determined by resolution of the Board
of Directors or any committee designated by the Board so to act.
SECTION 7.04. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
or any committee designated by the Board so to act may from time to time
designate, or as may be designated by any officer or officers or agent or agents
of the Corporation to whom such power may be delegated by the Board of Directors
or any committee designated by the Board so to act and for the purpose of such
deposit and for the purposes of collection for the account of the Corporation,
all checks, drafts, and other orders for the payment of money which are payable
to the order of the Corporation may be endorsed, assigned and delivered by any
officer, agent or employee of the Corporation or in such other manner as may
from time to time be designated or determined by resolution of the Board of
Directors or any committee designated by the Board so to act.
SECTION 7.05. PROXIES IN RESPECT OF SECURITIES OF OTHER CORPORATIONS.
Unless otherwise provided by resolution adopted by the Board of Directors or any
committee so designated to act by the Board, the Chairman of the Board or the
President or any Executive, Senior or Vice President may from time to time
appoint an attorney or attorneys or agent or agents of the Corporation, in the
name and on behalf of the Corporation, to cast the votes which the Corporation
may be entitled to cast as the holder of stock or other securities in any other
corporation, association or trust any of whose stock or other securities may be
held by the Corporation, at meetings of the holders of the stock or other
securities of such other corporation, association or trust, or to consent in
writing, in the name of the Corporation as such holder, to any action by such
other corporation, association or trust, and may instruct the person or persons
so appointed as to the manner of casting such votes or giving such consent, and
may execute or cause to be executed in the name and on behalf of the Corporation
and under its corporate seal, or otherwise, all such written proxies or other
instruments as he or she may deem necessary or proper in the premises.
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ARTICLE VIII
BOOKS AND RECORDS
SECTION 8.01. PLACE. The books and records of the Corporation may be
kept at such places within or without the State of Delaware, as the Board of
Directors may from time to time determine. The stock record books and the blank
stock certificate books shall be kept by the Secretary or by any other officer
or agent designated by the Board of Directors.
SECTION 8.02. ADDRESSES OF STOCKHOLDERS. Each stockholder shall furnish
to the Secretary of the Corporation or to the transfer agent of the Corporation
an address at which notices of meetings and all other corporate notices may be
served upon or mailed to him or her, and if any stockholder shall fail to
designate such address, corporate notices may be served upon him or her by mail,
postage prepaid, to him or her at his or her post office address last known to
the Secretary of the Corporation or to the transfer agent of the Corporation or
by transmitting a notice thereof to him or her at such address by telephone,
facsimile, electronic mail or other available method.
SECTION 8.03. RECORD DATES. The Board of Directors may fix in advance a
date, not exceeding sixty (60) days preceding the date of any meeting of
stockholders, or the date for the payment of any dividend, or the date for the
allotment of any rights, or the date when any change or conversion or exchange
of capital stock of the Corporation shall go into effect, or a date in
connection with obtaining such consent, as a record date for the determination
of the stockholders entitled to notice of, and to vote at, any such meeting or
any adjournment thereof, or entitled to receive payment of any such dividend, or
to any such allotment of rights, or to exercise the rights in respect of any
change, conversion or exchange of capital stock of the Corporation, or to give
such consent, and in each such case such stockholders and only such stockholders
as shall be stockholders of record on the date so fixed shall be entitled to
notice of, or to vote at, such meeting and any adjournment thereof, or to
receive payment of such dividend, or to receive such allotment of rights, or to
exercise such rights or to give such consent, as the case may be,
notwithstanding any transfer of any stock on the books of the Corporation after
any such record date fixed as aforesaid.
SECTION 8.04. AUDIT OF BOOKS AND ACCOUNTS. The books and accounts of
the Corporation shall be audited at least once in each fiscal year by certified
public accountants of good standing, elected by the Board of Directors.
ARTICLE IX
SHARES AND THEIR TRANSFER
SECTION 9.01. CERTIFICATES OF STOCK. Every owner of stock of the
Corporation shall be entitled to have a certificate certifying the number of
shares owned by him or her in the Corporation and designating the class of stock
to which such shares belong, which shall
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otherwise be in such form as the Board of Directors shall prescribe. Each such
certificate shall be signed by the Chairman of the Board or the President or a
Vice President and the Treasurer or the Secretary or any Assistant Secretary of
the Corporation; provided, however, that where such certificate is signed or
countersigned by a transfer agent or registrar the signatures of such officers
of the Corporation and the seal of the Corporation may be in facsimile form. In
case any officer or officers who shall have signed, or whose facsimile signature
or signatures shall have been used on, any such certificate or certificates
shall cease to be such officer or officers of the Corporation, whether because
of death, resignation or otherwise, before such certificate or certificates
shall have been delivered by the Corporation, such certificate or certificates
may nevertheless be issued and delivered by the Corporation as though the person
or persons who signed such certificate or whose facsimile signature or
signatures shall have been used thereon had not ceased to be such officer or
officers of the Corporation.
SECTION 9.02. RECORD. A record shall be kept of the name of the person,
firm or corporation owning the stock represented by each certificate for stock
of the Corporation issued, the number of shares represented by each such
certificate, and the date thereof, and, in the case of cancellation, the date of
cancellation. The person or entity in whose name shares of stock stand on the
books of the Corporation shall be deemed the owner thereof for all purposes as
regards the Corporation.
SECTION 9.03. TRANSFER OF STOCK. Transfers of shares of the stock of
the Corporation shall be made only on the books of the Corporation by the
registered holder thereof, or by his or her attorney thereunto authorized, and
on the surrender of the certificate or certificates for such shares properly
endorsed.
SECTION 9.04. TRANSFER AGENT AND REGISTRAR; REGULATIONS. The
Corporation shall, if and whenever the Board of Directors shall so determine,
maintain one (1) or more transfer offices or agencies, each in charge of a
transfer agent designated by the Board of Directors, where the shares of the
capital stock of the Corporation shall be directly transferable, and also if and
whenever the Board of Directors shall so determine, maintain one (1) or more
registry offices, each in charge of a registrar designated by the Board of
Directors, where such shares of stock shall be registered. The Board of
Directors may make such 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 capital stock of the Corporation.
SECTION 9.05. LOST, DESTROYED OR MUTILATED CERTIFICATES. In case of the
alleged loss or destruction or the mutilation of a certificate representing
capital stock of the Corporation, a new certificate may be issued in place
thereof, in the manner and upon such terms as the Board of Directors may
prescribe.
ARTICLE X
CORPORATE SEAL
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The Board of Directors may provide a corporate seal in such form as the
Board of Directors shall determine.
ARTICLE XI
FISCAL YEAR
The fiscal year of the Corporation shall begin at the opening of
business on the Sunday nearest to the first day of January and end at the close
of business on the Saturday nearest to the thirty-first day of December in each
year, whether such Sunday or Saturday, as the case may be, falls in December or
in January.
ARTICLE XII
INDEMNIFICATION
(a) The Corporation shall indemnify, to the full extent permitted by
law, 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 or employee of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise (each such
person being referred to hereafter as an "Agent"), against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her 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, had reasonable cause to
believe that his or her conduct was unlawful.
(b) The Corporation shall indemnify, to the full extent permitted by
law, 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 an Agent against expenses (including attorneys' fees) actually and
reasonably incurred by him or her 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 opposed to the best interests of the
Corporation and except that no such 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 of
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Delaware 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 such Court of Chancery or such other court
shall deem proper.
(c) To the extent that an Agent shall be successful on the merits or
otherwise (including dismissal of an action without prejudice or the settlement
of an action without admission of liability) in defense of any action, suit or
proceeding referred to in paragraphs (a) and (b), or in defense of any claim,
issue or matter therein, he or she shall be indemnified, to the full extent
permitted by law, against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith.
(d) Any indemnification under paragraphs (a) and (b) (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 Agent is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in paragraphs (a) and (b). Such determination shall be made (1) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such a quorum is
not obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses incurred by an Agent in defending a civil or criminal
action, suit or proceeding referred to in paragraphs (a) and (b) shall be paid
by the Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such Agent to repay
such amount if it shall ultimately be determined that he or she is not entitled
to be indemnified by the Corporation as authorized in this Article XII.
Notwithstanding the foregoing, no advance shall be made by the Corporation if a
determination is reasonably and promptly made by the Board of Directors by a
majority vote of a quorum of disinterested directors, or (if such a quorum is
not obtainable or, even if obtainable, a quorum of disinterested directors so
directs) by independent legal counsel in a written opinion, that, based upon the
facts known to the Board of Directors or counsel at the time such determination
is made, such Agent acted in bad faith or in a manner that such person did not
believe to be in or not opposed to the best interest of the Corporation, or,
with respect to any criminal proceeding, that such Agent believed or had
reasonable cause to believe his or her conduct was unlawful. In no event shall
any advance be made in instances where the Board of Directors or independent
legal counsel reasonably determines that such person deliberately breached his
or her duty to the Corporation or its shareholders.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other paragraphs of this Article XII shall not be
deemed exclusive of any other rights to which those seeking indemnification and
advancement of expenses may be entitled under any agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding such
office. All rights to indemnification under this Article XII shall be deemed to
be provided by a contract between the Corporation and each Agent who serves in
such capacity at any time while this Article XII is in
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effect. Any repeal or modification of this Article XII shall not affect any
rights or obligations then existing.
(g) The Corporation may purchase and maintain insurance on behalf of
any person who is or was an Agent against any liability asserted against him or
her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the Corporation would have the power to
indemnify him or her against such liability under the provisions of this Article
XII.
(h) For purposes of this Article XII, references to "the Corporation"
shall include, in addition to the resulting or surviving corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger, so that any person who is or was a director, officer
or employee of such constituent corporation, or is or was serving at the request
of such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article XII with
respect to the resulting or surviving corporation as he or she would have with
respect to such constituent corporation if its separate existence had continued.
(i) For purposes of this Article XII, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer or employee of the Corporation which imposes
duties on, or involves services by, such director, officer or employee with
respect to an employee benefit plan, its participants, or beneficiaries; and a
person who acted in good faith and in a manner he or she reasonably believed to
be in the interests of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article XII.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article XII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be an Agent
and shall inure to the benefit of the heirs, executors and administrators of
such a person.
ARTICLE XIII
WAIVER OF NOTICE
Whenever any notice whatever is required to be given by statute, these
By-Laws or the Certificate of Incorporation, a waiver thereof in writing, signed
by the person or persons entitled to said notice, whether before or after the
time stated therein, shall be deemed equivalent thereto.
ARTICLE XIV
AMENDMENTS
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These By-Laws may be altered, amended or repealed, in whole or in part,
and new By-Laws may be adopted, in whole or in part, by the affirmative vote of
the holders of record of a majority of the outstanding stock of the Corporation
present in person or represented by proxy and entitled to vote in respect
thereof, given at an annual meeting or at any special meeting at which a quorum
shall be present, or by the affirmative vote of a majority of the whole Board of
Directors given at any meeting. Any By-Law made, altered, amended or repealed by
the Board of Directors shall be subject to alteration, amendment or repeal by
vote of stockholders as provided above.
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ASSISTANT SECRETARY'S CERTIFICATE
I, _________________________________, a duly elected Assistant
Secretary of _________________________________________, a Delaware corporation,
DO HEREBY CERTIFY that the foregoing is a true and correct copy of the By-Laws
of the Corporation, and that said By-Laws are presently in full force and effect
as of the date hereof.
IN WITNESS WHEREOF, I have hereunto set my name and affixed the
Corporate seal as of the _____ day of _______________, 19___.
_____________________________
Assistant Secretary
CORPORATE
SEAL
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Exhibit 10.1
SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT is entered into as of May 25, 1994 by and
between TEXTRON FINANCIAL CORPORATION, a Delaware Corporation ("TFC"), and
TEXTRON INC., a Delaware corporation ("Textron").
In consideration of the mutual covenants hereinafter set forth, Textron
and TFC agree as follows:
1. FIXED CHARGES COVERAGE.
Commencing with the fiscal quarter in which this Agreement is
executed and terminating with the fiscal quarter in which this
Agreement terminates, Textron shall pay TFC a cash payment
sufficient to provide that with respect to the year-to-date
period then ended the sum of TFC's pre-tax earnings before
extraordinary items plus Fixed Charges will not be less than
one hundred and twenty-five (125%) percent of TFC's Fixed
Charges. Such payment shall be made not later than the end of
the next fiscal quarter. As used herein, "Fixed Charges" shall
mean actual interest incurred in each quarter on funded or
unfunded indebtedness and apportionment of debt discount or
premium (in the testing of obligation where interest is
partially or entirely contingent upon earnings "Fixed Charges"
will include contingent interest payments).
2. OWNERSHIP OF TFC.
Textron and TFC agree that one hundred (100%) percent of the
issued and outstanding shares of common stock of TFC shall at
all times be owned by Textron or a corporation controlled by,
controlling or under common control with Textron, and that
Textron or any such corporation will at all times have a
controlling interest in TFC.
3. MINIMUM SHAREHOLDER'S EQUITY.
Commencing with the fiscal quarter in which this Agreement is
executed and terminating with the fiscal quarter in which this
Agreement terminates, Textron shall make such equity
contributions to TFC as may be required to ensure that the
consolidated shareholders equity of TFC shall not be less than
$200,000,000. Any contributions of equity required by this
Agreement shall be made not later than the end of the next
fiscal quarter. Such additional equity contributions may be in
any form of asset which is eligible for treatment as
shareholder equity in accordance with generally accepted
accounting principles.
<PAGE> 2
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4. COMPUTATIONS.
All computations under this Agreement shall be made in
accordance with generally accepted accounting principles
consistently applied, and all computations shall be made on a
consolidated basis so as to include all of TFC's consolidated
subsidiaries now or hereafter organized.
5. NO GUARANTEE OF TFC's OBLIGATIONS.
This Agreement is not intended to be and is not, and nothing
contained herein and nothing done by Textron pursuant hereto
shall be deemed to constitute, a guarantee by Textron of the
payment of the interest or principal of any obligation,
indebtedness or liability of any kind or character, however
evidenced or arising, of TFC to any person or persons.
6. THIRD-PARTY BENEFICIARIES.
Textron and TFC acknowledge and agree that this Agreement is
entered into for the benefit of and is enforceable by any
party which lends funds to TFC and their successors and
assigns.
7. DEFAULT.
Upon any default by either party hereunder and the expiration
of all applicable grace periods, the non-defaulting party
shall have all rights and remedies available under applicable
law.
8. TERMINATION, AMENDMENTS AND SUPPLEMENTS.
a. Either Textron or TFC shall have the right to
terminate this Agreement upon thirty (30) days'
written notice to the other.
b. This Agreement shall not be terminated pursuant to
Section 8(a) above or supplemented or amended
pursuant to Section 10(c) below, if TFC has any
indebtedness for money borrowed outstanding (other
than to Textron) under the terms of which such action
would constitute a default, unless the holder of such
indebtedness has consented to such action.
c. This Agreement shall continue in effect unless and
until terminated as provided above.
2
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9. NO WAIVER.
Except as specifically provided elsewhere in this Agreement,
Textron and TFC hereby waive any failure or delay on the part
of the other in asserting or enforcing any right which it may
have at any time under this Agreement.
10. MISCELLANEOUS.
a. This Agreement shall be binding upon, and shall inure
to the benefit of, the parties hereto and their
respective successors and assigns.
b. This Agreement and all rights and obligations
hereunder shall be governed by and construed and
enforced in accordance with the laws of the State of
Rhode Island.
c. This Agreement may not be amended or supplemented
except by an instrument in writing signed by the
parties. All headings herein are for convenience of
reference only and shall be disregarded in the
interpretation hereof.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed as of the day and year first above written.
Attest: TEXTRON FINANCIAL CORPORATION
/s/ Elizabeth C. Perkins By: /s/ S.J. Davis
- -------------------------------- ----------------------------------
Attest: TEXTRON INC.
/s/ Elizabeth C. Perkins By: /s/ Richard A. McWhirter
- -------------------------------- ----------------------------------
3
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EXHIBIT 10.2
RECEIVABLES PURCHASE AGREEMENT
AGREEMENT dated as of January 1, 1966 by and among TEXTRON FINANCIAL
CORPORATION, a Delaware corporation ("TFC"), TEXTRON INC., a Delaware
corporation ("TXT"), BELL HELICOPTER TEXTRON INC., a Delaware corporation
("BHT"), HR TEXTRON INC., a Delaware corporation ("HRT") and TEXTRON CANADA
LIMITED, a Canadian corporation ("TCL"). TXT and its Divisions, as well as TCL
and its Divisions, BHT and HRT are hereinafter collectively referred to as
"Textron".
TFC is a wholly-owned subsidiary of Textron Inc. which renders financial
services to Textron. Such services include, without limitation, financing of
sales and leases of Textron products by Textron and its dealers and
distributors, making unsecured loans to Textron and financing purchases or
leases by Textron. Textron, in turn, provides services and facilities to TFC
which include, without limitation, managerial and administrative assistance, a
line of credit, and undertakings to enable TFC to maintain a specified fixed
charges coverage and to take back from TFC certain overdue or uncollectible
accounts.
In consideration of the mutual covenants hereinafter set forth, TXT, TCL,
BHT, HRT and TFC agree as follows:
1. Definitions.
a. "Intercompany Account" means the account on the books of each of
Textron and TFC which shall reflect all debits and credits arising out
of transactions between Textron and TFC.
b. "Operating Memoranda" means agreements entered into by Textron and
TFC pursuant to Section 8 of this Agreement or pursuant to any Prior
Operating Agreements.
c. "Prior Operating Agreements" means the agreement originally entered
into by and between TFC, TXT, and TCL, dated as of February 17, 1977
and restated as of May 3, 1981 and subsequently restated as of January
3, 1982 and thereafter amended as of January 17, 1983, and thereafter
replaced by that certain Operating Agreement dated as of December 18,
1984.
<PAGE> 2
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2. TFC Financing Services.
a. Installment Receivables.
TFC agrees to assist Textron in connection with installment sales of
Textron products in one of two ways:
(i) Installment Receivables Generated by Textron.
TFC may purchase from Textron installment receivables generated
directly by Textron in connection with sales of its products. The
terms and conditions upon which TFC purchases such installment
receivables from Textron shall be as agreed and as reflected in
Operating Memoranda which may be entered into from time to time.
(ii) Installment Receivables Generated by TFC.
Alternatively, TFC may purchase from Textron products for resale to
customers on an installment sale basis and issue its own installment
sales contracts to customers. Again, the terms and conditions upon
which TFC purchases such products and resells them to customers shall
be as agreed and as reflected in Operating Memoranda which may be
entered into from time to time.
b. Floor Planning.
TFC agrees, at the request of Textron, to enter into floor planning
agreements with Textron dealers and distributors. Such floor planning
agreements shall be on terms and conditions agreed upon between Textron
and TFC from time to time.
c. Loans to Textron.
TFC agrees to make unsecured loans to Textron from time to time as
follows:
(i) Receivables Loans.
TFC shall make loans to Textron evidenced by demand promissory notes
or appropriate entries on the Intercompany Accounts. Such loans are
to enable Textron to finance certain equipment or accounts receivable
arising in connection with the sale or lease of its products. Each
such loan shall be equal in amount to the amount of qualified
receivables financed by such loan, or in the case of certain leases.
<PAGE> 3
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equal to the book value of the products leased. An account receivable
is "qualified" if it meets all criteria established by TFC from time to
time as reflected in appropriate Operating Memoranda.
(ii) Other Unsecured Loans.
TFC shall make such other unsecured loans to Textron as may be agreed
upon from time to time. Such loans shall be evidenced by entries in the
Intercompany Account. Each loan made under this Section 2(c) shall be
payable on demand. Each loan made under Section 2(c) shall bear
interest at the prime rate of Chase Manhattan Bank, N.A. in effect from
time to time plus a factor to be agreed upon by the parties from time
to time. Textron shall have the right to prepay all or part of any such
loans without premium or penalty.
4. Lease Financings.
TFC agrees to assist Textron in connection with the following leasing
programs.
(i) TFC Leases.
TFC may purchase Textron products and lease them to customers
identified by Textron or Textron's dealers and distributors. The terms
and conditions upon which such products shall be purchased and leased
by TFC shall be as agreed and as reflected in Operating Memoranda from
time to time.
(ii) Textron Leases.
TFC may purchase leases for Textron products which Textron or its
dealers and distributors have entered into with customers. The terms
and conditions upon which TFC will purchase such leases shall be as
agreed and as reflected in Operating Memoranda from time to time.
(iii) Miscellaneous Leases.
TFC may purchase real or personal property for lease to Textron from
time to time on such terms and conditions as may be agreed in each
case.
<PAGE> 4
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e. Vendor Loans.
At the request of Textron, TFC may make loans from time to time to
vendors or lessors of property to Textron on such terms and conditions
as shall be agreed upon in each case.
f. Other Programs.
TFC may render such additional financing services to Textron as TFC
and Textron may mutually agree upon.
3. Recourse to Textron.
a. General.
In any financing program described in Section 2, the ultimate credit
risk shall be as the parties, from time to time may mutually agree
upon in appropriate Operating Memoranda. It is contemplated that in
some financing programs, the ultimate credit risk shall rest with
Textron, in some with TFC and in some the ultimate credit risk shall
be shared between Textron and TFC. Nevertheless, in the absence of a
written agreement to the contrary, the ultimate credit risk shall rest
with Textron.
b. Full Recourse to Textron.
In any program in which the ultimate credit risk shall rest with
Textron, TFC shall at all times have the right, exercisable at its
sole discretion, to sell to Textron for an amount equal to unpaid
principal, interest, penalties, charges and expenses any account
receivable, irrespective of its form which has become overdue or
uncollectible, in whole or in part, for any reason. Textron hereby
agrees unconditionally to purchase any account tendered by TFC
pursuant to this Section 3(b). Textron's obligations under this
Section 3(b) shall not be lessened by any extension, forbearance or
variation in terms that TFC may grant in connection with any account
receivable or by discharge or release of the obligations of the
primary obligor or any other person whether by operation of law or
otherwise, or for any other reason.
c. Other Programs.
In any financing program described in Section 2, which is not subject
to Section 3(b), Textron and TFC may agree to share the ultimate
credit risk or agree that such risk shall rest with TFC. Such programs
shall be upon such terms as the parties from time to time may agree in
appropriate Operating Memoranda.
<PAGE> 5
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4. Textron Line of Credit.
Textron hereby confirms that it has made available to TFC a line of credit
pursuant to which TFC may borrow, prepay and reborrow such amounts as TFC may
advise Textron from time to time. The aggregate principal amount outstanding
under the line of credit shall not exceed $60,000,000 at any time. All
advances and repayments under the line of credit shall be evidenced by
entries in the Intercompany Account. All advances under the line of credit
shall bear interest at the prime rate of the Chase Manhattan Bank, N.A. in
effect from time to time. All amounts owed by TFC to Textron under the line
of credit shall be subordinated and junior to all indebtedness for money
borrowed which TFC owes to third parties from time to time.
5. Textron Services.
Textron agrees to make available to TFC such administrative, managerial and
support services and facilities as TFC may request from time to time on such
terms and conditions as shall be agreed upon. Such services and facilities
may include services of employees on Textron's payroll, employee benefits,
insurance, tax, legal and accounting services, office occupancy, supplies and
computer use.
6. No Guarantee of TFC's Obligations.
This Agreement is not intended to be and is not, and nothing contained herein
and nothing done by Textron pursuant hereto shall be deemed to constitute, a
guarantee by Textron of the payment of the interest or principal of any
obligation, indebtedness or liability of any kind or character and however
evidenced or arising of TFC to any person or persons.
7. No Lien.
In none of the financing programs contemplated by this Agreement do the
parties intend to create any mortgage, pledge or other lien or charge in
favor of TFC in any property or assets of Textron to secure any of Textron's
obligations to TFC.
8. Operating Memoranda.
a. Agreements between Textron and TFC as to specific terms and conditions of
any financing transaction or program may be embodied in Operating
Memoranda to be entered into, amended and terminated by the parties from
time to time.
<PAGE> 6
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b. Nothing contained herein shall modify or amend in any way
Operating Memoranda entered into pursuant to Prior Operating
Agreements, and each such Operating Memoranda is hereby
adopted and made a part of this Agreement with the same force
and effect as if executed hereunder.
9. Reporting.
Textron shall provide to TFC no later than twenty (20) days after the
end of each of Textron's monthly accounting periods, a statement
reflecting the balance of the Intercompany account.
10. Books, Responsibilities.
Each of Textron and TFC shall make clear and suitable entries and
notations on its books and records, which shall reflect all
transactions arising under this Agreement. Employees of each party and
independent certified public accountants from time to time designated
by Textron or TFC shall have the right to examine the other party's
books, records, and files relating to transactions arising under this
Agreement.
11. Indemnity.
Textron agrees to indemnify and hold TFC harmless from and against any
and all claims, liabilities, costs or expenses of whatsoever nature
asserted against TFC by any third party arising out of or in connection
with financing services rendered by TFC hereunder, provided, however,
that:
a. TFC shall notify Textron promptly of any such claim made or
suit instituted against TFC and the details thereof;
b. TFC shall not pay or compromise any such claims or suits
without the approval of Textron;
c. TFC shall, at Textron's expense, render such assistance as
Textron may deem necessary; and
d. Textron shall have the right to assume and direct the defense
of any such suit by counsel of Textron's own choosing.
The foregoing indemnity shall not apply to any matter as to which a
court of competent jurisdiction shall have adjudged that TFC acted in
bad faith or was guilty of gross negligence.
<PAGE> 7
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12. Default; Termination.
a. If at any time during the term of this Agreement, either party
shall default in fulfilling any of its covenants under this
Agreement, then upon the other party giving thirty (30) days'
written notice to the defaulting party specifying the nature
of said default and upon the expiration of said thirty (30)
day period, (i) if the defaulting party shall have failed to
cure or remedy such default, or (ii) in cases, other than
failure to make a payment when due, where the default is not
capable of being cured within the 30-day period if the
defaulting party shall not have in good faith commenced action
designed to cure such default within such period, the
non-defaulting party may, in addition to any other remedy
allowed hereunder or at law or in equity, terminate this
Agreement upon five (5) days' written notice given to the
defaulting party.
b. If at any time during the term of this Agreement there shall
be filed by or against either party a petition in bankruptcy
or insolvency or for the appointment of a receiver or trustee
of all or substantially all of its assets, and such petition
is not discharged within sixty (60) days, or if either party
makes an assignment for the benefit of creditors, this
Agreement may be terminated at the option of the other party
exercised within ten (10) days after receiving notice of the
happening of any such event.
c. If either party shall default in the payment of any portion of
principal of or interest on any loan extended to the other
hereunder when the same shall become due and payable, whether
at the due date thereof or upon demand, which default shall
continue unremedied for ten (10) days, then such party may, in
addition to any other remedy allowed hereunder or at law or in
equity, by written notice to the other declare the entire
principal amount of and accrued interest on such loan to be
forthwith due and payable, whereupon the same shall be
forthwith due and payable, without presentment, demand,
protest, or notice of any kind, all of which are hereby
expressly waived. Acceleration of any loan under this Section
12(c) may be rescinded at the option of the non-defaulting
party if the defaulting party effects a cure and pays all
amounts due with respect to such loan (other than accelerated
principal). If the non-defaulting party accepts such cure, the
default shall be deemed not to have occurred.
<PAGE> 8
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d. Upon any default by any party hereunder and the expiration of all
applicable grace periods, whether or not the other party shall have
declared the entire principal amount of any loan due and payable, the
other party shall have all rights and remedies at law or in equity.
e. In addition to all other rights of termination hereunder, either
Textron or TFC shall have the right to terminate this Agreement upon
thirty (30) days' written notice to the other, except that the
Agreement shall not terminate pursuant to this Section 12(e) if TFC
has any indebtedness for money borrowed outstanding (other than to
Textron) under the terms of which such termination would constitute a
default, unless the holder of indebtedness has consented to the
termination of this Agreement.
f. This Agreement shall continue in effect unless and until terminated as
hereinabove provided. The termination of this Agreement shall not
affect the rights or obligations of either party arising out of any
financing transaction entered into prior to the effective date of such
termination.
13. Liability Among Textron.
With respect to all obligations of Textron arising under or pursuant to
this agreement, TXT shall be liable for all such obligations and BHT, HRT
and TCL shall each be liable to the extent but only to the extent such
obligations arise from financing services provided to such entity by TFC
pursuant to this Agreement.
14. No Waiver.
Except as specifically provided elsewhere in this Agreement or in
connection with any financing transaction entered into pursuant to this
Agreement, Textron and TFC hereby waive (a) any failure or delay on the
part of the other in asserting or enforcing any right which it may have at
any time under this Agreement or in connection with such financing
transaction and (b) any notice of presentment, demand for payment, notice
of nonpayment or default, protest and notice of protest and all other
notices to which it might be entitled by law in connection with any
instrument assigned, endorsed or otherwise transferred by one party to the
other.
15. Miscellaneous.
a. This Agreement shall be binding upon, and shall inure to the benefit
of, the parties hereto and their respective successors and assigns.
<PAGE> 9
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b. This Agreement and all rights and obligations hereunder shall be
governed by and construed and enforced in accordance with the laws of
the State of Rhode Island.
c. All headings herein are for convenience of reference only and shall
be disregarded in the interpretation hereof.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the day and year first above written.
TEXTRON FINANCIAL CORPORATION
Attest:
/s/ Stephen H. Perry By: /s/ W. H. Ruskaup
- ------------------------------- ------------------------------
TEXTRON INC.
Attest:
/s/ Stephen H. Perry By: /s/ M. G. Wilkins Jr.
- ------------------------------- ------------------------------
TEXTRON CANADA LIMITED
Attest:
/s/ Stephen H. Perry By: /s/ M. G. Wilkins Jr.
- ------------------------------- ------------------------------
BELL HELICOPTER TEXTRON INC.
Attest:
/s/ Stephen H. Perry By: /s/ M. G. Wilkins Jr.
- ------------------------------- ------------------------------
HR TEXTRON INC.
Attest:
/s/ Stephen H. Perry By: /s/ illegible
- ------------------------------- ------------------------------
<PAGE> 10
AMENDMENT NO. 1
TO
RECEIVABLES PURCHASE AGREEMENT
This Amendment No. 1 is dated as of June 30, 1998 and amends the
Receivables Purchase Agreement by and between Textron Financial Corporation
(together with its subsidiaries, "TFC") and Textron Inc. (together with its
subsidiaries, "TXT").
RECITALS
A. TFC and TXT are parties to that certain Receivables Purchase
Agreement dated as of January 1, 1986 (the "Receivables Agreement").
B. The parties have agreed to amend the Receivables Agreement to provide
for an increase in the line of credit described therein.
AGREEMENT
In consideration of the mutual covenants set forth herein and/or in the
Receivables Agreement, TFC and TXT agree as follows:
1. The line of credit amount referenced in Paragraph 4 of the
Receivables Agreement shall be, and hereby is, increased to the sum of One
Hundred Million Dollars ($100,000,000.00).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
TEXTRON FINANCIAL CORPORATION
By: /s/ David Wisen
------------------------------
Title: (Illegible)
TEXTRON, INC.
By: /s/ Edward C. Arditte
------------------------------
Title: Vice President and Treasurer
<PAGE> 1
EXHIBIT 10.3
TAX SHARING AGREEMENT
THIS TAX SHARING AGREEMENT is entered as of December 29, 1990 by and
between TEXTRON INC., a Delaware corporation ("Textron") and TEXTRON FINANCIAL
CORPORATION, a Delaware corporation ("TFC"), on behalf of the TFC Group (as
hereinafter defined).
WHEREAS TFC, a wholly owned subsidiary of Textron, and the TFC Group
are members of an affiliated group of corporations of which Textron is the
common parent and are included in the Return, as hereinafter defined;
WHEREAS Textron and TFC have previously entered into a Tax Sharing
Agreement dated as of January 1, 1986; and
WHEREAS Textron and the TFC Group desire to revise the Tax Sharing
Agreement dated as of January 1, 1986 as a result of the development of TFC's
business and changes in the federal tax law.
In consideration of the foregoing premises and mutual covenants
hereinafter set forth, Textron and the TFC Group agree as follows:
(1) Definitions.
(a) For purposes of this Agreement, the terms set forth below
shall be defined as follows:
(i) Code -- The Internal Revenue Code of 1986 as amended
from time to time.
(ii) Textron Group -- Textron and all corporations
(whether now existing or hereafter formed or
acquired) that have consented or are required to join
with Textron (or any successor common parent
corporation) in filing the Return, as defined below.
(iii) TFC Group -- TFC and all corporations (whether now
existing or hereafter formed or acquired) that could
consent or would be required to join with TFC (or any
<PAGE> 2
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successor common parent corporation) in filing a
consolidated U.S. corporation income tax return, if
TFC was not then a member of the Textron Group.
(iv) Textron Allocation Group -- All members of the
Textron Group other than members of the TFC Group.
(v) The Return -- The consolidated U.S. corporation
income tax return filed by Textron pursuant to
Section 1501 of the Code.
(vi) Consolidated U.S. Tax Liability -- All taxes shown
on the Return, or as revised by administrative or
judicial determination or redetermination. For
purposes of this definition "taxes" means the
corporate income tax imposed by Section 11 of the
Code, the alternative minimum tax imposed by Section
55 of the Code and the environmental tax imposed by
Section 59A of the Code, any successor provision to
any of these sections and any other similar U.S.
federal taxes which may be imposed by the Code in
future years, as reduced by the credits allowed by
Sections 27 through 29, Section 34 and Sections 38
through 42 and increased by any tax from recomputing
prior year's Investment Tax Credit ("ITC") and any
other similar credit or recomputation amounts allowed
or imposed by the Code.
(vii) Taxes Payable -- The Consolidated U.S. Tax Liability
together with all penalties assessed thereon.
(viii) Intercompany Account -- The account on the books of
each of Textron and TFC which shall reflect all
debits and credits arising out of transactions
between the Textron Allocation Group and the TFC
Group.
(b) Other terms used in this Agreement shall have the meanings
ascribed to them in the Code, and the regulations and
<PAGE> 3
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rulings issued thereunder, as from time to time in effect. Except as
otherwise provided herein, this Agreement shall be interpreted in
accordance with the Code and the regulations and rulings issued
thereunder then in effect.
(2) Effective Date and Other Agreements.
(a) This Agreement is applicable for all taxable years beginning after
December 29, 1990.
(b) This Agreement shall constitute the entire agreement between Textron
and the TFC Group concerning the subject matter hereof and shall
supersede any prior agreements and understandings between Textron and
the TFC Group concerning the subject matter hereof for taxable years
beginning after the date of this Agreement, and specifically
supersedes Article 7 of the Restated Operating Agreement by and among
TFC, Textron and Textron Canada Limited ("TCL") dated as of May 3,
1981 (the "R.S.O.") and, except for the October 1, 1986 Supplemental
Memorandum, the Tax Sharing Agreement between TFC and Textron dated as
of January 1, 1986.
(c) This Agreement shall not supersede or amend (i) any Articles of the
R.S.O. other than Article 7; (ii) the agreements between Textron FSC
Inc., a U.S. Virgin Islands corporations, and TFC, Textron Capital
Corporation and Textron Pacific Inc. each dated as of January 4, 1988;
(iii) the Supplemental Memorandum dated as of January 1, 1986 between
Avco Corporation and Textron Capital Corporation, which shall remain
in full force and effect and is made a part hereof by reference; or
(iv) any other agreement and understanding concerning tax sharing or
tax matters for taxable years beginning before the date of this
Agreement, between Textron and the TFC Group.
(d) This Agreement shall not supersede any other agreements and
understandings concerning other subject matters, including, but not
limited to, the tax related matters covered by the
<PAGE> 4
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Receivables Purchase Agreement by and among TFC, Textron, Bell
Helicopter Textron Inc., H.R. Textron Inc. and TCL dated as of January
1, 1986 and the Support Agreement between TFC and Textron entered into
as of October 15, 1985.
(3) Matters Concerning the Return.
(a) Agreement to file Returns. Until this Agreement is terminated as
provided in Section 6 hereof, each member of the TFC Group has consented
and agrees to join with Textron in filing the Return for each taxable
year.
(b) Filing the Return. Textron shall file the Return for each taxable year
in accordance with Treas. Reg. promulgated, from time to time, under
Section 1502 of the Code.
(c) Payment of Taxes Payable. Textron shall pay the Taxes Payable for each
taxable year in accordance with Treas. Reg. promulgated, from time to
time, under Section 1502 of the Code.
(d) Decisions and Actions Incidental to Filing the Return. The TFC Group
irrevocably appoints Textron to be its sole agent, duly authorized to
act in its own name in all matters relating to the Taxes Payable
(including any refunds thereof) for each taxable year and agrees that
Textron shall make any and all decisions and take any and all actions
incidental to filing the Return for each taxable year, including, but
not limited to, preparing the Return, making elections under the Code
and settling or litigating disputes with the Internal Revenue Service.
This authorization does not extend to the consents, elections and
changes referenced in the parenthetical contained in the first sentence
of Treas. Reg. 1.1502-77(a). TFC agrees to (i) furnish Textron with any
and all information requested by Textron in order to carry out the
provisions of this Agreement, (ii) cooperate with Textron in filing any
Return, statement, election, or
<PAGE> 5
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consent provided for in the Code, regulations and rulings issued
thereunder as from time to time in effect, (iii) take such action as
Textron may request, including, but not limited to, the filing of
requests for the extension of time within which to file Returns, and
(iv) cooperate in connection with any refund claim, audit,
administrative, judicial or other proceeding.
(4) Earnings and Profits and Tax Sharing.
(a) Earnings and Profits
For the purpose of determining earnings and profits of each member of
the Textron Group, Textron has elected for and on behalf of the Textron
Group to allocate the Consolidated U.S. Tax Liability pursuant to the
methods prescribed in Treas.Reg. Section 1.1552-1(a)(2) ("basic
method") and Treas.Reg. Section 1.1502-33(d)(2)(ii) ("complementary
method"). Nothing in this Agreement shall be construed to affect the
allocation of tax required pursuant to these elections for the purpose
of determining the earnings and profits of the members of the Textron
Group.
(b) Tax Sharing
For the purpose of allocating the Taxes Payable under this agreement, a
"separate return tax liability" shall be determined for the TFC Group
and the Textron Allocation Group, by applying the following principles:
(i) "separate return taxable income" adjusted as provided in Treas.
Reg. 1.1552-1(a)(2)(ii) shall be multiplied by the maximum tax
rates applicable in determining Tax Payable;
(ii) the tax benefit of losses using the rates in Section 4(b)(i),
Foreign Tax Credits ("FTC"), General Business Credits ("GBC") and
any other tax credits utilized (pursuant to either the regular tax
or the alternative minimum tax ("AMT") system, as applicable) in
computing
<PAGE> 6
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Taxes Payable shall be a reduction (or increase in the case of any ITC
recomputation) or create a refund amount to the extent such individual
items are allocable to the TFC Group or the Textron Allocation Group
based upon each group's contribution to such item;
(iii) AMT and Environmental Tax (ET) shall be allocated to the TFC Group and
the Textron Allocation Group in the ratio of each group's AMT or ET
determined as if each group filed a separate U.S. corporation income
tax return to the total AMT and ET shown on the Return; provided,
however, that if the sum of such separate AMT and ET are less than the
AMT and ET included in Taxes Payable then the difference between AMT or
ET included in Taxes Payable and the sum of each group's separate AMT
or ET shall be allocated to each group in the ratio of each group's Tax
Preferences and other adjustments used in computing the AMT and ET
included in Taxes Payable; and, provided further, that neither Group
shall be allocated an AMT or ET greater than the AMT or ET included in
Taxes Payable;
(iv) any penalty included in Taxes Payable shall be allocated to the TFC
Group to the extent it would have been liable for such penalty had it
filed a U.S. corporation income tax return reflecting "separate return
tax liability" determined hereunder.
(c) Reimbursement of Taxes Payable
TFC shall reimburse Textron for the net amount of the Taxes Payable for
any taxable year, allocated to the TFC Group under paragraphs 4(b)(i)
through (iv) hereof before the end of the calendar month in which Textron
makes any payments of Taxes Payable under paragraph 3 (c) hereof;
<PAGE> 7
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(d) Reimbursement For Reduction of Tax Payable
Textron shall reimburse TFC for any net reduction in Taxes Payable for any
taxable year credited to TFC under paragraph 4(b)(i) through (iv) hereof
before the end of the calendar month in which Textron makes any payments,
or would have made payments, of Taxes Payable, under paragraph 3(c) hereof,
if TFC were not a member of the Textron Group;
(e) Changes in Taxes Payable
The allocations and reimbursements described in paragraph 4(b) through (d)
above shall be recomputed for any taxable year in which there is a (A) a
carryback or carryforward of net operating losses, capital losses, ITC, FTC
or other tax credits to such taxable year; (B) a revision, adjustment or
redetermination of any administrative or judicial determination; (C) a
filing of an amended return; or (D) a filing of a claim for refund. The
changes attributable to the TFC Group in the Taxes Payable so recomputed
shall be reimbursed by Textron or TFC, as the case may be, within thirty
days of the date the deficiency is paid or the refund is received by
Textron;
(f) Exception Concerning Alternative Minimum Tax
The allocation and reimbursements described in paragraph 4(b)(i) through
(e) above shall be computed without allowing the TFC Group the benefit of
any minimum tax credit allowable under Section 53(b) of the Code
attributable to AMT incurred by the Textron Group before the effective date
of this Agreement and not borne by the TFC Group;
(g) State Income Taxes
In the event one or more members of the TFC Group are included in a
combined, joint, consolidated, unitary or similar state income or franchise
tax return with any other member of the Textron Group, the member of the
Textron
<PAGE> 8
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Group and the appropriate member of the TFC Group shall file such
returns, pay the taxes, make reimbursements and make decisions and
take actions incidental to the filing of any such returns on a
state-by-state basis in a manner consistent with the approach provided
by paragraphs 3(a) through (d) and 4(a) through (e) hereof; and
(h) Computation and Recording of Tax Reimbursements
Computations of the tax reimbursements of Textron or the TFC Group as
hereinabove described shall be made quarterly by the Textron Tax
Department at its corporate offices. Such computations shall be made
from the information used, and in accordance with, the usual
procedures followed by the Textron Tax Department in determining the
quarterly estimated Taxes Payable and quarterly estimated state income
and franchise tax liabilities. When the Return and the state income or
franchise tax returns (if applicable) for each year have been filed by
Textron, the Textron Tax Department shall recompute the actual tax
reimbursements based on the Taxes Payable and the state income and
franchise taxes payable. The quarterly reimbursements, the
reimbursement based on the Return and the state income or franchise
tax returns as filed and any reimbursements due to redeterminations
shall be paid by Textron or TFC, as the case may be, before the end of
the calendar month in which the quarterly tax payments are due, such
returns are filed, the deficiency is paid or the refund is received.
5) Deferred Manufacturing Profit.
Textron shall loan TFC interest free an amount not to exceed the deferred
income tax liability of the Textron Allocation Group attributable to the
manufacturing profit deferred on products manufactured by the Textron
Allocation Group and financed by the TFC Group. The loans shall be evidenced by
entries in the Intercompany Account.
<PAGE> 9
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6) Books.
The Textron Allocation Group and the TFC Group shall make clear and suitable
entries and notations on their books and records, which shall reflect all
transactions arising under this Agreement. Employees of Textron and the TFC
Group and independent certified public accountants from time to time designated
by Textron or TFC shall have the right to examine the other party's books,
records, and files relating to transactions arising under this Agreement.
7) Termination.
(a) This Agreement shall continue in effect unless and until TFC ceases to be
a member of the Textron Group, at which time it will terminate.
(b) If any corporation which has been a member of the TFC Group ceases to be
a member of the TFC Group, this Agreement shall not apply to any income,
loss, deductions or credits of that corporation generated after it ceases
to be a member of the TFC Group.
(c) The termination of this Agreement as provided in (a) or (b) above shall
not affect the rights or obligations of either party arising out of any
income, loss, deductions or credits generated prior to the effective date
of such termination, including, but not limited to, rights or obligations
recorded in the Intercompany Account or as a loan between the parties.
8) Waiver.
Except as specifically provided elsewhere in this Agreement, Textron and TFC
hereby waive (a) any failure or delay on the part of the other in asserting or
enforcing any right which it may have at any time under this Agreement and (b)
any notice of presentment, demand for payment, notice of nonpayment or default,
protest and notice of protest and all other notices to which it might be
entitled by law in connection with any obligation of one party to the other.
\fds/460.fds
<PAGE> 10
-10-
9) Miscellaneous.
(a) This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their respective successors
and assigns.
(b) This Agreement and all rights and obligations hereunder shall
be governed by and construed and enforced in accordance with
the laws of the State of Rhode Island.
(c) This Agreement may not be amended or supplemented except by an
instrument in writing signed by the parties.
(d) All headings herein are for convenience of reference only and
shall be disregarded in the interpretation hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on this 16th day of September, 1991.
TEXTRON FINANCIAL CORPORATION
By: /s/ D. A. Fahlbeck
___________________________________
Title: Senior Vice President and
Chief Financial Officer
TEXTRON INC.
By: /s/ G. E. Hudson
___________________________________
Title: Vice President, Taxes
<PAGE> 1
EXHIBIT 12.1
TEXTRON FINANCIAL CORPORATION
STATEMENT SETTING FORTH COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
In Thousands
Six months
ended
June 30,
1998 1997 1996 1995 1994 1999
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------
Income before Income Taxes 112,626 108,079 95,724 88,600 83,110 56,105
---------------------------------------------------------------------------
FIXED CHARGES:
Interest on debt 155,126 153,127 146,615 146,649 114,842 85,467
Estimated interest portion of rents 817 680 670 699
1,198 879
---------------------------------------------------------------------------
Total fixed charges 156,324 154,006 147,432 147,329 115,512 86,166
---------------------------------------------------------------------------
Adjusted Income 268,950 262,085 243,156 235,929 198,622 142,271
Ratio of earnings to fixed charges (1) 1.72 1.70 1.65 1.60 1.72 1.65
</TABLE>
(1) The ratio of earnings to fixed charges has been computed by dividing income
before income taxes and fixed charges by fixed charges. Fixed charges
consist of interest on debt and one-third rental expense as representative
of interest portion of rentals
