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United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the year ended December 31, 1994
MCDONNELL DOUGLAS FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-2564584 0-10795
(State or other (I.R.S. Employer (Commission File No.)
jurisdiction of Identification No.)
Incorporation or
Organization)
4060 Lakewood Boulevard, 6th Floor - Long Beach, California 90808-1700
(Address of principal executive offices)
(310) 627-3000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $100 per share
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. __X__
As of March 30, 1995, there were 50,000 shares of the Company's common stock
outstanding.
Registrant meets the conditions set forth in General Instruction J(1)(a) and
(b) of Form 10-K and is therefore filing this Form with the reduced disclosure
format.
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Table of Contents
Page
Part I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . 17
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . 18
Item 4. Submission of Matters to a Vote of Security Holders *
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . 18
Item 6. Selected Financial Data . . . . . . . . . . . . . . . 18
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 22
Item 8. Financial Statements and Supplementary Data . . . . . 24
Item 9. Changes in and Disagreements with Accountants on
Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . 48
Part III
Item 10. Directors and Executive Officers of the Registrant *
Item 11. Executive Compensation *
Item 12. Security Ownership of Certain Beneficial Owners and Management *
Item 13. Certain Relationships and Related Transactions *
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . 48
Signatures . . . . . . . . . . . . . . . . . . . . . 51
Exhibits . . . . . . . . . . . . . . . . . . . . . . 52
*Omitted pursuant to General Instruction J(1)(a) and (b) of Form 10-K.
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Part I
Item 1. Business
General
McDonnell Douglas Finance Corporation (together with its subsidiaries the
"Company") is a wholly-owned subsidiary of McDonnell Douglas Financial
Services Corporation ("MDFS"), a wholly-owned subsidiary of McDonnell Douglas
Corporation ("MDC"). The Company was incorporated in Delaware in 1968 and
originally financed only MDC manufactured commercial jet transport aircraft.
While this continues to represent a significant portion of the Company's
business, the Company also provides a diversified range of financing including
loans, finance leases and operating leases, primarily involving equipment for
commercial and industrial customers. At December 31, 1994, the Company had 88
employees.
In 1990, the Company commenced a program to focus its new business efforts
within its two core business units, commercial aircraft financing and
commercial equipment leasing ("CEL"), businesses in which the Company
historically has achieved satisfactory returns. For the five years ended
1994, the core businesses earned $175.0 million or 139% of the total net
earnings of the Company, excluding the 1989 cumulative effect of a change in
accounting principle.
The Company now operates in three segments: commercial aircraft financing,
CEL, and non-core businesses. Non-core businesses represent market segments
in which the Company is no longer active. The non-core businesses consist
primarily of the remaining assets of two business units: receivable inventory
financing ("RIF") and real estate financing ("RE"). Since 1991, the Company
has been liquidating or selling the assets of its non-core businesses and is
actively managing the remaining non-core businesses portfolio with a view
toward liquidation over time.
Information on the Company's new business volume and portfolio balances is
included in the following tables.
New Business Volume
Years ended December 31,
(Dollars in millions) 1994 1993 1992 1991 1990
Commercial aircraft $117.9 $ 411.4 $ 153.2 $ 100.9 $155.4
financing
Commercial equipment 84.1 41.5 50.7 91.8 189.1
leasing
Non-core businesses - 0.1 2.6 38.6 416.8
$202.0 $ 453.0 $ 206.5 $ 231.3 $761.3
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Portfolio Balances
December 31,
(Dollars in millions) 1994 1993 1992 1991 1990
Commercial aircraft $ 1,333.0 $1,237.5 $1,001.1 $ 907.8 $1,048.1
financing
Commercial equipment 369.4 422.3 557.4 668.9 965.1
leasing
Non-core businesses 113.9 173.7 227.9 595.6 1,245.9
$ 1,816.3 $1,833.5 $1,786.4 $2,172.3 $3,259.1
For financial information about the Company's segments, see Notes to
Consolidated Financial Statements included in Item 8.
Commercial Aircraft Financing Segment
The Company's commercial aircraft financing group, located in Long Beach,
California, finances the acquisition of MDC aircraft by purchasing such
aircraft subject to lease to airlines and by providing secured and unsecured
notes receivable financing in connection with the acquisition of such
aircraft. Additionally, this group assists MDC's own aircraft financing group
with respect to financing of some of MDC's aircraft by others. Beginning in
1986, the Company began providing financing primarily to regional airlines for
aircraft manufactured by manufacturers other than MDC, but a substantial
majority of the commercial aircraft portfolio is comprised of aircraft
manufactured by MDC.
Portfolio balances for the Company's commercial aircraft financing segment are
summarized as follows:
Commercial Aircraft Portfolio by Aircraft Type
December 31,
(Dollars in millions) 1994 1993 1992 1991 1990
MDC aircraft financing:
Finance leases $ 748.2 $ 732.3 $ 506.2 $ 465.6 $ 604.7
Operating leases 197.8 176.9 93.7 30.0 15.6
Notes receivable 194.8 125.9 169.4 107.4 66.6
1,140.8 1,035.1 769.3 603.0 686.9
Other commercial aircraft financing:
Finance leases 125.2 123.0 149.9 214.6 265.0
Operating leases 43.1 55.9 57.6 62.3 52.2
Notes receivable 23.9 23.5 24.3 27.9 44.0
192.2 202.4 231.8 304.8 361.2
$1,333.0 $ 1,237.5 $ 1,001.1 $ 907.8 $1,048.1
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Commercial Aircraft Portfolio by Product Type
December 31,
(Dollars in millions) 1994 1993 1992 1991 1990
Aircraft leases:
Finance leases
Domestic $ 653.3 $ 638.9 $ 601.5 $609.2 $ 798.2
Foreign 220.1 216.5 54.6 70.9 71.5
Operating leases
Domestic 161.9 149.7 111.4 81.5 56.9
Foreign 79.0 83.0 39.9 10.9 10.9
1,114.3 1,088.1 807.4 772.5 937.5
Aircraft related notes receivable:
Domestic obligors 53.4 51.4 88.0 61.6 33.9
Foreign obligors 165.3 98.0 105.7 73.7 76.7
218.7 149.4 193.7 135.3 110.6
$ 1,333.0 $ 1,237.5 $ 1,001.1 $907.8 $ 1,048.1
At December 31, 1994, the Company's commercial aircraft portfolio was
comprised of finance leases to 24 customers (21 domestic and three foreign)
with a carrying amount of $873.4 million (48.1% of total Company portfolio),
notes receivable from ten customers (three domestic and seven foreign) with a
carrying amount of $218.7 million (12.0% of total Company portfolio) and
operating leases to nine customers (seven domestic and two foreign) with a
carrying amount of $240.9 million (13.3% of total Company portfolio).
At December 31, 1994, 62.8% of the Company's total portfolio consisted of
financings related to MDC aircraft, compared with 56.5% and 43.1% in 1993 and
1992.
- Factors Affecting the Commercial Aircraft Financing Portfolio
A substantial portion of the Company's aircraft financings are to airlines
which either have recently emerged from bankruptcy or are in poor financial
health. The Company's first and third largest customers, Trans World
Airlines, Inc. ("TWA") and Continental Airlines, Inc. and its affiliated
companies ("Continental"), emerged from bankruptcy in 1993. Company
financings to TWA accounted for $287.9 million (15.9% of total Company
portfolio) and $253.2 million (13.8% of total Company portfolio) at
December 31, 1994 and 1993. TWA has been negotiating deferrals of rent and
other payments with its lessors and other creditors (including the Company
and MDC) and has not made payments to the Company since September 27, 1994.
The Company and TWA are presently negotiating terms under which the Company
would be paid amounts due from TWA aggregating $29.1 million, deferred from
the period October 1, 1994 through March 31, 1995. No assurance can be
given that TWA and the Company will execute such an agreement. TWA's need
for payment deferrals from its aircraft financiers resulted from its
reactively weak financial condition and, accordingly, no assurance can be
given that TWA would be able to perform its obligations under the
contemplated deferral agreement. TWA has publicly stated that it may be
necessary to file again for bankruptcy protection if it cannot reach
agreement with its creditors. In that event, if TWA were to reject a
substantial number of the aircraft presently leased by the Company and if
the Company could not promptly re-lease such aircraft at comparable lease
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rates, the Company's earnings could suffer a material adverse impact.
Company financings to Continental are current and accounted for $107.4
million (5.9% of total Company portfolio) and $116.5 million (6.4% of total
Company portfolio) at December 31, 1994 and 1993. Pursuant to the terms of
supplemental guaranties executed by MDC in favor of the Company, up to an
additional $25.0 million of the Company's financings to TWA and up to an
additional $15.0 million of the Company's financings to Continental are
guaranteed by MDC. These guaranties supplement individual guaranties
provided by MDC with respect to certain of the Company's financings to TWA
and Continental to the extent that the estimated fair market value of the
financings (after applying the individual guaranties) is less than the net
asset value of the financings on the Company's books. The supplemental
guaranties terminate in March 1996, but may be extended under certain
limited circumstances. (See "Aircraft Financing Guaranties.")
A substantial portion of the Company's total portfolio is concentrated among
a small number of the Company's largest commercial aircraft financing
customers. The Company's second largest customer, P. T. Garuda Indonesia,
accounted for $186.4 million (10.3% of the total Company portfolio) and
$181.0 million (9.9% of total Company portfolio) at December 31, 1994 and
1993. The five largest commercial aircraft financing customers accounted
for $748.6 million (41.2% of total Company portfolio) and $718.5 million
(39.2% of Company total portfolio) at December 31, 1994 and 1993.
- Current Commercial Aircraft Market Conditions
The current severe economic downturn within the airline industry has
diminished significantly the demand for new and used aircraft, with some
airlines defaulting on contracts for firm orders or postponing orders with
the manufacturer while also disposing of or grounding a portion of their
fleets. This has resulted in an oversupply of aircraft in the market, which
has adversely affected the values of some of the Company's aircraft. It is
not clear whether this decline in aircraft values will continue. Despite
the erosion of aircraft values, the Company believes that the value of
realizable sales prices at the end of the lease terms for substantially all
the aircraft the Company has leased exceeds the book value projected at the
end of the lease terms. A substantial portion of the Company's total
portfolio is concentrated among a small number of the Company's commercial
aircraft finance customers. Repossession of aircraft in the currently
depressed aircraft market could have an adverse affect on future earnings.
In addition, if aircraft values remain depressed or continue to decline and
the Company is required as a result of customer defaults to repossess a
substantial number of aircraft prior to the expiration of the related lease
or financing, the Company could incur substantial losses in remarketing the
aircraft, which could have a material adverse effect on the financial
condition of the Company. In this regard, the Company's financial
performance is dependent in part upon general economic conditions which may
affect the profitability of the commercial airlines with which the Company
does business.
- Aircraft Leasing
The Company normally purchases commercial aircraft for lease to airlines
only when such aircraft are subject to a signed lease contract. At
December 31, 1994, the Company owned or participated in the ownership of 117
leased commercial aircraft, including 66 that were manufactured by MDC.
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- Factors Affecting Aircraft Financing Volume
As in the past, the Company anticipates continued fluctuations in the volume
of its aircraft financing transactions. Current market conditions may limit
many airlines' ability to access financing and present more opportunities to
the Company. The Company had commitments to provide aircraft related
financing of $10.8 million and $38.5 million at December 31, 1994 and 1993.
(See "Competition and Economic Factors.")
The following lists information on new business volume for the Company's
commercial aircraft financing segment:
Years ended December 31,
(Dollars in millions) 1994 1993 1992 1991 1990
MDC aircraft financing
volume:
Finance leases $53.0 $357.3 $ 95.0 $ 19.2 $ 29.7
Operating leases 15.7 33.8 53.5 30.0 -
Notes receivable 41.3 19.1 4.7 21.5 -
110.0 410.2 153.2 70.7 29.7
Other commercial aircraft financing volume:
Finance leases 7.9 - - 23.9 69.3
Operating leases - 0.7 - 6.3 21.0
Notes receivable - 0.5 - - 35.4
7.9 1.2 - 30.2 125.7
$ 117.9 $ 411.4 $ 153.2 $ 100.9 $155.4
- Aircraft Financing Guaranties
At December 31, 1994, the Company had $337.8 million of guaranties with
respect to its commercial aircraft financing portfolio relating to
transactions with a carrying value of $1,333.0 million (25.3% of the
commercial aircraft financing portfolio). The following table summarizes
such guaranties:
Domestic Foreign
(Dollars in millions) Airlines Airlines Total
Amounts guaranteed by:
MDC $ 116.6 $ 165.2 $ 281.8
Foreign governments - 15.6 15.6
Other 26.9 13.5 40.4
Total guaranties $ 143.5 $ 194.3 $ 337.8
The Company has no reason to believe that any such guaranteed amounts will
be ultimately unenforceable or uncollectible. See "Relationship With MDC."
Commercial Equipment Leasing Segment
CEL provides single-investor, tax-oriented lease financing as its primary
product. CEL, which maintains its principal operations in Long Beach,
California and has marketing offices in Chicago, Illinois and Detroit,
Michigan, obtains its business primarily through direct solicitation by its
marketing personnel. CEL specializes in leasing equipment such as over-the-
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road transportation equipment, executive aircraft, machine tools, shipping
containers, printing equipment, textile manufacturing equipment and other
types of equipment which it believes will maintain strong collateral and
residual values. The lease term is generally between three and ten years and
transaction sizes usually range between $2.0 million and $10.0 million. In
addition to financing transactions for the Company, CEL also arranges third
party financings of equipment.
Portfolio balances for the Company's CEL segment are summarized as follows:
December 31,
(Dollars in millions) 1994 1993 1992 1991 1990
Finance leases $ 216.8 $ 235.2 $ 325.9 $ 425.9 $ 655.8
Operating leases 133.4 157.5 179.9 198.7 244.8
Notes receivable 18.5 28.8 50.7 41.5 59.4
Preferred and preference 0.7 0.8 0.9 2.8 5.1
stock
$ 369.4 $ 422.3 $ 557.4 $ 668.9 $ 965.1
- Factors Affecting CEL Volume
As the Company's borrowing costs have declined in 1993 and 1994, CEL's
ability to compete more effectively has increased significantly. In 1994,
CEL booked $84.1 million of new business volume, more than doubling that of
1993. Additionally, at year end, CEL's backlog of business was $83.6
million, surpassing the 1993 backlog of $4.6 million.
The following lists information on new business volume for the Company's CEL
segment:
Years ended December 31,
(Dollars in millions) 1994 1993 1992 1991 1990
Finance leases $ 53.9 $ 15.3 $ 24.9 $ 55.6 $109.4
Operating leases 24.3 22.9 18.2 30.3 73.2
Notes receivable 5.9 3.3 7.6 5.9 6.5
$ 84.1 $ 41.5 $ 50.7 $ 91.8 $189.1
Non-Core Businesses Segment
Since 1991, the Company has been liquidating or selling the assets of its non-
core businesses. In December 1994, the Company sold substantially all of its
assets held by McDonnell Douglas Bank Limited ("MD Bank"), a United Kingdom
company and former wholly-owned subsidiary of the Company, at approximately
book value. The non-core businesses consist primarily of two business units,
RIF and RE.
- Receivable Inventory Financing
RIF finances dealers of rent-to-own products such as home appliances,
electronics and furniture through note arrangements secured by the products
and the rental amounts to be collected. RIF ceased pursuing new business
during 1991, but continues to manage its existing portfolio of $20.8
million.
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- Real Estate Financing
RE previously specialized in fixed-rate, medium-term loans secured by a
first deed-of-trust or mortgage on commercial real estate properties such as
office buildings and small shopping centers. RE ceased originating new
transactions in 1990, but continues to manage its current portfolio.
At December 31, 1994, the largest concentration of the Company's real estate
assets was in the Western region of the United States, representing $53.5
million or 53.5% of the Company's real estate holdings. At December 31,
1994, the Company had $28.8 million or 28.8% of its real estate holdings in
Southern California, where values continue to remain depressed. Office
buildings, which represent the largest real estate holding, totaled $41.3
million at December 31, 1994. At December 31, 1994 and 1993, real estate
owned through foreclosure totaled $10.6 million and $12.9 million.
Portfolio balances for the Company's non-core businesses segment are
summarized as follows:
December 31,
(Dollars in millions) 1994 1993 1992 1991 1990
Finance leases $ - $ 2.2 $ 11.8 $ 174.1 $ 587.2
Operating leases - 0.6 1.7 121.1 181.6
Notes receivable 113.9 170.9 214.4 300.4 477.1
$ 113.9 $ 173.7 $ 227.9 $ 595.6 $ 1,245.9
Cross-Border Outstandings
The extension of credit to borrowers located outside of the United States is
called "cross-border" credit. In addition to the credit risk associated with
any borrower, these particular credits are also subject to "country risk" -
economic and political risk factors specific to the country of the borrower
which may make the borrower unable or unwilling to pay principal and interest
or otherwise perform according to contractual terms. Other risks associated
with these credits include the possibility of insufficient foreign exchange
and restrictions on its availability. To minimize country risk, the Company
monitors its foreign credits in each country with specific consideration given
to maturity, currency, industry and geographic concentration of the credits.
The Company has relatively small local currency outstandings to the individual
countries listed in the following table that are not hedged or are not funded
by local currency borrowings.
The countries in which the Company's cross border outstandings exceeded 1% of
consolidated assets consist of the following at December 31:
(Dollars in millions)
Country December 31,
Finance Notes Operating
1994 Leases Receivable Leases Guaranties Total
Indonesia $ 144.8 $ - $ - $ - $144.8
Japan - 35.1 - - 35.1
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Mexico 21.4 23.9 - 45.3
$ 166.2 $ 35.1 $ 23.9 $ - $225.2
1993
Indonesia $ 154.8 $ - $ - $ - $ 154.8
Mexico 23.0 - 23.6 - 46.6
United Kingdom 14.3 23.0 - - 37.3
$ 192.1 $ 23.0 $ 23.6 $ - $ 238.7
December 31,
Finance Notes Operating
1992 Leases Receivable Leases Guaranties Total
Canada $ 12.7 $ 5.7 $ 0.3 $ 3.5 $22.2
Mexico 24.3 - 26.5 - 50.8
United Kingdom 23.9 42.7 0.4 - 67.0
$ 60.9 $ 48.4 $ 27.2 $ 3.5 $140.0
As of December 31, 1993, the Company had equipment in the Netherlands under an
operating lease agreement with a net carrying amount of $18.0 million,
representing outstandings between 0.75% and 1% of the Company's total assets.
As of December 31, 1994 and 1992, there were no countries whose outstandings
were between 0.75% and 1% of the Company's total assets.
Maturities and Sensitivity to Interest Rate Changes
The following table shows the maturity distribution and sensitivity to changes
in interest rates of the Company's domestic and foreign financing receivables
at December 31, 1994:
(Dollars in millions)
Maturity Distribution Domestic Foreign Total
1995 $ 267.3 $ 73.5 $ 340.8
1996 177.2 38.6 215.8
1997 145.4 41.2 186.6
1998 135.3 33.9 169.2
1999 128.9 28.8 157.7
2000 and thereafter 495.6 250.4 746.0
$ 1,349.7 $ 466.4 $ 1,816.1
Financing Receivables Due 1996 and Thereafter
Fixed interest rates $ 1,046.1 $ 78.9 $ 1,125.0
Variable interest rates 36.3 314.0 350.3
$ 1,082.4 $ 392.9 $ 1,475.3
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Allowance for Losses on Financing Receivables and Credit Loss Experience
Analysis of Allowance for Losses on Financing Receivables
December 31,
(Dollars in millions) 1994 1993 1992 1991 1990
Allowance for losses on financing
receivables at beginning of year $35.6 $37.4 $46.7 $61.6 $46.9
Provision for losses 9.9 8.6 19.1 47.2 57.3
Write-offs, net of recoveries (4.9) (10.4) (27.4) (56.7) (44.1)
Other 0.1 - (1.0) (5.4) 1.5
Allowance for losses on financing
receivables at end of year $40.7 $35.6 $37.4 $46.7 $61.6
Allowance as percent of total portfolio 2.2% 1.9% 2.1% 2.2% 1.9%
Net write-offs as percent of
average portfolio 0.3% 0.6% 1.4% 2.0% 1.4%
More than 90 days delinquent:
Amount of delinquent installments $2.8 $ 3.7 $4.6 $19.0 $ 5.2
Total receivables due from delinquent
obligors $43.2 108.4$ $10.5 $42.8 $42.1
Total receivables due from delinquent
obligors as a percentage of total
portfolio 2.4% 5.9% 0.6% 2.0% 1.3%
The portfolio at December 31, 1994 includes nine CEL obligors and three
airline obligors to which payment extensions have been granted. At
December 31, 1994, payments so extended amounted to $21.7 million ($15.6
million airline-related), and the aggregate carrying amount of the related
receivables was $434.7 million ($400.6 million airline-related).
Receivable Write-offs, Net of Recoveries by Business Unit
The following table summarizes the loss experience for each of the business
units:
Years ended % of Respective
December 31, Average Portfolio
(Dollars in millions) 1994 1993 1994 1993
Commercial aircraft financing $ (1.9) $ (1.5) (0.14)% (0.15)%
Commercial equipment leasing 2.5 3.9 0.66 0.80
Non-core businesses 4.3 8.0 2.94 4.06
$ 4.9 $ 10.4
In its analysis of the allowance for losses on financing receivables, the
Company has taken into consideration the current economic and market
conditions and provided $9.9 million and $8.6 million in 1994 and 1993 for
losses. The Company believes that the allowance for losses on financing
receivables is adequate at December 31, 1994 to cover potential losses in the
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Company's total portfolio. If, however, certain major customers defaulted and
the Company were forced to take possession of and dispose of significant
amounts of real estate, aircraft or equipment, losses in excess of the
allowance could be incurred, which would be charged directly against earnings.
The Company's receivable write-offs, net of recoveries, decreased in 1994 as
compared to 1993. The decrease is largely due to the improved performance of
the RE portfolio.
Nonaccrual and Past Due Financing Receivables
Financing receivables accounted for on a nonaccrual basis consisted of the
following at December 31:
(Dollars in millions) 1994 1993
Domestic $ 8.8 $ 17.1
Foreign 21.4 23.7
$ 30.2 $ 40.8
Financing receivables being accrued which are contractually past due 90 days
or more as to principal and interest payments consisted of domestic financings
of $16.5 million and $76.6 million at December 31, 1994 and 1993.
Borrowing Operations
The following table sets forth the average debt of the Company by borrowing
classification:
(Dollars in millions)
Average Average Average
Years ended Short-Term Long-Term Total
December 31, Debt Debt Debt
1994 $ 108.0 $ 1,167.3 $ 1,275.3
1993 113.0 1,153.7 1,266.7
1992 118.2 1,513.1 1,631.3
1991 341.1 1,750.4 2,091.5
1990 393.2 1,888.0 2,281.2
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The weighted average interest rates on all outstanding indebtedness computed
for the relevant period were as follows:
Weighted Weighted
Average Average Weighted
Short-Term Long-Term Average
Years ended Interest Interest Total Debt
December 31, Rate Rate Interest Rate
1994 5.27% 8.76% 8.50%
1993 5.97 9.53 9.19
1992 12.38 8.75 9.00
1991 10.28 9.73 9.82
1990 10.86 9.62 9.83
In April 1994, Moody's Investor Service, Inc. upgraded the Company's senior
debt, subordinated debt and commercial paper to Baa3, Ba2 and Prime-3,
respectively.
In June 1994, Standard & Poor's Ratings Group upgraded the Company's
commercial paper to A2 and revised the Company's outlook to "Stable" and
affirmed a BBB senior debt rating and BBB- subordinated debt rating.
A security rating is not a recommendation to buy, sell or hold securities. In
addition, a security rating is subject to revision or withdrawal at any time
by the assigning rating organization and each rating should be evaluated
independently of any other rating.
Competition and Economic Factors
The Company is subject to competition from other financial institutions,
including commercial banks, finance companies and leasing companies, some of
which are larger than the Company and have greater financial resources,
greater leverage ability and lower effective borrowing costs. These factors
permit many competitors to provide financing at lower rates than the Company.
In its commercial equipment leasing and commercial aircraft financing
segments, the ability of the Company to compete in the marketplace is
principally based on rates which the Company charges its customers, which
rates are related to the Company's access to and cost of funds and to the
ability of the Company to utilize tax benefits attendant to leasing. (See
"Relationship With MDC.") Competitive factors also include, among other
things, the Company's ability to be relatively flexible in its financing
arrangements with new and existing customers.
The Company has in the past obtained a significant portion of its leasing
business and notes receivable in connection with the lease or sale of MDC
aircraft. The Company's relationship with MDC has in many cases presented
opportunities for such business and has caused MDC to offer to the Company
substantially all of the notes receivable taken by MDC upon the sale of its
aircraft. (See "Relationship With MDC".) In past years many customers have
obtained their financing for MDC aircraft through sources other than the
Company or MDC, reflecting a broader range of competitive financing
alternatives available to MDC customers. However, the worldwide downturn in
the airline business, together with the general tightening of credit has
presented and may continue to present increased opportunities for aircraft
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financing business for the Company. The consolidation in the United States
airline industry as a result of bankruptcies and mergers has resulted in an
increase in the concentration of the Company's MDC aircraft financings in a
smaller number of larger airlines at the same time that the Company's decision
to exit its non-core businesses has resulted in a greater concentration of the
Company's portfolio in commercial aircraft financing. With a larger portion
of the portfolio concentrated in MDC aircraft financings, the risk to the
Company resulting from the declining creditworthiness of many airlines has
increased. (See "Commercial Aircraft Financing Segment" and "Analysis of
Allowance for Losses on Financing Receivables and Credit Loss Experience.")
Aircraft owned or financed by the Company may become significantly less
valuable because of the introduction of new aircraft models, which may be more
economical to operate, the aging of particular aircraft, technological
obsolescence such as that caused by legislation for noise abatement which will
over time prohibit the use of older, noisier (Stage 2) aircraft in the United
States, or an oversupply of aircraft for sale (such as presently exists). In
any such event, carrying amounts on the Company's books may be reduced if, in
the judgment of management, such carrying amounts are greater than market
value, which would result in recognition of a loss to the Company. At
December 31, 1994, the Company's carrying amount of Stage 2 aircraft totaled
$109.3 million (8.1% of the Company's total aircraft portfolio, including any
aircraft held for sale or re-lease).
Although the Company is particularly subject to risks attendant to the airline
and aircraft manufacturing industries, the ability of the Company to generate
new business also is dependent upon, among other factors, the capital
equipment requirements of U.S. businesses and the availability of capital.
Relationship With MDC
MDC is principally engaged in the design, development and production of
defense and commercial aerospace products. For the year ended December 31,
1994, MDC recorded revenues of $13.2 billion and net earnings of $598.0
million. At December 31, 1994, MDC had assets of $12.2 billion and
shareholders' equity of $3.9 billion. Two of the Company's directors are
officers of MDC.
The financial well-being of MDC is vital to the Company's ability to enter
into significant amounts of new business in the future. Two of the principal
industry segments in which MDC operates, military aircraft and commercial
aircraft, are especially competitive and have a limited number of customers.
As the Company focuses on its core businesses, and primarily aircraft
financing, its future business prospects become more closely tied to the
success of MDC, and especially the ability of MDC's commercial aircraft
business to generate additional sales. The commercial aircraft business is
market sensitive, which causes disruptions in production and procurement and
attendant costs, and requires large investments to develop new derivatives of
existing aircraft or new aircraft. The depressed conditions in the airline
industry have resulted and may continue to result in airlines not taking
deliveries of commercial transport aircraft, defaulting on contracts for firm
orders, requests for changes in delivery schedules of existing orders, not
exercising options or reserves and a dramatic decline in new orders. MDC's
market share of firm order backlog for new commercial aircraft has declined
significantly in the past several years and operating revenues for MDC's
commercial aircraft segment decreased 34% in 1994 after a 28% decline in 1993.
<PAGE>
<PAGE>15
MDC has made guaranties to non-affiliate third parties in connection with the
marketing of commercial aircraft. MDC does not anticipate that the existence
of such guaranties will have a material adverse effect upon its cash flow or
financial position. In addition, some existing commercial aircraft contracts
contain provisions requiring MDC to repurchase used aircraft at the option of
the commercial customers. In view of the current market conditions for used
aircraft, MDC's earnings and cash flows could be adversely impacted by the
exercise of such options. However, it is not anticipated that the existence
of such repurchase obligations will have a material adverse effect on MDC's
cash flow or financial position. The trend of reduced commercial aircraft
orders and reduced defense spending has resulted in a significant downsizing
of MDC over the last several years.
Approximately 21.1% of the receivables from the Company's total aircraft
portfolio are supported by guaranties from MDC. In the event a substantial
portion of the guaranties become payable and in the unlikely event that MDC is
unable to honor its obligations under these guaranties, such event could have
a material adverse effect on the financial condition of the Company. In
addition, MDC participates as an intermediary in financings to a small number
of the Company's commercial aircraft customers and largely as a result
thereof, MDC is the fourth largest commercial aircraft financing customer of
the Company.
For a further description of these and other significant factors which may
affect MDC's financial condition, see MDC's Form 10-K for the year ended
December 31, 1994 (Securities and Exchange Commission file number 1-3685).
- Operating Agreement
The relationship between the Company and MDC is governed by an operating
agreement (the "Operating Agreement"), which formalizes certain aspects of
the relationship between the companies, principally those relating to the
purchase and sale of MDC aircraft receivables, the leasing of MDC aircraft,
the resale of MDC aircraft returned to, or repossessed by, the Company under
leases or secured notes, and the allocation of federal income taxes between
the companies.
Under the Operating Agreement, MDC is required to offer to the Company all
promissory notes, conditional sales contracts and certain other receivables
obtained by MDC in connection with the sale of its commercial transport
aircraft, except for any receivable that MDC acquires in a transaction
which, in its opinion, involves unusual or exceptional circumstances or
which it acquires with the expressed intention of selling to a purchaser
other than the Company.
The Company is obligated under the Operating Agreement to purchase all
aircraft receivables offered to it, unless (a) it is unable or deems it
inappropriate to obtain or allocate funds for the acquisition, (b) the
receivables do not meet the Company's customary standards as to terms and
conditions or creditworthiness, or (c) the amount of the receivable offered,
when added to the amount of receivables of the same obligor then held by the
Company, would exceed the amount that the Company deems prudent to hold.
The prices to be paid for notes receivable purchased from MDC are intended
to produce reasonable returns to the Company, taking into account the rates
of return realized by independent finance companies, the Company's
assessment of the credit risk and the Company's projected borrowing costs
<PAGE>
<PAGE>16
and expenses. In cases where credit risks associated with a note receivable
are not acceptable to the Company, the Company will refuse to accept the
note receivable or will condition its acceptance upon receipt of a guaranty
from MDC with a negotiated fee to be paid by the Company for the guaranty.
(See "Commercial Aircraft Financing Segment - Aircraft Financing
Guaranties.")
With respect to aircraft leasing activities, unlike the purchase of other
aircraft receivables which are acquired by MDC and sold to the Company, the
Company may make lease proposals directly to the prospective customers. If
a lease proposal is accepted, the Company enters into a lease with the
customer and purchases the aircraft from MDC on the terms negotiated between
MDC and the customer. Under the Operating Agreement the Company may make a
lease proposal to any customer desiring to lease an aircraft for two years
or more, but the Company may decline to make a proposal or may condition its
proposal upon a full or partial guaranty from MDC, with a negotiated fee, if
any, to be paid by the Company for the guaranty.
The Company has the option under the Operating Agreement to tender to MDC
any MDC aircraft returned to or repossessed by the Company under a lease or
security instrument at a price equal to the fair market value of the
aircraft less 10%. This provision does not include MDC aircraft leased
under a partnership arrangement in which the Company is one of the partners,
or MDC aircraft subject to third party liens or other security interests,
unless the Company and MDC determine that purchase by MDC is desirable. At
December 31, 1994, the carrying amount of MDC aircraft excluded by this
provision amounted to approximately $134.4 million.
- Federal Income Taxes
The Company and MDC presently file consolidated federal income tax returns,
with the consolidated tax payments, if any, being made by MDC. The
Operating Agreement provides that so long as consolidated federal tax
returns are filed, payments shall be made, directly or indirectly, by MDC to
the Company or by the Company to MDC, as appropriate, equal to the
difference between the consolidated tax liability and MDC's tax liability
computed without consolidation with the Company. If, subsequent to any such
payments by MDC, it incurs tax losses which may be carried back to the year
for which such payments were made, the Company nevertheless will not be
obligated to repay to MDC any portion of such payments.
The Company and MDC have been operating since 1975 under an informal
arrangement which has entitled the Company to rely upon the realization of
tax benefits for the portion of projected taxable earnings of MDC allocated
to the Company. This has been important in planning the volume of and
pricing for the Company's leasing activities. Under this arrangement, the
Company is entitled to receive on a current basis not less than 50% of the
potential tax savings generated by the Company's leasing activities with the
remaining portion of such tax benefits to be deferred for a one-year period.
The Company's ability to price its business competitively and obtain new
business volume is significantly dependent on its ability to realize the tax
benefits generated by its leasing business. In some cases, the yields on
receivables, without regard to tax benefits, may be less than the Company's
related financing costs. To the extent that MDC would be unable on a long-
term basis to utilize such tax benefits, or if the informal arrangement is
not continued in its present form, the Company would be required to
<PAGE>
<PAGE>17
restructure its financing activities and to reprice its new financing
transactions so as to make them profitable without regard to MDC's
utilization of tax benefits since there can be no assurance that the Company
would be able to utilize such benefits currently. No assurances can be
given that the Company would be successful in restructuring its financing
activities. (See "Competition and Economic Factors.")
- Intercompany Services
MDC provides to the Company certain payroll, employee benefit, facilities
and other services, for which the Company generally pays MDC the actual
cost. (See Notes to Consolidated Financial Statements included in Item 8.)
- Intercompany Credit Arrangements
The Company and MDC maintain separate borrowing facilities and there are no
arrangements for joint use of credit lines by the companies. Bank credit
and other borrowing facilities are negotiated by the Company on its own
behalf. There are no provisions in the Company's debt instruments that
provide that a default by MDC on MDC debt constitutes a default on Company
debt. There are no guaranties, direct or indirect, by MDC of the payment of
any debt of the Company.
The Company has an arrangement with MDC, terminable at the discretion of
either of the parties, pursuant to which the Company may borrow from MDC and
MDC may borrow from the Company, funds for 30-day periods at a market rate
of interest. Under this arrangement, there were no outstanding balances at
December 31, 1994 and 1993. During 1994, the Company made no loans under
this agreement and the highest level of borrowings from MDC was $27.1
million.
Under a similar arrangement, the Company may borrow from MDFS and MDFS may
borrow from the Company, funds for 30-day periods at the Company's cost of
funds for short-term borrowings. Under this arrangement, borrowings of $0.8
million and receivables of $18.3 million were outstanding at December 31,
1994 and 1993. During 1994, the Company's highest level of borrowings from
MDFS and highest level of loans to MDFS were $7.3 million and $18.3 million,
respectively.
Under another similar arrangement, McDonnell Douglas Realty Company, a
wholly-owned subsidiary of MDC, owed the Company $23.4 million and $29.6
million at December 31, 1994 and 1993.
Item 2. Properties
The Company leases all of its office space and other facilities. Commencing
in the second quarter of 1994, the Company subleased from MDC, at fair market
value, approximately 40,000 square feet of office space to be used as the
Company's principal offices. The Company believes that its properties,
including the equipment located therein, are suitable and adequate to meet the
requirements of its business.
<PAGE>
<PAGE>18
Item 3. Legal Proceedings
In 1994, certain debtors of the Company commenced actions against the Company
seeking damages in excess of $14.0 million based on various contractual and
tort claims arising out of financing and loan agreements. Concurrently, the
Company brought actions against the debtors to collect overdue amounts under
the loans provided by the Company. No response to discovery has taken place
in any of these actions. At this early stage of the legal proceedings it is
not possible to predict with any certainty the ultimate outcome of these
related legal proceedings. The Company intends to vigorously defend such
claims. Based on information currently available, the Company believes it has
meritorious defenses to all of the allegations of wrongdoing and that there
will be no material adverse effect on the Company's financial condition or
earnings.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
All of the Company's preferred and common stock is owned by MDFS. In 1994,
the Company declared and paid dividends of $27.0 million to MDFS on its common
stock. The Company paid $3.5 million in dividends on its preferred stock in
1994 and 1993. Preferred stock dividends of $0.6 million payable to MDFS were
accrued at December 31, 1994.
The provisions of various credit and debt agreements require the Company to
maintain a minimum net worth, restrict indebtedness, and limit cash dividends
and other distributions. Under the most restrictive provision, $51.9 million
of the Company's income retained for growth was available for dividends at
December 31, 1994.
Item 6. Selected Financial Data
The selected consolidated financial data should be read in conjunction with
the Company's consolidated financial statements at December 31, 1994 and for
the year then ended and with Item 7. The following table sets forth selected
consolidated financial data for the Company:
<PAGE>
<PAGE>19
Years Ended December 31,
(Dollars in millions) 1994 1993 1992 1991 1990
Financing volume $ 202.0 $ 453.0 $ 206.5 $ 231.3 $ 761.3
Operating income:
Finance lease income $ 100.7 $ 90.1 $ 113.0 $ 179.3 $ 210.0
Interest on notes 29.4 38.9 47.9 61.5 80.8
receivable
Operating lease income, 38.5 35.9 33.3 34.1 36.9
net
Net gain on disposal or 11.1 23.7 37.1 45.8 90.0
re-lease of assets
Postretirement benefit - - 2.8 - -
curtailment
Other 7.9 9.9 20.6 21.6 13.1
187.6 198.5 254.7 342.3 430.8
Expenses:
Interest expense 108.3 116.4 145.9 198.5 216.4
Provision for losses 9.9 8.6 19.1 47.2 57.3
Operating expenses 15.2 20.3 27.4 35.6 55.1
Other 12.3 12.4 14.3 3.8 3.1
145.7 157.7 206.7 285.1 331.9
Income from continuing 41.9 40.8 48.0 57.2 98.9
operations before
income taxes and
cumulative effect of
accounting change
Provision for taxes on 13.6 24.0 15.9 19.1 34.6
income
Income from continuing
operations before 28.3 16.8 32.1 38.1 64.3
cumulative effect of
accounting change
Discontinued operations, net - - (2.5) (1.4) 1.2
Cumulative effect of - - (1.9) - -
accounting change
Net income $ 28.3 $ 16.8 $ 27.7 $ 36.7 $ 65.5
Cash dividends paid $ 29.9 $ 3.6 $ 105.8 $ 59.0 $ 23.5
Ratio of income to fixed 1.37 1.34 1.32 1.28 1.45
charges(1)
(1) For the purpose of computing the ratio of income to fixed charges,
income from continuing operations before income taxes, cumulative effect
of accounting change and fixed charges; and fixed charges consist of
interest expense and preferred stock dividends.
<PAGE>
<PAGE>20
Years Ended December 31,
(Dollars in millions) 1994 1993 1992 1991 1990
Balance sheet data:
Total assets $1,929.6 $ 2,055.5 $1,999.0 $2,582.3 $ 3,443.7
Total debt 1,215.1 1,361.2 1,330.4 1,730.7 2,443.2
Shareholder's equity 271.9 269.4 256.4 340.5 364.9
Dividends accrued on
preferred $ 0.6 $ 0.6 $ 0.5 $ 0.5 $ 0.5
stock at year end
<PAGE>
<PAGE>21
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following should be read in conjunction with the consolidated financial
statements included in Item 8.
Capital Resources and Liquidity
The Company has significant liquidity requirements. The Company has
traditionally attempted to match-fund its business such that scheduled
receipts from its portfolio will cover its expenses and debt payments as they
become due. The Company believes that, absent a severe or prolonged economic
downturn which results in defaults materially in excess of those provided for,
receipts from the portfolio will cover the payment of expenses and debt
payments when due. If cash provided by operations, issuance of commercial
paper, borrowings under bank credit lines, unsecured term borrowings do not
provide the necessary liquidity, the Company would be required to restrict its
new business volume unless it obtained access to other sources of capital at
rates that would allow for a reasonable return on new business. The Company
has been accessing the public debt market since mid-1993 and anticipates using
proceeds from the issuance of additional public debt to fund future growth.
In 1994, the Company issued $200.0 million of senior unsecured notes and $20.0
million of subordinated notes.
During 1994, rating agencies revised or affirmed their ratings of the
Company's debt. Moody's Investor Services, Inc. raised its ratings on the
Company's senior debt, subordinated debt and commercial paper to Baa3, Ba2 and
Prime-3. Standard & Poor's Ratings Group raised its rating on the Company's
commercial paper to A2 and affirmed a BBB senior debt rating and a BBB-
subordinated debt rating. These rating improvements have provided the Company
with additional access to capital at rates that would allow for a reasonable
return on new business.
In September 1994, the Company syndicated a new, four-year $220.0 million
revolving credit agreement. The Company returned to the commercial paper
market in the fourth quarter of 1994 and is actively issuing under a $220.0
million program, which is fully backed by committed bank lines. As of
December 31, 1994, $103.0 million of commercial paper was outstanding.
1994 vs. 1993
Finance lease income increased $10.6 million (11.8%) in 1994 compared to 1993,
due to the late 1993 purchase of two new MD-11 aircraft financed under direct
financing lease agreements.
Interest on notes receivable in 1994 was $9.5 million (24.4%) lower than 1993,
reflecting a decrease in bridge financings within the aircraft portfolio.
Net gain on disposal or re-lease of assets decreased $12.6 million (53.2%) in
1994, primarily attributable to reduced dispositions within the aircraft
portfolio.
Other income decreased $2.0 million (20.2%) in 1994, primarily due to lower
short-term investment income.
<PAGE>
<PAGE>22
The provision for losses increased $1.3 million (15.1%) during 1994 compared
to 1993, attributable to concerns with certain credits within the aircraft
portfolio.
Operating expenses decreased $5.1 million (25.1%) during 1994 compared to
1993, attributable primarily to the closings of certain business units within
the non-core businesses segment portfolio.
1993 vs. 1992
Finance lease income decreased $18.3 million (16.2%) in 1993 compared to 1992
primarily due to the 1992 disposition of a significant portion of the assets
of MD Bank and the normal run-off of the portfolio.
Interest on notes receivable in 1993 was $12.1 million (25.3%) lower than
1992, reflecting an overall smaller portfolio.
Net gain on disposal or re-lease of assets decreased $13.4 million (36.1%) in
1993, primarily attributable to 1992 non-recurring gains aggregating $9.4
million recorded in connection with the disposition of a significant portion
of the assets of MD Bank.
A lower level of short-term investments largely contributed to the 1993
decrease of $10.7 million (51.9%) in other income. The higher level of short-
term investments during 1992 resulted from excess cash generated from the 1992
sales of selected assets and the sale of the Company's full-service leasing
segment, operating as McDonnell Douglas Truck Services, Inc.
Interest expense decreased $29.5 million (20.2%) in 1993 compared to 1992,
resulting from decreased bank borrowings, retirement of debt with call options
due to increased liquidity of the Company, offset by issuances of debt with
favorable interest rates.
The provision for losses decreased $10.5 million (55.0%) during 1993 compared
to 1992, primarily as a result of the 1992 disposition of MD Bank assets,
decreased write-offs within the real estate portfolio and an overall smaller
portfolio.
Operating expenses decreased $7.1 million (25.9%) during 1993 compared to
1992, attributable primarily to reductions in the Company's personnel and
lower costs associated with administering a smaller asset portfolio.
During the third quarter of 1993, the Company's effective tax rate was
affected by an additional tax provision of $8.4 million associated with the
tax rate increase included in the Omnibus Budget Reconciliation Act of 1993.
New Accounting Standards
In May 1993, the Financial Accounting Standards Board issued Statement
No. 114, "Accounting by Creditors for Impairment of a Loan." This Statement
requires that impaired loans be measured on the present value of expected
future cash flows discounted at the loan's effective interest rate, or at the
loan's observable market price or the fair value of the collateral if the loan
is collateral dependent. Adoption of this Statement is required no later than
1995, although earlier application is permitted. The Company presently
<PAGE>
<PAGE>23
intends to adopt this pronouncement in 1995. The effect of applying this
Statement is not expected to have a material impact on the financial
statements of the Company.
Item 8. Financial Statements and Supplementary Data
The following pages include the consolidated financial statements of the
Company as described in Item 14.(a) 1. and 2. herein.
<PAGE>
<PAGE>24
Report of Independent Auditors
Shareholder and Board of Directors
McDonnell Douglas Finance Corporation
We have audited the accompanying consolidated balance sheet of McDonnell
Douglas Finance Corporation (a wholly-owned subsidiary of McDonnell Douglas
Financial Services Corporation) and subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of income and income retained
for growth, and cash flows for each of the three years in the period ended
December 31, 1994. Our audits also included the financial statement schedules
listed in the Index at Item 14(a). These financial statements and schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedules 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of McDonnell Douglas Finance Corporation and subsidiaries at December 31, 1994
and 1993, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
We have also previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheets as of December 31, 1992,
1991 and 1990, and the related consolidated statements of income and income
retained for growth, and cash flows for the years ended December 31, 1991 and
1990 (none of which are presented separately herein); and we expressed
unqualified opinions on those consolidated financial statements. In our
opinion, the information set forth in the selected financial data for each of
the five years in the period ended December 31, 1994, appearing on pages 18 -
20, is fairly stated in all material respects in relation to the consolidated
financial statements from which it has been derived.
As discussed in the notes to the consolidated financial statements, in 1992
the Company changed its method of accounting for retiree health care benefits.
/s/ Ernst & Young LLP
Orange County, California
January 17, 1995
<PAGE>
<PAGE>25
McDonnell Douglas Finance Corporation and Subsidiaries
Consolidated Balance Sheet
(Dollars in millions, except stated value and par value)
December 31,
1994 1993
ASSETS
Financing receivables:
Investment in finance leases $ 1,090.3 $ 1,092.6
Notes receivable 351.7 350.0
1,442.0 1,442.6
Allowance for losses on financing (40.7) (35.6)
receivables
Financing receivables, net 1,401.3 1,407.0
Cash and cash equivalents 13.1 65.5
Equipment under operating leases, net 374.3 390.9
Equipment held for sale or re-lease 12.1 32.0
Accounts with MDC and MDFS 44.9 70.4
Other assets 83.9 89.7
$ 1,929.6 $ 2,055.5
LIABILITIES AND SHAREHOLDER'S EQUITY
Short-term notes payable $ 103.8 $ 202.6
Accounts payable and accrued expenses 44.0 51.5
Other liabilities 92.5 74.5
Deferred income taxes 306.1 298.9
Long-term debt:
Senior 1,023.8 1,080.8
Subordinated 87.5 77.8
1,657.7 1,786.1
Commitments and contingencies - Note 8
Shareholder's equity:
Preferred stock - no par value;
authorized 100,000 shares:
Series A; $5,000 stated value;
authorized, issued and outstanding 50.0 50.0
10,000 shares
Common stock $100 par value; authorized
100,000 shares; issued and 5.0 5.0
outstanding 50,000 shares
Capital in excess of par value 89.5 89.5
Income retained for growth 127.4 129.6
Cumulative foreign currency translation - (4.7)
adjustment
271.9 269.4
$ 1,929.6 $ 2,055.5
See notes to consolidated financial statements.
<PAGE>
<PAGE>26
McDonnell Douglas Finance Corporation and Subsidiaries
Consolidated Statement of Income and Income Retained for Growth
Years Ended December 31,
(Dollars in millions) 1994 1993 1992
OPERATING INCOME
Finance lease income $ 100.7 $ 90.1 $ 113.0
Interest income on notes receivable 29.4 38.9 47.9
Operating lease income, net of
depreciation expense of $39.9, 38.5 35.9 33.3
$39.0 and $48.8 in 1994, 1993, and 1992,
respectively
Net gain on disposal or re-lease of 11.1 23.7 37.1
assets
Postretirement benefit curtailment gain - - 2.8
Other 7.9 9.9 20.6
187.6 198.5 254.7
EXPENSES
Interest expense 108.3 116.4 145.9
Provision for losses 9.9 8.6 19.1
Operating expenses 15.2 20.3 27.4
Other 12.3 12.4 14.3
145.7 157.7 206.7
Income from continuing operations before
income taxes and cumulative effect of 41.9 40.8 48.0
accounting change
Provision for income taxes 13.6 24.0 15.9
Income from continuing operations before
cumulative effect of accounting change 28.3 16.8 32.1
Discontinued operations, net - - (2.5)
Cumulative effect of new accounting
standard for postretirement benefits - - (1.9)
Net income 28.3 16.8 27.7
Income retained for growth at beginning 129.6 116.4 194.5
of year
Dividends (30.5) (3.6) (105.8)
Income retained for growth at end of year $ 127.4 $ 129.6 $ 116.4
See notes to consolidated financial statements.
<PAGE>
<PAGE>27
McDonnell Douglas Finance Corporation and Subsidiaries
Consolidated Statement of Cash Flows
Years Ended December 31,
(Dollars in millions) 1994 1993 1992
OPERATING ACTIVITIES
Income from continuing operations
before cumulative effect of $ 28.3 $ 16.8 $ 32.1
accounting change
Adjustments to reconcile income
from continuing operations
before cumulative effect of
accounting change to net cash
provided by (used in)
operating activities:
Depreciation expense - 39.9 39.0 48.8
equipment under
operating leases
Net gain on disposal or re (11.1) (23.7) (37.1)
-lease of assets
Provision for losses 9.9 8.6 19.1
Change in assets and liabilities:
Accounts with MDC and MDFS 25.5 (29.5) 18.4
Other assets 5.8 51.2 (9.2)
Accounts payable (7.5) 10.3 (16.1)
Other liabilities 18.0 0.6 (6.2)
Deferred income taxes 7.2 1.8 (76.6)
Other, net 8.6 3.3 (15.3)
Discontinued operations - - 0.4
124.6 78.4 (41.7)
INVESTING ACTIVITIES
Net change in short-term notes (58.6) 88.5 (79.8)
and leases receivable
Purchase of equipment for (40.0) (57.4) (71.8)
operating leases
Proceeds from disposition of 109.0 139.5 323.2
equipment, notes and leases
receivable
Collection of notes and leases 170.5 164.1 280.8
receivable
Acquisition of notes and leases (179.0) (385.7) (153.3)
receivable
Discontinued operations - - 69.4
1.9 (51.0) 368.5
<PAGE>
<PAGE>28
Years Ended December 31,
(Dollars in millions) 1994 1993 1992
FINANCING ACTIVITIES
Net change in short-term (98.8) 69.1 16.5
borrowings
Debt having maturities more
than 90 days:
Proceeds 229.9 183.0 34.9
Repayments (280.1) (222.0) (440.8)
Payment of cash dividends (29.9) (3.6) (105.8)
Discontinued operations - - (6.9)
(178.9) 26.5 (502.1)
Increase (decrease) in cash and (52.4) 53.9 (175.3)
cash equivalents
Cash and cash equivalents at 65.5 11.6 186.9
beginning of year
Cash and cash equivalents at end $ 13.1 $ 65.5 $ 11.6
of year
See notes to consolidated financial statements.
<PAGE>
<PAGE>29
McDonnell Douglas Finance Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994
Note 1 - Organization and Summary of Significant Accounting Policies
Organization McDonnell Douglas Finance Corporation (the "Company") is a
wholly-owned subsidiary of McDonnell Douglas Financial Services Corporation
("MDFS"), a wholly-owned subsidiary of McDonnell Douglas Corporation ("MDC").
The Company was incorporated in Delaware in 1968 and provides a diversified
range of equipment financing and leasing arrangements to commercial and
industrial markets.
Consolidation The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Certain prior year amounts
have been reclassified to conform to the 1994 presentation.
Finance Leases At lease commencement, the Company records the lease
receivable, estimated residual value of the leased equipment and unearned
lease income. Income from leases is recognized over the terms of the leases
so as to approximate a level rate of return on the net investment. Residual
values, which are reviewed periodically, represent the estimated amount to be
received at lease termination from the disposition of leased equipment.
Initial Direct Costs Initial direct costs are deferred and amortized over the
related financing terms.
Cash Equivalents The Company considers all cash investments with original
maturities of three months or less to be cash equivalents. Cash equivalents
at December 31, 1994 and 1993 were $11.7 million and $58.8 million. At
December 31, 1994 and 1993, the Company has classified as other assets
restricted cash deposited with banks in interest bearing accounts of $37.0
million and $44.3 million for compensating balances, specific lease rents and
contractual purchase price related to certain aircraft leased by the Company
under capital lease obligations, and security against recourse provisions
related to certain note and lease receivable sales.
Allowance for Losses on Financing Receivables The allowance for losses on
financing receivables includes consideration of such factors as the risk
rating of individual credits, economic and political conditions, guaranties,
prior loss experience and results of periodic credit reviews.
Collateral that is repossessed in satisfaction of a receivable is transferred
to equipment held for sale or re-lease or real estate owned at its estimated
fair value. Subsequent to such transfer, these assets are carried at the
lower of cost or estimated net realizable value.
Payments from a few of the Company's commercial aircraft customers are
delinquent and, as a result, the Company may be required to repossess aircraft
from such customers. Losses from repossession of aircraft from these
delinquent customers in the currently depressed aircraft market could have an
adverse affect on future earnings. However, based on its current assessment
of probable credit losses, management believes its loss reserves are adequate
and does not believe that these matters would have a material adverse affect
on the Company.
<PAGE>
<PAGE>30
In May 1993, the Financial Accounting Standards Board issued Statement
No. 114, "Accounting by Creditors for Impairment of a Loan." This Statement
requires that impaired loans be measured on the present value of expected
future cash flows discounted at the loan's effective interest rate, or at the
loan's observable market price, or the fair value of the collateral if the
loan is collateral dependent. Adoption of this Statement is required no later
than 1995, although earlier application is permitted. The Company presently
intends to adopt this pronouncement in 1995. The effect of applying this
Statement is not expected to have a material impact on the financial condition
or results of operations of the Company.
Equipment Under Operating Leases Rental equipment subject to operating leases
is recorded at cost and depreciated over its useful life or lease term to an
estimated salvage value, primarily on a straight-line basis.
Income Taxes The operations of the Company and its subsidiaries are included
in the consolidated federal income tax return of MDC. MDC presently charges
or credits the Company for the corresponding increase or decrease in MDC's
taxes resulting from such inclusion. Intercompany payments are made when such
taxes are due or tax credits are realized by MDC based on the assumption,
pursuant to an informal arrangement, that at least 50% of such taxes are due
or tax credits are realized by MDC in the current year with the remainder due
or realized in the following year.
Investment tax credits (which were repealed by the Tax Reform Act of 1986)
related to property subject to financing transactions are deferred and
amortized over the terms of the financing transactions.
Taxes on income is computed at current tax rates and adjusted for items that
do not have tax consequences. Deferred income taxes reflect the impact of
temporary differences between the amount of assets and liabilities recognized
for financial reporting purposes and such amounts recognized for tax purposes.
Foreign Currency Translation McDonnell Douglas Bank Limited ("MD Bank"), a
United Kingdom company, was an indirect wholly-owned subsidiary of MDC.
Through intercompany arrangements between MDC and the Company, MD Bank was
consolidated as if it were a wholly-owned subsidiary of the Company.
Adjustments from translating the assets and liabilities of MD Bank from the
functional currency of the pound sterling into U.S. dollars at the year-end
exchange rate were accumulated and reported as a separate component of equity.
Operating results were translated at average monthly exchange rates.
Note 2 - Dispositions
During December 1994, the Company disposed of its investment in MD Bank for
$23.8 million and recognized a loss on disposition totaling $3.2 million. The
cumulative foreign currency translation adjustment was recognized and charged
to other expenses. In addition, tax benefits totaling $3.2 million were
recognized as a result of this sale.
During the second quarter of 1992, the Company completed the sale of the
remaining assets of its full-service leasing segment, operating as McDonnell
Douglas Truck Services Inc. ("MDTS"). These assets were sold to various
parties for approximately $58.6 million. This segment has been reported as a
discontinued operation. Accordingly, the consolidated financial statements
<PAGE>
<PAGE>31
for 1992 have been reclassified to report separately the operating results of
this discontinued operation.
Included in 1992 discontinued operations is the MDTS loss on sale of $1.6
million, net of income tax benefits of $0.9 million and the MDTS loss from
operations of $0.9 million, net of income tax benefits of $0.5 million.
Operating income of MDTS was $3.4 million for 1992.
During 1992, in three separate transactions, MD Bank sold a significant
portion of its portfolio and received cash proceeds of approximately $70.8
million and an amortizing note receivable of $29.7 million, which was repaid
during 1994. These sales resulted in pretax gains aggregating $9.4 million.
The cash proceeds were applied to reduce MD Bank's bank borrowings, resulting
in losses totaling $2.3 million on the termination of interest rate swaps.
During the fourth quarter 1992, the Company sold substantially all of the
assets of McDonnell Douglas Capital Corporation ("MDCC"), a wholly-owned
subsidiary of the Company, for $13.5 million, resulting in a pretax gain of
$1.3 million. The assets consisted primarily of equipment subject to
operating leases. Operating income of MDCC was $5.9 million in 1992.
Note 3 - Investment in Finance Leases
The following lists the components of the investment in finance leases at
December 31:
(Dollars in millions) 1994 1993
Minimum lease payments receivable $ 1,466.9 $ 1,538.8
Estimated residual value of leased assets 261.1 253.9
Unearned income (640.9) (703.8)
Deferred initial direct costs 3.2 3.7
$ 1,090.3 $ 1,092.6
The following lists the components of the investment in finance leases at
December 31 that relate to aircraft leased by the Company under capital leases
that have been subleased to others under finance leases:
(Dollars in millions) 1994 1993
Minimum lease payments receivable $ 74.3 $ 81.2
Estimated residual value of leased assets 15.0 15.1
Unearned income (36.6) (41.1)
Deferred initial direct costs 0.2 0.2
$ 52.9 $ 55.4
At December 31, 1994, finance lease receivables of $79.1 million serve as
collateral to senior long-term debt.
At December 31, 1994, finance lease receivables are due in installments as
follows: 1995, $193.4 million; 1996, $174.0 million; 1997, $161.7 million;
1998, $151.9 million; 1999, $132.4 million; 2000 and thereafter, $653.5
million.
<PAGE>
<PAGE>32
Under a finance lease agreement, the Company leases a DC-10-30 aircraft to
MDC. The lease requires monthly rent payments of $0.4 million through
April 14, 2004. At December 31, 1994 and 1993, the carrying amount of this
aircraft was $31.6 million and $32.9 million.
Note 4 - Notes Receivable
The following lists the components of notes receivable at December 31:
(Dollars in millions) 1994 1993
Principal $ 349.2 $ 347.3
Accrued interest 2.3 2.8
Unamortized discount (0.6) (1.3)
Deferred initial direct costs 0.8 1.2
$ 351.7 $ 350.0
At December 31, 1994, notes receivables are due in installments as follows:
1995, $147.4 million; 1996, $41.8 million; 1997, $24.9 million; 1998, $17.3
million; 1999, $25.4 million; 2000 and thereafter, $92.4 million.
Note 5 - Equipment Under Operating Leases
Equipment under operating leases consists of the following at December 31:
(Dollars in millions) 1994 1993
Commercial aircraft $ 275.3 $ 249.1
Highway vehicles 73.0 76.7
Executive aircraft 67.9 88.7
Printing equipment 28.6 32.0
Machine tools and production equipment 25.9 21.1
Medical equipment 14.0 21.9
Computers and related equipment 6.2 9.3
Other 3.8 3.1
494.7 501.9
Accumulated depreciation and amortization (114.7) (106.6)
Rentals receivable 6.1 5.0
Deferred lease income (13.0) (10.8)
Deferred initial direct costs 1.2 1.4
$ 374.3 $ 390.9
At December 31, 1994, future minimum rentals scheduled to be received under
the noncancelable portion of operating leases are as follows: 1995, $68.1
million; 1996, $56.5 million; 1997, $48.9 million; 1998, $42.2 million; 1999,
$30.5 million; 2000 and thereafter, $26.2 million.
At December 31, 1994, equipment under operating leases of $25.3 million are
assigned as collateral to senior long-term debt. Equipment under operating
leases of $14.2 million at December 31, 1994, relate to commercial aircraft
leased by the Company under capital lease obligations.
<PAGE>
<PAGE>33
Under an operating lease agreement, the Company leases four MD-82 aircraft to
MDC. The leases require quarterly rent payments of $2.1 million through
May 31, 2002. At December 31, 1994 and 1993, the carrying amount of these
aircraft was $57.2 million and $60.4 million.
Note 6 - Income Taxes
The components of the provision (benefit) for taxes on income from continuing
operations before cumulative effect of accounting change are as follows:
(Dollars in millions) 1994 1993 1992
Current:
Federal $ 3.8 $ 19.8 $ 48.1
State 2.6 2.4 3.4
6.4 22.2 51.5
Deferred:
Federal 7.2 1.0 (36.6)
Foreign - 0.8 1.0
7.2 1.8 (35.6)
$ 13.6 $ 24.0 $ 15.9
Temporary differences represent the cumulative taxable or deductible amounts
recorded in the financial statements in different years than recognized in the
tax returns. The components of the net deferred income tax liability consist
of the following at December 31:
(Dollars in millions) 1994 1993
Deferred tax assets:
Allowance for losses $ 14.2 $ 11.9
Deferred installment sales 3.5 -
Other 16.6 20.0
34.3 31.9
Deferred tax liabilities:
Leased assets (316.9) (311.6)
Deferred installment sales - (2.8)
Other (23.5) (16.4)
(340.4) (330.8)
Net deferred tax liability $(306.1) $(298.9)
<PAGE>
<PAGE>34
Income taxes computed at the United States federal income tax rate and the
provision (benefit) for taxes on income from continuing operations before
cumulative effect of accounting change differ as follows:
(Dollars in millions) 1994 1993 1992
Tax computed at federal statutory rate $ 14.7 $ 14.3 $ 13.1
State income taxes, net of federal tax 1.7 1.5 1.3
benefit
Effect of foreign tax rates 1.6 0.9 (1.3)
U.S. tax effect from the sale of MD (3.2) - 3.2
Bank
Effect of investment tax credits (0.3) (0.6) (1.1)
Effect of tax rate change - 8.4 -
Other (0.9) (0.5) 0.7
$ 13.6 $ 24.0 $ 15.9
During the third quarter of 1993, the Company's effective tax rate was
affected by an additional tax provision of $8.4 million associated with the
tax rate increase included in the Omnibus Budget Reconciliation Act of 1993.
Income taxes paid by the Company totaled $15.2 million in 1994, $54.0 million
in 1993 and $86.1 million in 1992.
Note 7 - Indebtedness
Short-term notes payable consist of the following at December 31:
Balance at End of Weighted Average Interest
Year Rate at End of Year
(Dollars in millions) 1994 1993 1994 1993
Commercial paper $103.0 $ - 6.55% - %
Short-term bank borrowings - 149.6 - 4.19
Lines of credit - 53.0 - 4.82
MDFS 0.8 - 6.64 -
$103.8 $ 202.6
At December 31, 1994, MDFS and the Company had a joint revolving credit
agreement under which the Company may borrow a maximum of $220.0 million,
reduced by MDFS borrowings under this same agreement. This agreement, which
became effective September 29, 1994, expires September 28, 1998. By the terms
of this agreement, MDFS can borrow no more than $16.0 million. The interest
rate, at the option of MDFS or the Company, is either a floating rate
generally based on a defined prime rate or fixed rate related to LIBOR. There
were no amounts outstanding under this agreement at December 31, 1994.
Commercial paper is fully supported by unused commitments under this
agreement.
<PAGE>
<PAGE>35
Senior long-term debt consists of the following at December 31:
(Dollars in millions) 1994 1993
5.0% Note due through 1994,
net of discount based $ - $ 0.5
on imputed interest rate of 7.95%
13.0% Notes due through 1995 - 0.6
9.15% Note due 1994 - 19.4
8.46% Note due 1995 8.0 8.0
10.52% Note due 1995 58.8 52.0
7.0% Notes due through 1996 1.2 2.1
7.0% Notes due through 1998, net of discount
based on imputed interest rate of 10.8% 2.6 3.4
3.9% Notes due through 1999, net of discount
based on imputed interest rates of 9.15% - 7.9 9.4
10.6%
5.75% - 6.875% Notes due through 2000, net
discount based on imputed interest rates 10.2 11.8
of 9.75% - 11.4%
6.878% - 10.18% Notes due through 2001 80.3 93.2
5.0% - 8.375% Retail medium term notes due 88.9 79.1
through 2011
4.625% - 13.55% Medium term notes due 684.1 713.4
through 2005
Capital lease obligations due through 2003 81.8 87.9
$ 1,023.8 $ 1,080.8
The 10.52% Note due 1995, relates to a borrowing denominated in Swiss francs
and has been adjusted by $23.2 million at December 31, 1994 ($16.5 million at
December 31, 1993) to reflect the dollar value of the liability at the current
exchange rate. To hedge against the risk of future currency exchange rate
fluctuations on this debt, the Company entered into a foreign currency swap
agreement at the time of borrowing whereby it may purchase foreign currency
sufficient to retire such debt at exchange rates in effect at the initial
dates of the agreements. Changes in the market value of the swap agreement
due to changes in exchange rates are included in other assets and effectively
offset changes in the value of the foreign denominated obligation.
As of December 31, 1994, $84.1 million of senior long-term debt was
collateralized by equipment. This debt is composed of the 7.0% Notes due
through 1996, 7.0% Notes due through 1998, and the 6.878% - 10.18% Notes due
through 2001.
The Company leases aircraft under capital leases which have been subleased to
others. At December 31, 1994, the Company had guaranteed the repayment of
$8.8 million in capital lease obligations associated with a 50% partner.
<PAGE>
<PAGE>36
Subordinated long-term debt consists of the following at December 31:
(Dollars in millions) 1994 1993
9.26% Note due 1996 $ 5.0 $ 5.0
10.25% Notes due through 1997 15.0 20.0
12.35% Note due 1997 20.0 20.0
8.31% - 9.92% Medium term notes due 47.5 32.8
through 1999
$ 87.5 $ 77.8
Payments required on long-term debt and capital lease obligations during the
years ending December 31 are as follows:
Long-Term Capital
(Dollars in millions) Debt Leases
1995 $ 247.4 $ 15.1
1996 116.8 15.1
1997 111.8 15.1
1998 163.2 15.1
1999 104.3 12.4
2000 and thereafter 290.9 49.6
1,034.4 122.4
Deferred debt expenses (4.9) (0.7)
Imputed interest - (39.9)
$1,029.5 $ 81.8
The provisions of various credit and debt agreements require the Company to
maintain a minimum net worth, restrict indebtedness, and limit cash dividends
and other distributions. Under the most restrictive provision, $51.9 million
of the Company's income retained for growth was available for dividends at
December 31, 1994.
Interest payments totaled $110.8 million in 1994, $116.3 million in 1993 and
$154.0 million in 1992.
Note 8 - Commitments and Contingencies
In 1994, certain debtors of the Company commenced actions against the Company
seeking damages in excess of $14.0 million based on various contractual and
tort claims arising out of financing and loan agreements. Concurrently, the
Company brought actions against the debtors to collect overdue amounts under
the loans provided by the Company. No response to discovery has taken place
in any of these actions. At this early stage of the legal proceedings it is
not possible to predict with any certainty the ultimate outcome of these
related legal proceedings. The Company intends to vigorously defend such
claims. Based on information currently available, the Company believes it has
meritorious defenses to all of the allegations of wrongdoing and that there
will be no material adverse effect on the Company's financial condition or
earnings.
At December 31, 1994 and 1993, the Company had unused credit lines available
to customers totaling $3.1 million and $6.6 million; and commitments to
provide leasing and other financing totaling $94.4 million and $43.6 million.
<PAGE>
<PAGE>37
In conjunction with prior asset dispositions, at December 31, 1994, the
Company is subject to a maximum recourse of $35.8 million. Based on trends to
date, the Company's exposure to such loss is not expected to be significant.
Note 9 - Transactions with MDC and MDFS
Accounts with MDC and MDFS consist of the following at December 31:
(Dollars in millions) 1994 1993
Notes receivable $ 23.4 $ 47.9
Federal income tax receivable 35.7 25.8
State income tax receivable 1.3 -
Other payables (15.5) (3.3)
$ 44.9 $ 70.4
The Company has arrangements with MDC, terminable at the discretion of either
of the parties, pursuant to which the Company may borrow from MDC and MDC may
borrow from the Company, funds for 30-day periods at a market rate of
interest. Under these arrangements, there were no outstanding balances at
December 31, 1994 and 1993.
Under a similar arrangement, the Company may borrow from MDFS and MDFS may
borrow from the Company, funds for 30-day periods at the Company's cost of
funds for short-term borrowings. Under these arrangements, borrowings of $0.8
million and receivables of $18.3 million were outstanding at December 31, 1994
and 1993.
On September 28, 1993, the Company sold, at estimated fair value, real estate
owned properties to McDonnell Douglas Realty Company, a wholly-owned
subsidiary of MDC, and financed the sale by taking a $28.9 million note. The
Company recorded a pretax loss of $5.7 million on the transfer, which is
included in other expenses in the consolidated statement of income. The note
is payable on demand and accrues interest at a rate equal to a market rate of
interest. At December 31, 1994 and 1993, $23.4 million and $29.6 million was
outstanding under this note.
During 1994, 1993 and 1992, the Company purchased aircraft and aircraft
related notes from MDC in the amount of $227.1 million, $400.2 million and
$160.5 million, respectively. In addition, during 1994, 1993 and 1992, the
Company recorded pre-tax income from MDC aggregating $14.8 million, $13.1
million and $15.5 million, respectively.
At December 31, 1994 and 1993, $281.8 million and $270.0 million of the
commercial aircraft financing portfolio was guaranteed by MDC. This
represents 21.1% of the total commercial aircraft financing portfolio at
December 31, 1994 and 1993. During 1994, 1993 and 1992, the Company collected
$1.7 million, $0.2 million and $0.6 million, respectively, under these
guaranties.
The Series A Preferred Stock is redeemable at the Company's option at $5,000
per share, has no voting privileges and is entitled to cumulative semi-annual
dividends of $175 per share. Such dividends have priority over cash dividends
on the Company's common stock. Accrued dividends on preferred stock amounted
to $0.6 million at December 31, 1994 and 1993.
<PAGE>
<PAGE>38
Substantially all employees of MDC and its subsidiaries are members of defined
benefit pension plans and insurance plans. MDC also provides eligible
employees the opportunity to participate in savings plans that permit both
pretax and after-tax contributions. MDC generally charges the Company with
the actual cost of these plans which are included with other MDC charges for
support services and reflected in operating expenses. MDC charges for
services provided during 1994, 1993 and 1992 totaled $0.9 million, $1.1
million and $2.1 million, respectively. Additionally, the Company was
compensated by certain affiliates for a number of support services, which are
netted against operating expenses, amounting to $0.2 million, $1.8 million and
$2.5 million in 1994, 1993 and 1992, respectively.
Prior to 1992, Company-paid retiree health care benefits were included in
costs as covered expenses were actually incurred. In December 1990, the
Financial Accounting Standards Board issued SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The Statement
required companies to change, by 1993, their method of accounting for the
costs of these benefits to one that accelerates the recognition of costs by
causing their full accrual over the employees' years of service up to their
date of full eligibility. MDC, and therefore the Company, elected to
implement this Statement for 1992 by immediately recognizing the
January 1, 1992 accumulated postretirement benefit obligation of $3.1 million
($1.9 million after-tax).
On October 8, 1992, effective January 1, 1993, MDC terminated Company-paid
retiree health care for both current and future non-union retirees and their
survivors and replaced it with a new arrangement that will be funded entirely
by participant contributions. The Company recorded a pretax curtailment gain
of $2.8 million ($1.7 million after-tax) in the fourth quarter of 1992,
reflecting the termination of Company-paid retiree health care for both
current and future non-union retirees.
Note 10 - Fair Value of Financial Instruments
The estimated fair value amounts of the Company's financial instruments have
been determined by the Company, using appropriate market information and
valuation methodologies. The following methods and assumptions were used to
estimate the fair value of each class of financial instruments:
Cash and Cash Equivalents Because of the short maturity of these instruments,
the carrying amount approximates fair value.
Notes Receivable For variable rate notes that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
The fair values of fixed rate notes are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
Short and Long-Term Debt The carrying amount of the Company's short-term
borrowings approximates its fair value. The fair value of the Company's long-
term debt is estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements.
Off-Balance Sheet Instruments Fair values for the Company's off-balance sheet
instruments (swaps and financing commitments) are based on quoted market
<PAGE>
<PAGE>39
prices of comparable instruments (interest rate swaps); and the
counterparties' credit standing, taking into account the remaining terms of
the agreements (financing commitments).
The estimated fair values of the Company's financial instruments consist of
the following at December 31:
(Dollars in millions)
1994 1993
Carrying Fair Carrying Fair
Asset (Liability) Amount Value Amount Value
ASSETS
Cash and cash equivalents $ 13.1$ 13.1 $ 65.5 $ 65.5
Notes receivable 351.7 347.5 350.0 351.1
LIABILITIES
Short-term notes payable to banks (103.8) (103.8) (203.3) (203.3)
Long-term debt:
Senior, excluding capital lease (959.4) (965.6) (1,014.0) (1,090.3)
obligations
Subordinated (90.8) (92.3) (80.7) (89.1)
OFF BALANCE SHEET INSTRUMENTS
Commitments to extend credit (97.5) (97.5) (50.2) (50.2)
Interest rate swaps - - (0.2) (0.7)
Note 11 - Segment Information
The Company provides a diversified range of financing and leasing arrangements
to customers and industries. The Company's operations include three financial
reporting segments: commercial aircraft financing, commercial equipment
leasing and non-core businesses. The commercial aircraft financing segment
provides customer financing services to MDC components, primarily Douglas
Aircraft Company, and also provides financing for the acquisition of non-MDC
aircraft. The commercial equipment leasing segment is principally involved in
large financing and leasing transactions for a diversified range of equipment.
Non-core businesses represent market segments in which the Company is no
longer active. The non-core businesses consist primarily of the remaining
assets of two business units: receivable inventory financing and real estate
financing. Receivable inventory financing provides financing to dealers of
rent-to-own products. Real estate financing previously specialized in fixed
rate, medium term commercial real estate loans.
<PAGE>
<PAGE>40
The Company's financing and leasing portfolio consists of the following at
December 31:
(Dollars in millions) 1994 1993
Commercial aircraft financing:
MDC aircraft financing $1,140.8 62.8% $1,035.1 56.5%
Other commercial aircraft financing 192.2 10.6 202.4 11.0
1,333.0 73.4 1,237.5 67.5
Commercial equipment leasing:
Transportation services 56.3 3.1 69.3 3.8
Transportation equipment 38.2 2.1 42.7 2.3
Food stores 33.8 1.9 25.0 1.4
Other 241.1 13.2 285.3 15.5
369.4 20.3 422.3 23.0
Non-core businesses:
Real estate $ 88.5 4.9 123.6 6.7
Furniture and home furnishings stores 20.8 1.1 31.0 1.7
Other 4.6 0.3 19.1 1.1
113.9 6.3 173.7 9.5
Total portfolio $1,816.3 100.0% $ 1,833.5 100.0%
A substantial portion of the Company's aircraft financings are to airlines
which either have recently emerged from bankruptcy or are in poor financial
health. The Company's first and third largest customers emerged from
bankruptcy in 1993. Company financings to its largest customer accounted for
$287.9 million (15.9% of total Company portfolio) and $253.2 million (13.8% of
total Company portfolio) at December 31, 1994 and 1993. This customer is
currently negotiating deferrals of rent and other payments with its lessors
and other creditors (including the Company and MDC) and has failed to make any
payments to the Company during the fourth quarter of 1994. At December 31,
1994, this customer was in arrears on an aggregate of $11.9 million in
payments (not including interest and late fees thereon) payable to the Company
and has publicly stated that it may be necessary to file for bankruptcy
protection if it cannot reach agreement in 1995 with its creditors. In that
event, if this customer were to reject a substantial number of the aircraft
presently leased by the Company and if the Company could not promptly re-lease
such aircraft at comparable lease rates, the Company's future earnings could
suffer an adverse impact. Company financings to its third largest customer
accounted for $107.4 million (5.9% of total Company portfolio) and $116.5
million (6.4% of total Company portfolio) at December 31, 1994 and 1993.
Pursuant to the terms of supplemental guaranties executed by MDC in favor of
the Company, up to an additional $25.0 million of the Company's financings to
its largest customer and up to an additional $15.0 million of the Company's
financings to its third largest customer are guaranteed by MDC. These
guaranties supplement individual guaranties, aggregating $72.7 million at
December 31, 1994, provided by MDC with respect to certain of the Company's
financings to its first and third largest customers to the extent that the
estimated fair market value of the financings (after applying the individual
guaranties) is less than the net asset value of the financings on the
Company's books. The supplemental guaranties terminate in March 1996, but may
be extended under certain circumstances.
<PAGE>
<PAGE>41
A substantial portion of the Company's total portfolio is concentrated among a
small number of the Company's largest commercial aircraft financing customers.
The Company's second largest customer accounted for $186.4 million (10.3% of
the total Company portfolio) and $181.0 million (9.9% of total Company
portfolio) at December 31, 1994 and 1993. The five largest commercial
aircraft financing customers accounted for $748.6 million (41.2% of total
Company portfolio) and $718.5 million (39.2% of Company total portfolio) at
December 31, 1994 and 1993. There were no significant concentrations by
customer within the commercial equipment leasing and non-core businesses
portfolios.
In 1994, the Company's largest customer accounted for 19.8% of its operating
income; no other customer accounted for more than 10% of the Company's
operating income.
The Company generally holds title to all leased equipment and generally has a
perfected security interest in the assets financed through note and loan
arrangements.
<PAGE>
<PAGE>42
Information about the Company's operations in its different financial
reporting segments for the past three years is as follows:
(Dollars in millions) 1994 1993 1992
Operating income:
Commercial aircraft financing $ 121.4 $ 107.4 $107.7
Commercial equipment leasing 49.8 64.0 79.1
Non-core businesses 15.7 24.4 56.1
Corporate 0.7 2.7 11.8
$ 187.6 $ 198.5 $254.7
Income (loss) from continuing operations before income taxes and
cumulative effect of accounting change:
Commercial aircraft financing $ 27.2 $ 26.3 $ 28.3
Commercial equipment leasing 27.9 30.8 31.1
Non-core businesses (5.3) (10.7) (11.4)
Corporate (7.9) (5.6) -
$ 41.9 $ 40.8 $ 48.0
Identifiable assets at December 31:
Commercial aircraft financing $1,364.1 $1,361.4 $1,085.2
Commercial equipment leasing 382.7 420.2 590.5
Non-core businesses 160.2 247.6 301.2
Corporate 22.6 26.3 22.1
$1,929.6 $2,055.5 $1,999.0
Depreciation expense - equipment under operating leases:
Commercial aircraft financing $ 17.2 $ 10.1 $ 5.9
Commercial equipment leasing 22.2 28.2 31.8
Non-core businesses 0.5 0.7 11.1
$ 39.9 $ 39.0 $ 48.8
Equipment acquired for operating leases, at cost:
Commercial aircraft financing $ 15.7 $ 34.5 $ 53.5
Commercial equipment leasing 24.3 22.9 18.2
Non-core businesses - - 0.1
$ 40.0 $ 57.4 $ 71.8
<PAGE>
<PAGE>43
The Company's operations were classified into two geographic segments, the
United States and the United Kingdom. United Kingdom operations consisted of
MD Bank. Information about the Company's operations in its different
geographic segments for the past three years is as follows:
(Dollars in millions) 1994 1993 1992
Operating income:
United States $ 185.1 $ 194.1 $ 227.7
United Kingdom 2.5 4.4 27.0
$ 187.6 $ 198.5 $ 254.7
Income (loss) from continuing operations before
income taxes and cumulative effect of
accounting change:
United States $ 43.0 $ 41.2 $ 41.0
United Kingdom (1.1) (0.4) 7.0
$ 41.9 $ 40.8 $ 48.0
Identifiable assets at December 31:
United States $1,929.6 $2,026.0 $1,950.0
United Kingdom - 29.5 49.0
$1,929.6 $2,055.5 $1,999.0
Operating income from financing of assets located outside the United States by
the Company's United States geographic segment totaled $41.7 million, $20.9
million and $21.6 million in 1994, 1993 and 1992, respectively.
<PAGE>
<PAGE>44
McDonnell Douglas Finance Corporation and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
(Dollars in millions)
Balance Charged
at to Balance
Beginning Costs at end
of and Deductions of
Year Expenses Other (1) Year
1994 $ 35.6 $ 9.9 $ 0.1 $ 40.7 $ (4.9)
1993 $ 37.4 $ 8.6 $ - $ (10.4) $ 35.6
1992 $ 46.7 $ 19.1 $ (1.0) $ (27.4) $ 37.4
(1) Write-offs net of recoveries.
<PAGE>
<PAGE>45
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Page Number
in Form 10-K
(a) 1. Financial Statements
Report of Independent Auditors 25
Consolidated Balance Sheet at
December 31, 1994 and 1993 27
Consolidated Statement of Income and
Income Retained for Growth for the Years
Ended December 31, 1994, 1993 and 1992 29
Consolidated Statement of Cash Flows for
the Years Ended December 31, 1994, 1993
and 1992 30
Notes to Consolidated Financial Statements 32-46
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts 47
Schedules for which provision is made in the applicable regulation of
the Securities and Exchange Commission (the "SEC"), except Schedule
II, which is included herein, have been omitted because they are not
required, or the information is set forth in the financial statements
or notes thereto.
3. Exhibits
3.1 Restated Certificate of Incorporation of the Company dated June 29,
1989.
3.2 By-Laws of the Company, as amended to date.
4.4 Form of Indenture, dated as of April 1, 1983, between the Company and
Bankers Trust Company, incorporated herein by reference to Exhibit
4(a) to Amendment No. 1 to the Form S-3 Registration Statement of the
Company effective April 22, 1983.
4.5 Form of Subordinated Indenture, dated as of June 15, 1988, by and
between the Company and Bankers Trust Company of California, N.A., as
Subordinated Indenture Trustee, incorporated by reference to Exhibit
4(b) to the Form S-3 Registration Statement of the Company, as filed
with the SEC on June 24, 1988.
4.6 Form of Indenture, dated as of April 15, 1987, incorporated herein
by reference to Exhibit 4 to the Form S-3 Registration Statement of
<PAGE>
<PAGE>46
the Company as filed with the SEC on April 24, 1987.
4.7 Form of Series I Medium Term Note, incorporated herein by
reference to Exhibit 4(b) to the Form S-3 Registration Statement
of the Company effective April 22, 1983.
4.8 Form of Series II Medium Term Note, incorporated herein by reference
to Exhibit 4(c) to the Form 8-K of the Company dated August 22, 1983.
4.9 Form of Series III Medium Term Note, incorporated herein by reference
to Exhibit 4(b) to the Form S-3 Registration Statement of the
Company effective June 17, 1985.
4.10 Form of Series IV Medium Term Note, incorporated herein by reference
to Exhibit 4 to the Form S-3 Registration Statement of the Company
effective June 17, 1985.
4.11 Form of Series V Medium Term Note, incorporated herein by reference
to Exhibit 4 to the Form S-3 Registration Statement of the Company ,
as filed with the SEC on April 24, 1987.
4.12 Form of Series VI Medium Term Note, incorporated herein by reference
to Exhibit 4 to the Form S-3 Registration Statement of the Company,
as filed with the SEC on April 24, 1987.
4.13 Form of Series VII Medium Term Note, incorporated herein by reference
to Exhibit 4 to the Form S-3 Registration Statement of the Company,
as filed with the SEC on April 24, 1987.
4.14 Form of Series VIII Senior Medium Term Note, incorporated herein by
reference to Exhibit 4(c) to the Form S-3 Registration Statement of
the Company, as filed with the SEC on June 24, 1988.
4.15 Form of Series VIII Subordinated Medium Term Note, incorporated
herein by reference to Exhibit 4(d) to the Form S-3 Registration
Statement of the Company, as filed with the SEC on June 24, 1988.
4.16 Form of Series IX Senior Medium Term Note, incorporated herein by
reference to Exhibit 4(c) to the Form S-3 Registration Statement of
the Company, as filed with the SEC on October 4, 1989.
4.17 Form of Series IX Subordinated Medium Term Note, incorporated herein
by reference to Exhibit 4(d) to the Form S-3 Registration Statement
of the Company, as filed with the SEC on October 4, 1989.
4.18 Form of General Term Note(R), incorporated herein by reference to
Exhibit 4(c) to Form 8-K of the Company dated May 26, 1993.
Pursuant to Item 601 (b)(4)(iii) of Regulation S-K, the Company is not filing
certain instruments with respect to its long-term debt because the total
amount of securities currently provided for under each of such instruments
does not exceed 10 percent of the total assets of the Company and its
subsidiaries on a consolidated basis. The Company hereby agrees to furnish a
copy of any such instrument to the SEC upon request.
10.1 Amended and Restated Operating Agreement among MDC, the Company and
MDFS dated as of April 12, 1993, incorporated herein by reference to
<PAGE>
<PAGE>47
Exhibit 10.1 to the Company's Form 10-K for the year ended
December 31, 1993.
10.2 Operating Agreement by and between the Company and MDFS effective as
of February 8, 1989, incorporated herein by reference to Exhibit 10.3
to the Company's Form 10-K for the year ended December 31, 1989.
10.3 By-Laws of MDC as amended January 29, 1993, incorporated by reference
from MDC's Exhibit 3.2 to its Form 8-K Report filed February 1, 1993
(file No. 1-3685).
10.4 Supplemental Guaranty Agreement by and between the Company and MDC,
dated as of December 30, 1993, incorporated herein by reference to
Exhibit 10.4 to the Company's Form 10-K for the year ended
December 31, 1993.
10.5 Supplemental Guaranty Agreement by and between the Company and MDC,
dated as of December 30, 1993.
10.6 Agreement by and between the Company and MDC, dated as of
December 30, 1994.
10.7 Credit Agreement dated as of September 29, 1994 among the Company,
MDFS and the banks listed therein.
23.1 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
99 Statement regarding computation of ratio of earnings to fixed charges.
<PAGE>
<PAGE>48
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
McDonnell Douglas Finance Corporation
By /s/ Thomas J. Lawlor, Jr.
March 30, 1995 Sr. Vice President - Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature Title Date
/s/ Herbert J. Lanese Chairman and Director March 30, 1995
/s/ Thomas J. Motherway President and Director March 30, 1995
(Principal Executive Officer)
/s/ Thomas J. Lawlor, Jr. Sr. Vice President March 30, 1995
(Principal Financial Officer) Finance and Director
Director _____________
F. Mark Kuhlmann
/s/ Robert H. Hood Director March 30, 1995
/s/ Stephen J. Barker Controller March 30, 1995
(Principal Accounting Officer)
<PAGE>1
EXHIBIT 10.6
AGREEMENT
This Agreement dated effective as of December 30, 1994, is by and
between McDonnell Douglas Corporation ("MDC") and McDonnell Douglas
Finance Corporation ("MDFC").
WHEREAS, MDFC is willing, should it have the right to do so at any
time during the Deferral Period (as defined below), to forego calling
upon MDC as guarantor under certain existing MDC guaranties covering the
Trans World Airlines, Inc. ("TWA") aircraft presently leased/financed by
MDFC in exchange for MDC's agreement to provide an additional partial
guaranty of the amounts to be deferred by MDFC as set forth more
particularly below; and
WHEREAS, subject to the terms and conditions herein MDC desires to
sell and MDFC desires to purchase the accounts receivable of MDC
representing the rentals due from TWA during the Deferral Period (as
defined below);
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the parties agree as follows:
1. Subject to the execution of a definitive deferral arrangement
(the "TWA Deferral Agreement") among MDC, MDFC and TWA, MDFC agrees to
defer during the period from October 1, 1994 through March 31, 1995 (the
"Deferral Period") all basic rent under leases payable by TWA to MDFC
during the Deferral Period, in the aggregate amount of $23,834,467.58
(the "MDFC Deferral Amount"), as well as accrued interest thereon.
2. The MDFC Deferral Amount does not include amounts relative to
the four ex-Polaris MD82 aircraft which are leased by MDFC to MDC and in
turn subleased from MDC to TWA. Likewise, the MDFC Deferral Amount does
not include the one NationsBank Aircraft (defined below) or the one
Nippon Aircraft (defined below), and MDC agrees that MDFC shall have no
responsibility for any amounts payable to NationsBank or Nippon Credit or
their assignees. The MDFC Deferral Amount also does not include the loan
on the one Boeing 747 Aircraft.
3. MDFC agrees to purchase from MDC the accounts receivable of MDC
representing the basic rental amounts now due and payable from TWA to MDC
and to become due and payable during the Deferral Period, together with
all interest thereon payable by TWA, under (a) the sublease agreements
between MDC and TWA covering the four MD82 aircraft (the "ex-Polaris
Aircraft") with U.S. Registration marks N917TW, N918TW, N919TW and
N920TW, (b) the lease agreement between MDC and TWA covering one MD83
aircraft (the "NationsBank Aircraft") with U.S. Registration mark N9409F
and (c) the lease agreement between MDC and TWA covering one MD83
aircraft (the "Nippon Aircraft") with U.S. Registration mark N9401W.
MDC represents that TWA has no set-off rights and there is no claim
by TWA that the basic rent due under the sublease of the ex-Polaris
<PAGE>
<PAGE>2
Aircraft on December 1, 1994 is not now due and payable to MDC.
MDC hereby sells, assigns and transfers to MDFC, and MDFC hereby
purchases, all of MDC's right to receive from TWA the basic rent which
became due and payable on December 1, 1994 on the ex-Polaris Aircraft in
the aggregate amount of $ 2,058,000, together with accrued interest
thereon, for a total purchase price of $2,058,000, payable in immediately
available funds on the date hereof.
Provided that on the date of each receivable purchase no Default
then exists under the lease agreement between MDC and MDFC covering the
ex-Polaris Aircraft and no claims of set-off against the receivable to be
purchased then exist, MDFC hereby agrees to purchase from MDC (a) as of
January 18, 1995 the $695,000 receivable representing basic rent which
becomes due and payable on that date from TWA on the Nippon Aircraft for
a purchase price of $695,000, (b) on January 31, 1995 the $695,000
receivable representing basic rent which becomes due and payable on that
date from TWA on the NationsBank Aircraft for a purchase price of
$695,000 and (c) on March 1, 1995 the $2,058,000 receivable representing
basic rent which becomes due and payable on that date from TWA on the ex-
Polaris Aircraft for a purchase price of $2,058,000.
MDFC shall be entitled to receive the full amount of principal,
interest and its proportionate share of any fees payable by TWA under the
TWA Deferral Agreement or otherwise with respect to the receivables
purchased hereunder (the "Purchased Receivables"); provided, however,
MDFC shall pay over to MDC all amounts which otherwise would result in
MDFC receiving more than 11.5% interest on the Purchased Receivables.
Additionally, to cover a failure by TWA to pay the amounts when due
in respect of the Purchased Receivables, MDC hereby unconditionally and
irrevocably guaranties to MDFC the due and punctual payment in full by
TWA of all Purchased Receivables, as well as payment of interest thereon,
with payments of principal and interest to be amortized and paid over two
years ending March 31, 1997; provided, however, MDC s obligation
hereunder in respect of interest accrued and unpaid subsequent to the
Deferral Period shall be limited to interest accrued at a rate equal to
3-month Libor plus .5 percent per annum (the "Guaranty Rate"). MDC
shall, within 10 business days following notice, pay to MDFC the amount
payable under the preceding sentence and MDC shall pay any and all
damages that may be reasonably incurred by MDFC in enforcing such
obligations of TWA; provided, however, so long as MDC is performing its
obligations hereunder, MDFC agrees not to bring any legal proceeding
against TWA to collect on the Purchased Receivables without the prior
written consent of MDC.
4. The parties acknowledge that there are existing guaranties from
MDC to MDFC covering all of the TWA aircraft presently leased by MDFC
(the "TWA Guaranties"). MDFC hereby agrees not to call upon the TWA
Guaranties during the Deferral Period, should it have the right to do so,
in consideration of MDC's agreement to unconditionally guaranty payment
of an amount equal to 65% of the MDFC Deferral Amount and accrued
interest thereon as set forth below, with payment of the principal and
interest portions of such deferrals to be amortized and payable over a
<PAGE>
<PAGE>3
two year period ending March 31, 1997; provided, however, MDC s
obligation hereunder in respect of interest accrued and unpaid subsequent
to the Deferral Period shall be limited to interest accrued at a rate
equal to the Guaranty Rate. MDFC shall be entitled to receive the full
amount of principal, interest and its proportionate share of any fees
payable by TWA under the TWA Deferral Agreement or otherwise with respect
to or allocable to the MDFC Deferral Amount; provided, however, MDFC
shall pay over to MDC all amounts which would otherwise result in MDFC
receiving more than 11.5% interest on the MDFC Deferral Amount.
The parties agree that this Agreement, including without
limitation the guaranty obligations of MDC set forth herein, constitutes
a legal, valid and binding obligation. The guaranty obligations of MDC
in this Agreement shall remain in full force and effect without regard
to, and shall not be impaired or affected by, any act or omission to act
of any kind by MDFC, or any other person, or any other circumstances
whatsoever which might constitute a legal or equitable discharge of a
guarantor, including, but not limited to (a) any waiver, consent,
extension, indulgence, release, discharge, surrender, modification,
amendment or assignment or other like action in respect of this
Agreement, the underlying leases with TWA or any agreement relating
thereto, (b) any exercise or non-exercise by MDFC of any right, remedy,
power or privilege under or in respect of this Agreement, the related
leases or any agreement relating thereto, or any waiver of any such
right, remedy, power or privilege, (c) any bankruptcy, insolvency,
reorganization, arrangement, readjustment, composition, liquidation, or
the like, of TWA, (d) any repudiation or disaffirmance of the related
leases by any trustee in bankruptcy of TWA, or (e) the invalidity,
illegality or unenforceability of this Agreement, or the related leases
or any provision thereof for any reason; it being the intention of MDC
that its obligations under this Agreement shall be absolute and
unconditional in any and all circumstances and that such obligations
shall only be discharged by the payment in full of all sums, and the full
and complete performance and discharge of all covenants, agreements and
obligations so guaranteed. In the event of default by TWA under the
related leases, recovery may be had against MDC in any action, suit or
proceeding without any requirement that MDFC first assert, prosecute or
exhaust any right, power or remedy against TWA, its successors or
assigns. Following tender of performance hereunder, MDC shall be
subrogated to the rights of MDFC against TWA under the relevant
documents; provided, however, until payment in full of its obligations
hereunder, MDC shall stay and hold in abeyance any rights, direct or
indirect, which it may have, by subrogation or otherwise, as a result of
this Agreement in respect of TWA. Any provisions of this Guaranty
prohibited by law shall be ineffective to the extent of such prohibition
without invalidating the remaining provisions hereof. MDFC agrees to
consult with MDC in connection with matters arising under this guaranty
provision and, to the full extent feasible in MDFC s good faith judgment,
coordinate with MDC in order to attempt to avoid injury to the
relationship between MDC and any of its customers and to minimize to the
full extent feasible in MDFC s good faith judgment any required payments
by MDC to MDFC hereunder.
5. This Agreement shall be governed by, and construed in
<PAGE>
<PAGE>4
accordance with, the laws of the State of New York, without regard to
principles of conflict of laws.
6. This Agreement shall inure to the benefit of MDC and MDFC and
no other third party.
7. Neither party may assign any of its rights or obligations
hereunder without the prior written consent of the other party.
8. The parties acknowledge that their expectation is the TWA
Deferral Agreement will be fully executed on or before March 31, 1995 and
that it will provide for a two-year period for fully amortizing the
principal and interest portions of the amounts being deferred. If for
any reason the TWA Deferral Agreement has not been consummated as
contemplated, the guaranty provisions of Sections 3 and 4 hereof shall
nonetheless remain in full force and effect.
IN WITNESS WHEREOF, the duly authorized officers of the parties have
executed this Agreement effective as of the date first written above.
MCDONNELL DOUGLAS MCDONNELL DOUGLAS CORPORATION
CORPORATION FINANCE
By: ________________________ By: _________________________
Its: ________________________ Its: _________________________
<PAGE>1
EXHIBIT 10.7
[EXECUTION COPY]
$220,000,000
CREDIT AGREEMENT
dated as of
September 29, 1994
among
McDonnell Douglas Finance Corporation
McDonnell Douglas Financial Services Corporation
The Banks Listed Herein
The Chase Manhattan Bank, N.A., and
Morgan Guaranty Trust Company of New York,
as Agents
<PAGE>
<PAGE>2
TABLE OF CONTENTS (1)
Page
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions . . . . . . . . . . . . . 6
1.02 Accounting Terms and Determinations . 19
ARTICLE II
THE CREDITS
SECTION 2.01 Commitments to Lend . . . . . . . . . 19
2.02 Method of Borrowing . . . . . . . . . 21
2.03 Notes . . . . . . . . . . . . . . . . 22
2.04 Maturity of Loans . . . . . . . . . . 23
2.05 Interest Rates . . . . . . . . . . . . 24
2.06 Commitment Fees . . . . . . . . . . . 24
2.07 Optional Termination or Reduction of
Commitments . . . . . . . . . . . . . 24
2.08 Mandatory Termination
of Commitments . . . . . . . . . . . . 24
2.09 Optional Prepayments . . . . . . . . . 24
2.10 General Provisions as
to Payments . . . . . . . . . . . . . 25
2.11 Funding Losses . . . . . . . . . . . . 25
2.12 Computation of Interest and Fees . . . 26
2.13 Regulation D Compensation . . . . . . 26
ARTICLE III
CONDITIONS
SECTION 3.01 Closing . . . . . . . . . . . . . . . . . . 26
3.02 Borrowings . . . . . . . . . . . . . . 27
___________
(1) The Table of Contents is not a part of this Agreement.
<PAGE>
<PAGE>3
Page
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
SECTION 4.01 Corporate Existence and Power . . . . . . . 27
4.02 Corporate and Governmental
Authorization; No Contravention . . . 28
4.03 Binding Effect . . . . . . . . . . . . 28
4.04 Financial Information . . . . . . . . 28
4.05 Litigation . . . . . . . . . . . . . . 29
4.06 Compliance with ERISA . . . . . . . . 29
4.07 Environmental Matters . . . . . . . . 29
4.08 Taxes . . . . . . . . . . . . . . . . 29
4.09 Subsidiaries . . . . . . . . . . . . . 29
4.10 Not an Investment Company . . . . . . 29
4.11 Disclosure . . . . . . . . . . . . . . 30
ARTICLE V
COVENANTS
SECTION 5.01 Information . . . . . . . . . . . . . . . . 30
5.02 Maintenance of Property; Insurance . . 32
5.03 Conduct of Business and
Maintenance of Existence . . . . . . . 32
5.04 Compliance with Laws . . . . . . . . . 32
5.05 Inspection of Property,
Books and Records . . . . . . . . . . 33
5.06 Consolidations, Mergers and
Sales of Assets . . . . . . . . . . . 33
5.07 Adjusted Debt . . . . . . . . . . . . 33
5.08 Minimum Net Worth . . . . . . . . . . 33
5.09 Dividends . . . . . . . . . . . . . . 33
5.10 Payments to MDC . . . . . . . . . . . 34
5.11 Limitation on Operating Leases . . . . 35
5.12 Negative Pledge . . . . . . . . . . . 35
5.13 Use of Proceeds . . . . . . . . . . . 37
5.14 Transactions with Affiliates . . . . . 37
ARTICLE VI
DEFAULTS
SECTION 6.01 Events of Default . . . . . . . . . . . . . 38
6.02 Notice of Default . . . . . . . . . . 39
<PAGE>
<PAGE>4
ARTICLE VII
THE AGENTS
SECTION 7.01 Appointment and Authorization . . . . . . . 40
7.02 Agents and Affiliates . . . . . . . . 40
7.03 Action by Agents . . . . . . . . . . . 40
7.04 Consultation with Experts . . . . . . 40
7.05 Liability of Agents . . . . . . . . . 40
7.06 Notice of Defaults . . . . . . . . . . 40
7.07 Indemnification . . . . . . . . . . . 41
7.08 Credit Decision . . . . . . . . . . . 41
7.09 Successor Agents . . . . . . . . . . . 41
7.10 Agents' Fees . . . . . . . . . . . . . 41
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01 Basis for Determining Interest
Rate Inadequate or Unfair . . . . . . 41
8.02 Illegality . . . . . . . . . . . . . . 42
8.03 Increased Cost and Reduced Return . . 42
8.04 Taxes . . . . . . . . . . . . . . . . 43
8.05 Domestic Loans Substituted for
Affected Euro-Dollar Loans . . . . . . 44
8.06 Determinations to be Reasonable and
Not Discriminatory . . . . . . . . . . . . . . . . 45
ARTICLE IX
GUARANTY
SECTION 9.01 The Guaranty . . . . . . . . . . . . . . . 45
9.02 Guaranty Unconditional . . . . . . . 45
9.03 Discharge Only Upon Payment
In Full; Reinstatement In
Certain Circumstances . . . . . . . . 46
9.04 Waiver by the Company . . . . . . . . 46
9.05 Subrogation . . . . . . . . . . . . . 46
9.06 Stay of Acceleration . . . . . . . . 46
<PAGE>
<PAGE>5
ARTICLE X
MISCELLANEOUS
SECTION 10.01 Notices . . . . . . . . . . . . . . . . . . 46
10.02 No Waivers . . . . . . . . . . . . . 47
10.03 Expenses; Indemnification . . . . . . 47
10.04 Sharing of Set-Offs . . . . . . . . . 47
10.05 Amendments and Waivers . . . . . . . 48
10.06 Successors and Assigns . . . . . . . 48
10.07 Collateral . . . . . . . . . . . . . 49
10.08 Governing Law; Submission to
Jurisdiction . . . . . . . . . . . . 49
10.09 Counterparts; Integration;
Effectiveness . . . . . . . . . . . . 50
10.10 WAIVER OF JURY TRIAL . . . . . . . . 50
Pricing Schedule
Exhibit A - Note
Exhibit B - Opinion of Counsel for the Borrowers
Exhibit C - Opinion of Special Counsel for the Documentation Agent
Exhibit D - Assignment and Assumption Agreement
Exhibit E - Form of Subordination Provisions
Exhibit F - List of Major Subsidiaries
<PAGE>
<PAGE>6
CREDIT AGREEMENT
AGREEMENT dated as of September 29, 1994 among MCDONNELL DOUGLAS
FINANCE CORPORATION, MCDONNELL DOUGLAS FINANCIAL SERVICES CORPORATION, the
BANKS listed on the signature pages hereof, and THE CHASE MANHATTAN BANK,
N.A., and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agents.
WITNESSETH:
WHEREAS, McDonnell Douglas Finance Corporation (with its successors,
the "Company") desires to enter into a revolving credit agreement under which
it may from time to time borrow amounts not exceeding $220,000,000 in
aggregate outstanding principal amount; and
WHEREAS, McDonnell Douglas Financial Services Corporation (with its
successors, "MDFS") desires to be able to borrow up to $16,000,000 of the
$220,000,000 available under such revolving credit agreement, and the Company
is willing to guarantee MDFS's obligations in respect of such borrowings;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. The following terms, as used herein, have
the following meanings:
"Adjusted Capital Base" means, at any date, the Capital Base at such
date less the sum of the following amounts at such date:
(a) the amount by which the Receivable Value of any Receivable
Obligation, less any portion of such Receivable Value guaranteed under a
Qualified Guarantee, exceeds 10% of Net Tangible Assets;
(b) the aggregate book value of all Investments of the Company and
the Restricted Subsidiaries in Unrestricted Subsidiaries;
(c) the greater of:
1. the sum of:
(x) the amount (if any) by which (i) 33% of the aggregate Receivable
Value of all Receivable Obligations, with respect to which any principal,
interest, lease payment, fee or other obligation of the obligor thereon is
due and unpaid for 60 days or more, exceeds (ii) the sum of the portion of
such aggregate Receivable Value guaranteed under Qualified Guarantees plus
the Allowance for Losses on Financing Receivables,
(y) the amount (if any) by which (i) 33% of the aggregate value (as
reflected in the relevant Financial Statements) of assets classified as
"Equipment Held for Sale or Lease" exceeds (ii) the sum of the book value
<PAGE>
<PAGE>7
of any amounts guaranteed under Qualified Guarantees relating to such
assets plus 2% of Net Tangible Assets; PROVIDED that the foregoing
calculation shall be made as of the end of each of the two most recently
ended Fiscal Quarters and only the lesser of the two excess amounts so
calculated shall be deducted pursuant to this clause (y), and
(z) the amount (if any) by which (i) 33% of the aggregate Receivable
Value of all Receivable Obligations with respect to which any principal,
interest, lease payment, fee or other obligation of the obligor thereon has
been deferred, refinanced, or rescheduled exceeds (ii) the sum of the
portion of such aggregate Receivable Value guaranteed under Qualified
Guarantees plus the Allowance for Losses on Financing Receivables; or
2. the amount (if any) by which (i) the sum of the amounts
described in subclauses 1(x)(i), 1(y)(i) and 1(z)(i) above exceeds (ii) the
sum of the Allowance for Losses on Financing Receivables plus 3-1/2% of Net
Tangible Assets plus the sum of all amounts deducted in respect of
Qualified Guarantees pursuant to clauses 1(x)(ii), 1(y)(ii) and 1(z)(ii)
above;
(d) the amount (if any) by which (1) the aggregate Receivable Value
of all Foreign Receivable Obligations exceeds (2) the sum of the portion of
such Receivable Value guaranteed pursuant to Qualified Guarantees plus 45%
of Net Tangible Assets; and
(e) the amount (if any) by which (1) the book value of equipment
leased to third parties under operating leases, less the present value
(discounted at a rate of 8% per annum, compounded at the frequency at which
Net Rental Payments are payable thereunder) of the Net Rental Payments due
during the remaining non-cancelable terms of such leases, exceeds (2) the
book value of all amounts guaranteed under Qualified Guarantees relating to
such equipment plus 25% of Net Tangible Assets, and
(f) the aggregate value of all patents, copyrights, trademarks, trade
names, franchises, good will, experimental expenses and other similar
intangibles.
In so making deductions from Capital Base to determine Adjusted Capital Base,
(1) excesses deducted as a result of any one of the foregoing clauses (a)
through (f) shall be excluded from the amount of the applicable Receivable
Obligations in applying any other of such clauses and (2) the value of
Investments in Unrestricted Subsidiaries shall be the amount thereof reflected
in the Company's most recent Financial Statements.
"Adjusted Debt" means, without duplication:
(a) all indebtedness (except Subordinated Debt) of the Company or any
Restricted Subsidiary (after eliminating all indebtedness among the Company
and the Restricted Subsidiaries) for borrowed money or evidenced by a bond,
debenture, promissory note or other similar written obligation to pay
money;
(b) the present value of all amounts payable by the Company or any
Restricted Subsidiary (after eliminating all indebtedness among the Company
and the Restricted Subsidiaries) under any lease or under any other
arrangement for retention of title (discounted at the actual percentage
rate implicit in such lease or other arrangement, compounded at the
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<PAGE>8
frequency at which net rental payments are payable thereunder, as
determined in good faith by the Company) if such lease or other arrangement
is in substance (i) a capital lease, (ii) an arrangement for the retention
of title for security purposes or (iii) an installment purchase;
(c) the aggregate amount of discounted Net Rental Payments described
in Section 5.11;
(d) the amount by which the aggregate outstanding principal amount of
all Subordinated Debt exceeds 50% of Net Worth; and
(e) the amount by which the aggregate amount of all Guaranties of the
Company and the Restricted Subsidiaries exceeds 25% of Net Worth.
"Administrative Agent" means The Chase Manhattan Bank, N.A., in its
capacity as administrative agent for the Banks hereunder, and its successors
in such capacity.
"Administrative Questionnaire" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Administrative Agent,
duly completed by such Bank and submitted to the Administrative Agent (with
copies to the Borrowers).
"Affiliate" means, with respect to any corporation, a Person (other
than a direct or indirect subsidiary of such corporation) (1) which directly
or indirectly through one or more intermediaries controls, or is controlled
by, or is under common control with, such corporation, (2) which beneficially
owns or holds 5% or more of any class of the voting stock of such corporation
or (3) 5% or more of the voting stock (or in the case of a Person that is not
a corporation, 5% or more of the equity interest) of which is beneficially
owned or held by such corporation or a direct or indirect subsidiary of such
corporation. The term "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies
of a Person, whether through the ownership of voting securities, by contract
or otherwise.
"Agents" means the Administrative Agent and the Documentation Agent,
and "Agent" means either of the foregoing.
"Allowance for Losses on Financing Receivables" means, at any time,
the Allowance for Losses on Financing Receivables as set forth in the most
recent Financial Statements of the Company.
"Applicable Lending Office" means, with respect to any Bank, (i) in
the case of its Domestic Loans, its Domestic Lending Office and (ii) in the
case of its Euro-Dollar Loans, its Euro-Dollar Lending Office.
"Assignee" has the meaning set forth in Section 10.06(c).
"Bank" means each bank listed on the signature pages hereof, each
Assignee which becomes a Bank pursuant to Section 10.06(c), and their
respective successors.
"Base Rate" means, for any day, a rate per annum equal to the higher
of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the
Federal Funds Rate for such day.
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<PAGE>9
"Base Rate Loans" means loans which bear interest at the Base Rate.
"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Borrower" means the Company or MDFS, as the context may require, and
"Borrowers" means both of the foregoing.
"Borrowing" means a borrowing hereunder consisting of Loans made by
the Banks to the same Borrower at the same time and for the same interest
period pursuant to Article II. Borrowings are classified for purposes of this
Agreement either by reference to the pricing of Loans comprising such
Borrowing (E.G., a "Domestic Borrowing" is a Borrowing comprised of Domestic
Loans, while a "Euro-Dollar Borrowing" is a Borrowing comprised of Euro-Dollar
Loans) or by reference to the provisions of Article II under which
participation therein is determined (E.G., a "Syndicated Borrowing" is a
Borrowing under Section 2.01(a) or 2.01(c) in which all Banks participate in
proportion to their Syndicated Commitments, while a "Swingline Borrowing" is a
Borrowing under Section 2.01(b) in which one or both Swingline Banks
participate in an amount up to their respective Swingline Commitments).
"Capital Base" means the sum of Net Worth plus Subordinated Debt;
PROVIDED that Capital Base shall not include any amount of Subordinated Debt
in excess of 50% of Net Worth.
"Chase" means The Chase Manhattan Bank, N.A.
"Closing Date" means the date on or after the Effective Date on which
the Documentation Agent shall have received the documents specified in or
pursuant to Section 3.01.
"Commitment" means a Syndicated Commitment or a Swingline Commitment
and "Commitments" means the Syndicated Commitments and the Swingline
Commitments or any combination of the two.
"Company" means McDonnell Douglas Finance Corporation, a Delaware
corporation, and its successors.
"Company's 1993 Form 10-K" means the Company's annual report on Form
10-K for 1993, as filed with the Securities and Exchange Commission pursuant
to the Securities Exchange Act of 1934.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business, (iv) all obligations of such Person as lessee which are
capitalized in accordance with generally accepted accounting principles,
(v) all obligations of others secured by a Lien on any asset of such Person,
whether or not such obligations have been assumed by such Person, and (vi) all
obligations of others Guaranteed by such Person; PROVIDED that (x) the term
"Debt" shall not include any Non-Recourse Debt and (y) the obligations of
others referred to in clauses (v) and (vi) of this definition shall be limited
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<PAGE>10
to the types of obligations described in clauses (i) to (iv), inclusive, of
this definition.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Derivatives Obligations" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction (including any
option with respect to any of the foregoing transactions) or any combination
of the foregoing transactions.
"Documentation Agent" means Morgan Guaranty Trust Company of New York,
in its capacity as documentation agent for the Banks hereunder, and its
successors in such capacity.
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York, New York or Los Angeles,
California are authorized by law to close.
"Domestic Lending Office" means, as to each Bank, its office located
at its address set forth in its Administrative Questionnaire (or identified in
its Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrowers and the Administrative Agent.
"Domestic Loan" means a Syndicated Loan to be made by a Bank as a
Domestic Loan pursuant to the applicable Notice of Syndicated Borrowing or
Article VIII.
"D&P" means Duff and Phelps Credit Rating Company.
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 10.09.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental restrictions relating
to the environment, the effect of the environment on human health or to
emissions, discharges or releases of pollutants, contaminants, Hazardous
Substances or wastes into the environment including, without limitation,
ambient air, surface water, ground water, or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, Hazardous Substances or
wastes or the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Affiliate" means any corporation or trade or business which is
a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Internal Revenue Code) as a Borrower or is under common
<PAGE>
<PAGE>11
control (within the meaning of Section 414(c) of the Internal Revenue Code)
with a Borrower.
"ERISA Group" means each Borrower, any Subsidiary of such Borrower and
all members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control which, together with such
Borrower or any Subsidiary of such Borrower, are treated as a single employer
under Section 414 (b) and (c) of the Internal Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
U.S. dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Bank, its office,
branch or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its
Euro-Dollar Lending Office) or such other office, branch or affiliate of such
Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice
to the Borrowers and the Administrative Agent.
"Euro-Dollar Loan" means a Syndicated Loan to be made by a Bank as a
Euro-Dollar Loan pursuant to the applicable Notice of Syndicated Borrowing.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion U.S.
dollars in respect of "Eurocurrency liabilities" (or in respect of any other
category of liabilities which includes deposits by reference to which the
interest rate on Euro-Dollar Loans is determined or any category of extensions
of credit or other assets which includes loans by a non-United States office
of any Bank to United States residents).
"Event of Default" has the meaning set forth in Section 6.01.
"Existing Credit Agreements" means the Credit Agreement dated as of
January 29, 1988 among the Company, the banks listed on the signature pages
thereof and Chase, as Agent, and the Credit Agreement dated as of December 20,
1993 among the Company, MDFS, the banks listed on the signature pages thereof
and The Bank of New York, Chase and Morgan, as Agents, as amended.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, PROVIDED that (i) if such day is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on
the next succeeding Domestic Business Day, and (ii) if no such rate is so
published on such next succeeding Domestic Business Day, the Federal Funds
Rate for such day shall be the average rate quoted to Chase on such day on
such transactions as determined by the Administrative Agent.
"Finance Business" means any one or more of the following: (i) the
business of leasing equipment or other personal property to third parties,
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<PAGE>12
(ii) the business of making loans, (iii) the business of purchasing or selling
notes or other receivables, (iv) such other business as may be incidental to
any of the foregoing, (v) the business of acting as insurance agent or broker
(but not the writing of insurance) and (vi) any other business of essentially
a financial nature which may at the time be engaged in by finance or leasing
companies similar to and competing with the Company and the Restricted
Subsidiaries.
"Financial Statements" means the consolidated financial statements of
the Company and its consolidated Subsidiaries referred to in Section 4.04 and
any consolidated financial statements of the Company and its consolidated
Subsidiaries supplied to the Banks pursuant to 5.01.
"Foreign Receivable Obligation" means any Receivable Obligation with
respect to which the obligor is incorporated or organized under the laws of a
jurisdiction other than the United States or a State thereof or has its
principal place of business in any such jurisdiction.
"Guarantee" means any obligation of the Company or any Restricted
Subsidiary (after eliminating all inter-company items among the Company and
the Restricted Subsidiaries), guaranteeing or in effect guaranteeing any
indebtedness, dividend or other obligation of any other party (the "primary
obligor") in any manner (other than an endorsement for collection or deposit
in the ordinary course of business), whether directly or indirectly, including
any portion of the face value of any note or lease receivable or account
receivable sold with recourse and obligations incurred through an agreement,
contingent or otherwise, by the Company or any Restricted Subsidiary:
(a) to purchase such indebtedness or obligation or any property or
assets constituting security therefor;
(b) to advance, supply or otherwise make available funds
(i) for the purchase or payment of such indebtedness or
obligation, or
(ii) to maintain working capital or other balance sheet condition
or any income statement condition;
(c) to lease property or to purchase securities or other property or
services primarily for the purpose of assuring the owner of such
indebtedness or obligation of the ability of the primary obligor to make
payment of the indebtedness or obligation; or
(d) otherwise to assure the owner of the indebtedness or obligations
of the primary obligor against loss in respect thereof.
The term "Guarantee" used as a verb has a corresponding meaning.
"Hazardous Substances" means any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substance having any constituent
elements displaying any of the foregoing characteristics.
"Indemnitee" has the meaning set forth in Section 10.03(b).
"Intangible Assets" means:
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<PAGE>13
(1) deferred charges (including prepaid expenses and unamortized debt
discount and expense), other than prepaid insurance and prepaid taxes; and
(2) patents, copyrights, trademarks, trade names, franchises, good
will, experimental expenses and other similar intangibles.
"Interest Period" means: (1) with respect to each Euro-Dollar
Borrowing, the period commencing on the date of such Borrowing and ending 1,
2, 3 or 6 months thereafter, as the relevant Borrower may elect in the
applicable Notice of Borrowing; PROVIDED that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last Euro-Dollar Business
Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(2) with respect to each Domestic Borrowing, the period commencing on
the date of such Borrowing and ending 30 days thereafter; PROVIDED that:
(a) any Interest Period (other than an Interest Period determined
pursuant to clause (b) below) which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Investment" means any investment, whether made in cash or by transfer
of property or otherwise, and whether made by acquisition of stock,
indebtedness or other obligation or security, or by loan, advance or capital
contribution or otherwise.
"LIBOR Margin" has the meaning set forth in Section 2.05(b).
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For purposes of this Agreement, the
Company or any Restricted Subsidiary shall be deemed to own subject to a Lien
any asset which it has acquired or holds subject to the interest of a vendor
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<PAGE>14
or lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such asset.
"Loan" means a Domestic Loan or a Euro-Dollar Loan or a Swingline Loan
and "Loans" means Domestic Loans or Euro-Dollar Loans or Swingline Loans or
any combination of the foregoing.
"London Interbank Offered Rate" has the meaning set forth in Section
2.05(b).
"Material Financial Obligations" means Debt (other than the Notes)
and/or payment obligations (valued at the net termination value of such
obligations) in respect of Derivatives Obligations of MDFS, the Company and/or
one or more Subsidiaries of the Company, arising in one or more related or
unrelated transactions, in an aggregate principal amount exceeding
$10,000,000.
"MDC" means McDonnell Douglas Corporation, a Maryland corporation, and
its successors.
"MDFS" means McDonnell Douglas Financial Services Corporation, a
Delaware corporation, and its successors.
"Moody's" means Moody's Investors Service, Inc.
"Morgan" means Morgan Guaranty Trust Company of New York.
"Multiemployer Plan" means a Plan defined as such in Section 3(37) of
ERISA to which contributions have been made by a Borrower or any ERISA
Affiliate and which is covered by Title IV of ERISA.
"Net Rental Payments" means, with respect to any operating lease for
any period, the sum of the rental and other payments required to be paid for
such period by the lessee thereunder, excluding any amounts required to be
paid by such lessee (whether or not designated as rental or additional rental)
on account of maintenance and repairs, insurance, taxes, assessments, water
rates or similar charges required to be paid by such lessee thereunder or any
amounts required to be paid by such lessee thereunder contingent upon the
amount of sales, maintenance and repairs, insurance, taxes, assessments, water
rates or similar charges.
"Net Tangible Assets" means, at any date, the consolidated assets of
the Company and its consolidated Subsidiaries less their consolidated
Intangible Assets, all determined at such date.
"Net Worth" means, at any date, the sum of (i) the consolidated
shareholder's equity of the Company and (ii) any preferred stock of the
Company (up to a maximum amount of $50,000,000) that is not otherwise included
in such consolidated shareholder's equity and is not redeemable at the option
of the holder or pursuant to any mandatory redemption requirement prior to the
date which is 30 days after the Termination Date, all as recorded in the
Company's most recent Financial Statements.
"Non-Recourse Debt" means at any time any obligation secured by a Lien
on one or more assets of the obligor where the rights and remedies of the
holder of such obligation in respect of such obligation do not extend to any
other assets of the obligor. Notwithstanding the foregoing, an obligation
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<PAGE>15
shall not fail to constitute Non-Recourse Debt by reason of the inclusion in
any document evidencing, governing, securing or otherwise relating to such
obligation of provisions to the effect that the obligor shall be liable,
beyond the assets securing such obligation, for (i) misapplied moneys,
including without limitation insurance and condemnation proceeds and security
deposits, (ii) indemnification by the obligor in favor of the holder of such
obligation and its affiliates in respect of liabilities to third parties,
including without limitation environmental liabilities, (iii) breaches of
customary representations and warranties given to the holder of such
obligation and (iv) such other similar obligations as are customarily excluded
from the provisions that otherwise limit the recourse of commercial lenders
making so-called "non-recourse" loans to institutional borrowers.
"Notes" means promissory notes of a Borrower, substantially in the
form of Exhibit A hereto, evidencing the obligation of such Borrower to repay
the Loans made to it, and "Note" means any one of such promissory notes issued
hereunder.
"Notice of Borrowing" means a Notice of Syndicated Borrowing or a
Notice of Swingline Borrowing.
"Notice of Swingline Borrowing" has the meaning set forth in Section
2.02(b).
"Notice of Syndicated Borrowing" has the meaning set forth in Section
2.02(a).
"Outstanding Exposure" means, with respect to any Bank at any time,
the sum of (i) the outstanding principal amount of all Syndicated Loans
evidenced by the Note held by such Bank at such time and (ii) the portion of
the principal amount of all Swingline Loans then outstanding which is or would
be held for the account of such Bank after giving effect to the assignments
and participations provided for in Section 2.01(c).
"Parent" means, with respect to any Bank, any Person controlling such
Bank.
"Participant" has the meaning set forth in Section 10.06(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Restricted Subsidiary Debt" means Debt of any Restricted
Subsidiary for money borrowed by it, other than Debt owed to the Company or
another Restricted Subsidiary.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Plan" means an employee benefit or other plan established or
maintained by the Company or any ERISA Affiliate and which is covered by Title
IV of ERISA, other than a Multiemployer Plan.
"Pricing Schedule" means the Schedule attached hereto identified as
such.
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<PAGE>16
"Prime Rate" means the rate of interest announced by Chase at the
Principal Office from time to time as its prime commercial lending rate.
"Principal Office" means the principal office of Chase, as notified by
Chase to the Company from time to time, which is located on the date hereof at
1 Chase Manhattan Plaza, New York, New York 10081.
"Qualified Guarantee" means an unconditional guarantee by a guarantor
described in one or more of clauses (i) through (iv) below so long as such
guarantor continues to be described by one or more of such clauses:
(i) the Export-Import Bank of the United States;
(ii) any bank organized under the laws of the United States or any
State thereof having assets, according to its most recently published
financial statements at the time the Company executed a written commitment
to acquire such Receivable Obligation, exceeding $10,000,000,000 and having
its outstanding long-term obligations (without third party credit support)
rated BBB + or higher by S&P or Baa1 or higher by Moody's;
(iii) MDC, PROVIDED that the portions of the Receivable Value of
Receivable Obligations not deducted in determining Adjusted Capital Base as
a result of the application of this clause (iii) may not exceed (x) 5% of
the consolidated shareholders' equity of MDC (as shown in the most recent
consolidated financial statements of MDC filed with the Securities and
Exchange Commission) in the case of any single Receivable Obligation or (y)
15% of such consolidated shareholders' equity of MDC in the aggregate for
all such Receivable Obligations; or
(iv) any other Person, so long as unsecured long-term obligations of
such Person (without third party credit support) have a rating of "A" (or
its equivalent) or better by any of Moody's, S&P or Fitch Investor
Services, Inc. (if such Person is a bank) or D&P (if such Person is not a
bank), or, in each case, any successor to such rating agency satisfactory
to the Company and the Documentation Agent.
"Receivable Obligation" means any obligation (or group of obligations
which constitute the liability, direct or indirect, of any one obligor or any
group of obligors under common control) to the Company or any Restricted
Subsidiary (including, without limitation, obligations arising under
securities of a corporation which have preferential rights as to the payment
of dividends or the distribution of assets on any voluntary or involuntary
liquidation of said corporation), other than obligations among the Company and
the Restricted Subsidiaries and among Restricted Subsidiaries, arising or
incurred in the course of the business of the Company or the Restricted
Subsidiaries.
"Receivable Value" of a Receivable Obligation means the net amount at
which such Receivable Obligation is recorded, in accordance with generally
accepted accounting principles, in the financial statements of the Company or
a Restricted Subsidiary.
"Reference Banks" means the principal London offices of Chase and
Morgan.
"Refunding Borrowing" means a Syndicated Borrowing which, after
application of the proceeds thereof, results in no net increase in the
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<PAGE>17
outstanding principal amount of Syndicated Loans made by any Bank to any
Borrower.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Regulatory Change" means, with respect to any Bank (or its Euro-
Dollar Lending Office), the adoption after the date hereof of any applicable
law, rule or regulation, or any change after the date hereof in any applicable
law, rule or regulation, or any change after the date hereof in the
interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or the making or issuance after the date hereof of any
request or directive (whether or not having the force of law) by any such
authority, central bank or comparable agency.
"Required Banks" means at any time Banks having at least 66 2/3% of
the aggregate amount of the Syndicated Commitments or, if the Syndicated
Commitments shall have been terminated, having at least 66 2/3% of the
aggregate amount of the Outstanding Exposures.
"Restricted Subsidiary" means any Subsidiary of the Company other than
an Unrestricted Subsidiary.
"Revolving Credit Period" means the period from and including the
Effective Date to and including the Termination Date.
"S&P" means Standard and Poor's Ratings Group.
"Series A Preferred Stock" means the Series A Preferred Stock, stated
value $5000 per share, of the Company.
"Senior Debt" means all Adjusted Debt of the Company (including the
Loans) which is not Subordinated Debt.
"Subordinated Debt" means all Debt of the Company which (i) is a type
of Debt described in clause (i) or (ii) of the definition of "Debt" and (ii)
is made subordinate and junior in right of payment to all Loans made to the
Company and to the Company's obligations as guarantor of all Loans made to
MDFS either (x) by subordination provisions (and related definitions)
substantially in the form set forth in Exhibit E hereto or (y) by other
subordination provisions (and related definitions) approved by the Required
Banks.
"Subsidiary" means any corporation of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Company or MDFS, as the context
may require.
"Swingline Bank" means Chase or Morgan, each in its capacity as a
Swingline Bank under the swingline facility described in Section 2.01(b), and
their respective successors in such capacity.
"Swingline Commitment" means, with respect to each Swingline Bank at
any time, the lesser of (i) $37,500,000 and (ii) an amount equal to 20% of the
aggregate Syndicated Commitments at such time.
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"Swingline Loan" means a loan made by a Swingline Bank pursuant to
Section 2.01(b).
"Swingline Maturity Date" has the meaning set forth in 2.04(b).
"Syndicated Commitment" means, with respect to each Bank, the amount
set forth opposite the name of such Bank on the signature pages hereof (or, in
the case of an Assignee, the portion of the transferor Bank's Commitment
assigned to such Assignee pursuant to Section 10.06(c)), in each case as such
amount may be reduced from time to time pursuant to Sections 2.07 and 2.08 or
changed as a result of an assignment pursuant to Section 10.06(c).
"Syndicated Loan" means a loan made by a Bank pursuant to Section
2.01(a) or Section 2.01(c).
"Termination Date" means September 28, 1998 or, if such day is not a
Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.
"Unrestricted Subsidiary" means any Subsidiary of the Company that
(1) is not engaged in the Finance Business; or
(2) is not organized under the laws of the United States, its
territories or possessions, Canada, Great Britain or Bermuda or a political
subdivision of any of the foregoing; or
(3) does not conduct substantially all of its business within the
United States, its territories or possessions, Canada, Great Britain and/or
Bermuda; or
(4) is at any time after the date hereof designated by the board of
directors of the Company to be included in the definition of Unrestricted
Subsidiary for purposes of this Agreement (notice of such designation to be
given by the Company to the Documentation Agent promptly); PROVIDED that at
the time of such designation and after giving effect thereto, (x) no
Default shall exist hereunder, (y) the Company and the Restricted
Subsidiaries would have the capacity to incur at least $1.00 of additional
Adjusted Debt (other than Non-Recourse Debt) pursuant to the provisions of
Section 5.07 and (z) the Company and the Restricted Subsidiaries would have
the capacity to enter into a lease providing for at least $1.00 of
additional rental payments pursuant to the provisions of Section 5.11.
If a Subsidiary is an Unrestricted Subsidiary solely by reason of
clause (4) above, such Subsidiary may at any time be designated by the board
of directors of the Company to be included in the definition of Restricted
Subsidiary for purposes of this Agreement (notice of such designation to be
given by the Company to the Documentation Agent promptly); PROVIDED that at
the time of such change in characterization and after giving effect thereto
(a) no Default shall exist hereunder, (b) the Company and the Restricted
Subsidiaries would have the capacity to incur at least $1.00 of additional
Adjusted Debt (other than Non-Recourse Debt) pursuant to the provisions of
Section 5.07 and (c) the Company and the Restricted Subsidiaries would have
the capacity to enter into a lease providing for at least $1.00 of additional
rental payments pursuant to the provisions of Section 5.11.
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"United States" means the United States of America, including the
States and the District of Columbia, but excluding its territories and
possessions.
SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial
statements required to be delivered hereunder shall be prepared in accordance
with generally accepted accounting principles as in effect from time to time,
applied on a basis consistent (except for changes concurred in by the
Company's independent public accountants) with the most recent audited
consolidated financial statements of the Company and its consolidated
Subsidiaries delivered to the Banks or, in the case of MDFS, the most recent
audited consolidated financial statements of MDFS and its consolidated
Subsidiaries delivered to the Banks; PROVIDED that, if the Company notifies
the Documentation Agent that the Company wishes to amend any covenant in
Article V to eliminate the effect of any change in generally accepted
accounting principles on the operation of such covenant (or if the
Documentation Agent notifies the Company that the Required Banks wish to amend
Article V for such purpose), then the Company's compliance with such covenant
shall be determined on the basis of generally accepted accounting principles
in effect immediately before the relevant change in generally accepted
accounting principles became effective, until either such notice is withdrawn
or such covenant is amended in a manner satisfactory to the Company and the
Required Banks.
ARTICLE II
THE CREDITS
SECTION 2.01. COMMITMENTS TO LEND.
(a) SYNDICATED LOANS. Each Bank severally agrees, on the terms and
conditions set forth in this Agreement, to make Syndicated Loans to the
Company or MDFS from time to time during the Revolving Credit Period; PROVIDED
that the aggregate outstanding principal amount of such Bank's Syndicated
Loans to both Borrowers shall not at any time exceed its Syndicated
Commitment. Each Syndicated Borrowing under this subsection (a) shall be in
an aggregate principal amount of $2,000,000 or any larger multiple of
$1,000,000 (except that any such Borrowing may be in the aggregate amount
available in accordance with Section 3.02(c)) and shall be made from the
several Banks ratably in proportion to their respective Syndicated
Commitments. Within the foregoing limits, the Borrowers may borrow under this
Section, repay, or to the extent permitted by Section 2.09, prepay Syndicated
Loans and reborrow at any time during the Revolving Credit Period under this
subsection (a).
(b) SWINGLINE LOANS. Each Swingline Bank agrees, on the terms and
conditions set forth in this Agreement, to make Swingline Loans to the Company
or MDFS during the period from and including the date hereof to but not
including the fifth Domestic Business Day prior to the Termination Date in an
aggregate principal amount at any one time outstanding up to but not exceeding
its Swingline Commitment; PROVIDED that (i) the Company or MDFS may borrow a
Swingline Loan from Morgan only when the Swingline Commitment of Chase is
fully utilized, (ii) the aggregate unpaid principal amount of all Swingline
Loans, together with the aggregate unpaid principal amount of all Syndicated
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Loans at any one time outstanding, may not exceed the aggregate amount of the
Syndicated Commitments and (iii) the aggregate unpaid principal amount of all
Swingline Loans may not exceed the aggregate amount of the Swingline
Commitments. Subject to the terms of this Agreement, the Company or MDFS may
borrow, repay and reborrow the amount of the Swingline Loans by means of Base
Rate Loans; PROVIDED that (i) Swingline Loans may not be borrowed on more than
two consecutive Domestic Business Days and (ii) unless the Swingline Banks
shall otherwise agree, no Swingline Loans may be outstanding on the last day
of any calendar quarter.
(c) CONVERSION OF SWINGLINE LOANS TO SYNDICATED LOANS. (i) In the
event that the relevant Borrower does not repay any Swingline Loan made by
either Swingline Bank by 2:00 P.M. (New York City time) on the Swingline
Maturity Date applicable thereto, at any time thereafter until the unpaid
principal amount of such Swingline Loan shall have been paid in full, such
Swingline Bank may, and each Borrower hereby irrevocably authorizes and
empowers (which power is coupled with an interest) such Swingline Bank to,
deliver, on behalf of the Company or MDFS, as the case may be, to the
Administrative Agent under Section 2.02(a) hereof a Notice of Syndicated
Borrowing of Syndicated Loans that are Base Rate Loans in an aggregate amount
equal to the then unpaid principal amount of such Swingline Loan. In the
event that the power of such Swingline Bank to give such Notice of Syndicated
Borrowing on behalf of the Company or MDFS is terminated for any reason
whatsoever (including, without limitation, a termination resulting from the
occurrence of an event specified in clause (g) or (h) of Section 6.01 hereof
with respect to the Company or MDFS), or such Swingline Bank is otherwise
precluded for any reason whatsoever from giving a Notice of Syndicated
Borrowing on behalf of the Company or MDFS as provided in the preceding
sentence, each Bank shall, upon notice from such Swingline Bank, promptly
purchase from such Swingline Bank a participation in (or, if and to the extent
specified by such Swingline Bank, an assignment of a portion of) such
Swingline Loan in an amount equal to the principal amount of the Base Rate
Loan it would have been obligated to make pursuant to such Notice of
Syndicated Borrowing. The purchase price for each such participation or
assignment shall be equal to the principal amount thereof, with interest
accrued thereon to but excluding the date of such purchase to be paid to (or
retained by) such Swingline Bank only if and when and to the extent received
from the Borrowers. Each Bank shall, not later than 4:00 P.M. New York City
time on the Domestic Business Day on which such notice is given (if such
notice is given by 2:15 P.M. New York City time) or 9:00 A.M. New York time on
the next succeeding Domestic Business Day (if such notice is given after 2:15
P.M. New York City time), make available the amount of the Base Rate Loan to
be made by it (or the amount of the participation or assignment to be
purchased by it, as the case may be) to the Administrative Agent at the
account specified in Section 2.02(b) hereof and the amount so received by the
Administrative Agent shall promptly be made available to such Swingline Bank
by remitting the same, in immediately available funds, to such Swingline Bank.
Promptly following receipt by such Swingline Bank or by the Administrative
Agent of any payment in respect of such Swingline Loan, such Swingline Bank or
the Administrative Agent, as the case may be, shall pay, to each Bank that has
acquired a participation in or an assignment of a portion of such Loan, such
Bank's proportionate share of such payment.
(ii) Anything in this Agreement to the contrary notwithstanding, the
obligation of each Bank to make its Base Rate Loan (or purchase its
participation in or assignment of a portion of such Swingline Loan, as the
case may be) pursuant to this subsection (c) is unconditional under any and
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all circumstances whatsoever and shall not be subject to set-off, counterclaim
or defense to payment that such Bank may have or have had against either
Borrower, either Agent, either Swingline Bank or any other Bank and, without
limiting any of the foregoing, shall be unconditional irrespective of (i) the
occurrence of any Default, (ii) the financial condition of the Company, any
Subsidiary, any Affiliate, the Agents, any Swingline Bank or any other Bank or
(iii) the termination or cancellation of the Commitments. The Company and
MDFS agree that any Bank so purchasing a participation in (or an assignment of
a portion of) such Swingline Loan may exercise all rights of set-off, bankers'
lien, counterclaim or similar rights with respect to such participation or
assignment as fully as if such Bank were a direct holder of a Swingline Loan
in the amount of such participation or assignment.
SECTION 2.02. METHOD OF BORROWING.
(a) METHOD OF SYNDICATED BORROWING. (i) The relevant Borrower shall
give the Administrative Agent notice (a "Notice of Syndicated Borrowing") not
later than Noon (New York City time) (x) on the date of each Domestic
Borrowing (except as provided in Section 2.01(c)) and (y) at least three
Euro-Dollar Business Days before each Euro-Dollar Borrowing, specifying:
(A) the date of such Syndicated Borrowing, which shall be a Domestic
Business Day in the case of a Domestic Borrowing or a Euro-Dollar Business
Day in the case of a Euro-Dollar Borrowing,
(B) the aggregate amount of such Syndicated Borrowing,
(C) whether the Loans comprising such Syndicated Borrowing are to be
Domestic Loans or Euro-Dollar Loans, and
(D) in the case of a Euro-Dollar Borrowing, the duration of the
Interest Period applicable thereto, subject to the provisions of the
definition of Interest Period.
(ii) Upon receipt of a Notice of Syndicated Borrowing, the
Administrative Agent shall promptly notify each Bank of the contents thereof
and of such Bank's ratable share of such Syndicated Borrowing and such Notice
of Syndicated Borrowing shall not thereafter be revocable by the relevant
Borrower.
(iii) Not later than 2:00 P.M. (New York City time) on the date of each
Syndicated Borrowing, each Bank shall (except as provided in subsection
(a)(iv) of this Section) make available its ratable share of such Syndicated
Borrowing, in Federal or other funds immediately available in New York City,
to the Administrative Agent at its address referred to in Section 10.01.
Unless the Administrative Agent determines that any applicable condition
specified in Article III has not been satisfied, the Administrative Agent will
make the funds so received from the Banks available to the relevant Borrower
at the Administrative Agent's aforesaid address.
(iv) If any Bank makes a new Syndicated Loan hereunder to a Borrower
on a day on which such Borrower is to repay all or any part of an outstanding
Syndicated Loan from such Bank, such Bank shall apply the proceeds of its new
Syndicated Loan to make such repayment and only an amount equal to the
difference (if any) between the amount being borrowed and the amount being
repaid shall be made available by such Bank to the Administrative Agent as
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<PAGE>22
provided in subsection (a)(iii) of this Section, or remitted by such Borrower
to the Administrative Agent as provided in Section 2.10, as the case may be.
(v) Unless the Administrative Agent shall have received notice from a
Bank prior to the date of any Syndicated Borrowing that such Bank will not
make available to the Administrative Agent such Bank's share of such
Syndicated Borrowing, the Administrative Agent may assume that such Bank has
made such share available to the Administrative Agent on the date of such
Syndicated Borrowing in accordance with this Section 2.02 and the
Administrative Agent may, in reliance upon such assumption, make available to
the relevant Borrower on such date a corresponding amount. If and to the
extent that such Bank shall not have so made such share available to the
Administrative Agent, such Bank and the relevant Borrower severally agree to
repay to the Administrative Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date such amount
is made available to such Borrower until the date such amount is repaid to the
Administrative Agent, at (i) in the case of such Borrower, a rate per annum
equal to the higher of the Federal Funds Rate and the interest rate applicable
thereto pursuant to Section 2.05 and (ii) in the case of such Bank, the
Federal Funds Rate. If such Bank shall repay to the Administrative Agent such
corresponding amount, such amount so repaid shall constitute such Bank's
Syndicated Loan included in such Syndicated Borrowing for purposes of this
Agreement.
(b) METHOD OF SWINGLINE BORROWING. (i) The relevant Borrower shall,
not before Noon and not later than 4:00 P.M. (New York City time) on the date
on which such Borrower proposes to borrow a Swingline Loan, give the Admini-
strative Agent (which shall promptly notify each relevant Swingline Bank and
the Banks) notice of such borrowing (a "Notice of Swingline Borrowing"), which
notice shall be irrevocable and effective only upon receipt by the
Administrative Agent and shall specify the principal amount of the Swingline
Loan to be borrowed (which shall be at least $2,000,000 or a larger multiple
of $1,000,000).
(ii) Not later than 4:30 P.M. (New York City time), on the date
specified in each Notice of Swingline Borrowing hereunder, the relevant
Swingline Bank shall, subject to the terms of this Agreement, make the amount
of the Swingline Loan to be made by it on such date available to the
Administrative Agent in account number [NYAO-DI-900-9-000002 maintained by the
Administrative Agent with Chase at the Principal Office] in immediately
available funds, for account of the relevant Borrower. The amount so received
by the Administrative Agent shall, subject to the terms and conditions of this
Agreement, be made available to the relevant Borrower on such date by
depositing the same, in immediately available funds, in an account of such
Borrower, designated by such Borrower, maintained with Chase at the Principal
Office.
SECTION 2.03. NOTES. (a) The Loans of each Bank to each Borrower
shall be evidenced by a single Note of such Borrower payable to the order of
such Bank for the account of its Applicable Lending Office in an amount equal
to the aggregate unpaid principal amount of such Bank's Loans to such
Borrower.
(b) Each Bank may, by notice to a Borrower and the Administrative
Agent, request that its Domestic Loans and Euro-Dollar Loans to such Borrower
be evidenced by separate Notes. Each such Note shall be in substantially the
form of Exhibit A hereto with appropriate modifications to reflect the fact
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<PAGE>23
that it evidences solely Domestic Loans or Euro-Dollar Loans, as the case may
be. Each reference in this Agreement to a "Note" or the "Notes" of such Bank
shall be deemed to refer to and include either or both of such Notes, as the
context may require.
(c) Upon receipt of each Bank's Notes pursuant to Section 3.01(a),
the Documentation Agent shall forward such Notes to such Bank. Each Bank
shall record the date, amount, type and maturity of each Loan made by it to
each Borrower and the date and amount of each payment of principal made with
respect thereto, and may, if such Bank so elects in connection with any
transfer or enforcement of its Note of such Borrower, endorse on the schedule
forming a part thereof appropriate notations to evidence the foregoing
information with respect to each such Loan to such Borrower then outstanding;
PROVIDED that the failure of any Bank to make any such recordation or
endorsement shall not affect the obligations of either Borrower hereunder or
under the Notes. Each Bank is hereby irrevocably authorized by each Borrower
so to endorse its Note of such Borrower and to attach to and make a part of
such Note a continuation of any such schedule as and when required.
SECTION 2.04. MATURITY OF LOANS. (a) Each Loan (other than a
Swingline Loan) included in any Borrowing shall mature, and the principal
amount thereof shall be due and payable, on the last day of the Interest
Period applicable to such Borrowing.
(b) Each Swingline Loan shall mature, and the principal amount
thereof shall be due and payable, at 2:00 P.M. (New York City time) on the
Domestic Business Day immediately following the day on which such Swingline
Loan was made (the "Swingline Maturity Date").
SECTION 2.05. INTEREST RATES. (a) Each Domestic Loan shall bear
interest on the outstanding principal amount thereof, for each day from the
date such Loan is made until it becomes due, at a rate per annum equal to the
Base Rate for such day. Such interest shall be payable for each Interest
Period on the last day thereof.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for the Interest Period applicable thereto, at a
rate per annum equal to the sum of the LIBOR Margin plus the applicable London
Interbank Offered Rate. Such interest shall be payable for each Interest
Period on the last day thereof and, if such Interest Period is longer than
three months, three months after the first day thereof.
"LIBOR Margin" means a rate per annum determined in accordance with
the Pricing Schedule.
The "London Interbank Offered Rate" applicable to any Interest Period
means the average (rounded upward, if necessary, to the next higher 1/16 of
1%) of the respective rates per annum at which deposits in U.S. dollars are
offered to each of the Reference Banks in the London interbank market at
approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before
the first day of such Interest Period in an amount approximately equal to the
principal amount of the Euro-Dollar Loan of such Reference Bank to which such
Interest Period is to apply and for a period of time comparable to such
Interest Period.
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(c) Each Swingline Loan shall bear interest for each day from the
date such Swingline Loan is made until the Swingline Maturity Date, at the
rate applicable to Base Rate Loans for such day.
(d) Any overdue principal of or interest on any Loan shall bear
interest, payable on demand, for each day from and including the date payment
thereof was due to but excluding the date of actual payment, at a rate per
annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate
Loans for such day.
(e) The Administrative Agent shall determine each interest rate
applicable to the Loans hereunder. The Administrative Agent shall give prompt
notice to the relevant Borrower and the Banks of each rate of interest so
determined, and its determination thereof shall be conclusive in the absence
of manifest error.
(f) Each Reference Bank agrees to use its best efforts to furnish
quotations to the Administrative Agent as contemplated hereby. If any
Reference Bank does not furnish a timely quotation, the Administrative Agent
shall determine the relevant interest rate on the basis of the quotation or
quotations furnished by the remaining Reference Bank or Banks or, if none of
such quotations is available on a timely basis, the provisions of Section 8.01
shall apply.
SECTION 2.06. COMMITMENT FEES. The Company shall pay to the
Administrative Agent for the account of each Bank ratably in accordance with
their Syndicated Commitments a commitment fee on the daily amount by which the
aggregate amount of the Syndicated Commitments exceeds the outstanding
principal amount of the Syndicated Loans, at the Commitment Fee Rate,
determined in accordance with the Pricing Schedule. Such commitment fees
shall accrue from and including the Effective Date to but excluding the
Termination Date (or earlier date of termination of the Commitments in their
entirety) and shall be payable quarterly on the 29th day of each March, June,
September and December during the Revolving Credit Period and on the date of
termination of the Commitments in their entirety.
SECTION 2.07. OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS. The
Company may, upon at least three Domestic Business Days' notice to the
Administrative Agent, terminate at any time, or proportionately reduce from
time to time by an aggregate amount of $5,000,000 or more, the amount by which
the aggregate Syndicated Commitments exceed the aggregate outstanding
principal amount of the Loans. If the Commitments are terminated in their
entirety, all accrued commitment fees shall be payable on the effective date
of such termination.
SECTION 2.08. MANDATORY TERMINATION OF COMMITMENTS. The Commitments
shall terminate on the Termination Date, and any Loans then outstanding
(together with accrued interest thereon) shall be due and payable on such
date.
SECTION 2.09. OPTIONAL PREPAYMENTS. (a) Subject in the case of any
Euro-Dollar Borrowing to Section 2.11, the relevant Borrower may, upon same-
day notice to the Administrative Agent, prepay any Domestic Borrowing or, upon
at least three Euro-Dollar Business Days' notice to the Administrative Agent,
prepay any Euro-Dollar Borrowing, in each case in whole at any time, or from
time to time in part in amounts aggregating $2,000,000 or any larger multiple
of $1,000,000 by paying the principal amount to be prepaid together with
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<PAGE>25
accrued interest thereon to the date of prepayment. Each such optional
prepayment shall be applied to prepay ratably the Loans of the several Banks
included in such Borrowing.
(b) Upon receipt of a notice of prepayment pursuant to this Section,
the Administrative Agent shall promptly notify each Bank of the contents
thereof and of such Bank's ratable share of such prepayment and such notice
shall not thereafter be revocable by the relevant Borrower.
SECTION 2.10. GENERAL PROVISIONS AS TO PAYMENTS. (a) The relevant
Borrower shall make each payment of principal of, and interest on, the Loans
and of commitment fees hereunder, not later than 2:00 P.M. (New York City
time) on the date when due, in Federal or other funds immediately available in
New York City, to the Administrative Agent at its address referred to in
Section 10.01. The Administrative Agent will promptly distribute to each Bank
its ratable share of each such payment received by the Administrative Agent
for the account of the Banks. Whenever any payment of principal of, or
interest on, the Domestic Loans or of commitment fees shall be due on a day
which is not a Domestic Business Day, the date for payment thereof shall be
extended to the next succeeding Domestic Business Day. Whenever any payment
of principal of, or interest on, the Euro-Dollar Loans shall be due on a day
which is not a Euro-Dollar Business Day, the date for payment thereof shall be
extended to the next succeeding Euro-Dollar Business Day unless such
Euro-Dollar Business Day falls in another calendar month, in which case the
date for payment thereof shall be the next preceding Euro-Dollar Business Day.
If the date for any payment of principal is extended by operation of law or
otherwise, interest thereon shall be payable for such extended time.
(b) Unless the Administrative Agent shall have received notice from a
Borrower prior to the date on which any payment is due from such Borrower to
the Banks hereunder that such Borrower will not make such payment in full, the
Administrative Agent may assume that such Borrower has made such payment in
full to the Administrative Agent on such date and the Administrative Agent
may, in reliance upon such assumption, cause to be distributed to each Bank on
such due date an amount equal to the amount then due such Bank. If and to the
extent that such Borrower shall not have so made such payment, the
Administrative Agent shall notify each Bank as promptly as practicable that
such Borrower has not made the payment, and each Bank shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Bank
together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Administrative Agent, at a rate per annum equal to (i) the Federal Funds Rate
for each day prior to the third Domestic Business Day after such amount was
distributed to such Bank and (ii) the sum of 1/4 of 1% plus the Federal Funds
Rate for each day on and after such third Domestic Business Day.
SECTION 2.11. FUNDING LOSSES. If a Borrower makes any payment of
principal with respect to any Euro-Dollar Loan (pursuant to Article VI or VIII
or otherwise) on any day other than the last day of the Interest Period
applicable thereto, or if a Borrower fails to borrow any Euro-Dollar Loans
after notice has been given to any Bank in accordance with Section 2.02 or
2.09(b), such Borrower shall reimburse each Bank within 15 days after demand
for any resulting loss or expense incurred by it (or by an existing or
prospective Participant in the related Loan), including (without limitation)
any loss incurred in obtaining, liquidating or employing deposits from third
parties, but excluding loss of LIBOR Margin for the period after any such
payment or failure to borrow, PROVIDED that such Bank shall have delivered to
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<PAGE>26
such Borrower a certificate as to the amount of such loss or expense, which
certificate shall be conclusive in the absence of manifest error.
SECTION 2.12. COMPUTATION OF INTEREST AND FEES. Interest based on
the Prime Rate and commitment fees hereunder shall be computed on the basis of
a year of 365 days (or 366 days in a leap year) and paid for the actual number
of days elapsed (including the first day but excluding the last day). All
other interest shall be computed on the basis of a year of 360 days and paid
for the actual number of days elapsed (including the first day but excluding
the last day).
SECTION 2.13. REGULATION D COMPENSATION. Subject to Section 8.06,
each Bank may require the relevant Borrower to pay, contemporaneously with
each payment of interest on the Euro-Dollar Loans, additional interest on the
related Euro-Dollar Loan of such Bank at a rate per annum determined by such
Bank up to but not exceeding the excess of (i) (A) the applicable London
Interbank Offered Rate divided by (B) one MINUS the Euro-Dollar Reserve
Percentage over (ii) the applicable London Interbank Offered Rate. Any Bank
wishing to require payment of such additional interest (x) shall so notify the
Borrowers and the Administrative Agent, in which case such additional interest
on the Euro-Dollar Loans of such Bank shall be payable to such Bank at the
place indicated in such notice with respect to each Interest Period commencing
at least three Euro-Dollar Business Days after the giving of such notice and
(y) shall notify the relevant Borrower at least five Euro-Dollar Business Days
prior to each date on which interest is payable on the Euro-Dollar Loans of
the amount then due it under this Section.
ARTICLE III
CONDITIONS
SECTION 3.01. CLOSING. The closing hereunder shall occur upon
receipt by the Documentation Agent of the following documents, each dated the
Closing Date unless otherwise indicated:
(a) a duly executed Note from each Borrower for each Bank dated on or
before the Closing Date complying with the provisions of Section 2.03;
(b) an opinion of H. David Heumann, Esq., or other counsel for the
Borrowers satisfactory to the Documentation Agent, substantially in the
form of Exhibit B hereto;
(c) an opinion of Davis Polk & Wardwell, special counsel for the
Documentation Agent, substantially in the form of Exhibit C hereto;
(d) evidence satisfactory to the Documentation Agent that on the
Closing Date (i) all commitments of the banks under the Existing Credit
Agreements shall have been terminated, (ii) either no loans shall be
outstanding under the Existing Credit Agreements or satisfactory provisions
shall have been made for the payment in full of all loans outstanding under
the Existing Credit Agreements, together with interest accrued thereon,
with proceeds from Loans made hereunder on the Closing Date and (iii) all
other accrued interest and fees under the Existing Credit Agreements (to
but excluding the Closing Date) owed by the Borrowers shall have been paid
in full to the relevant agents for the account of the banks under the
Existing Credit Agreements; and
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(e) all documents that the Documentation Agent may reasonably request
relating to the existence of the Borrowers, the corporate authority for and
the validity of this Agreement and the Notes, and any other matters
relevant hereto, all in form and substance reasonably satisfactory to the
Documentation Agent.
The Documentation Agent shall promptly notify the Borrowers and the Banks of
the Closing Date, and such notice shall be conclusive and binding on all
parties hereto.
SECTION 3.02. BORROWINGS. The obligation of any Bank to make a Loan
on the occasion of any Borrowing (other than a Syndicated Loan pursuant to
Section 2.01(c)) is subject to the satisfaction of the following conditions:
(a) the fact that the Closing Date shall have occurred on or prior to
September 30, 1994;
(b) receipt by the Administrative Agent of a Notice of Syndicated
Borrowing as required by Section 2.02(a) or a Notice of Swingline Borrowing
as required by Section 2.02(b);
(c) the fact that, immediately after such Borrowing, (i) the
aggregate outstanding principal amount of the Syndicated Loans and the
Swingline Loans will not exceed the aggregate amount of the Syndicated
Commitments and (ii) in the case of a Borrowing by MDFS, the aggregate
outstanding principal amount of the Syndicated Loans and the Swingline
Loans to MDFS will not exceed $16,000,000;
(d) the fact that, immediately before and after such Borrowing, no
Default shall have occurred and be continuing;
(e) the fact that the representations and warranties of the Company
contained in this Agreement (except, in the case of a Refunding Borrowing,
the representations and warranties set forth in Sections 4.04(c) and 4.05
as to any matter which has theretofore been disclosed in writing by the
Company to the Banks) shall be true on and as of the date of such
Borrowing; and
(f) the fact that, in the case of a Borrowing by MDFS, 100% of the
outstanding common stock of the Company is owned by MDFS.
Each Borrowing hereunder shall be deemed to be a representation and warranty
by the relevant Borrower on the date of such Borrowing as to the facts
specified in clauses (c), (d), (e) and (f) of this Section.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants that:
SECTION 4.01. CORPORATE EXISTENCE AND POWER. Each Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of Delaware, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
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SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO
CONTRAVENTION. The execution, delivery and performance by each Borrower of
this Agreement and its Notes are within such Borrower's corporate powers, have
been duly authorized by all necessary corporate action, require no action by
or in respect of, or filing with, any governmental body, agency or official
(except that the Company may be required to file this Agreement with the
Securities and Exchange Commission) and do not contravene, or constitute a
default under, any provision of applicable law or regulation or of the
certificate of incorporation or by-laws of such Borrower or of any agreement,
judgment, injunction, order, decree or other instrument binding upon such
Borrower or any of its Subsidiaries or result in the creation or imposition of
any Lien on any asset of such Borrower or any of its Subsidiaries.
SECTION 4.03. BINDING EFFECT. This Agreement constitutes a valid and
binding agreement of each Borrower and its Notes, when executed and delivered
in accordance with this Agreement, will constitute valid and binding
obligations of such Borrower, in each case enforceable in accordance with its
terms except as limited by (i) bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (ii) equitable principles of general
applicability.
SECTION 4.04. FINANCIAL INFORMATION.
(a) The consolidated balance sheet of the Company and its
consolidated Subsidiaries as of December 31, 1993 and the related consolidated
statements of income and income retained for growth and cash flows of the
Company and its consolidated Subsidiaries for the fiscal year then ended,
reported on by Ernst & Young and set forth in the Company's 1993 Form 10-K,
and the consolidated balance sheet of MDFS and its consolidated Subsidiaries
as of December 31, 1993 and the related consolidated statements of income and
income retained for growth and cash flows of MDFS and its consolidated
Subsidiaries for the fiscal year then ended, reported on by Ernst & Young, a
copy of which has been delivered to each of the Banks, fairly present, in
conformity with generally accepted accounting principles, the consolidated
financial position of the Company and its consolidated Subsidiaries and the
consolidated financial position of MDFS and its consolidated Subsidiaries as
of such date and their respective consolidated results of operations and cash
flows for such fiscal year.
(b) The unaudited consolidated balance sheet of the Company and its
consolidated Subsidiaries as of June 30, 1994 and the related unaudited
consolidated statements of income and income retained for growth and cash
flows of the Company and its consolidated Subsidiaries for the six months then
ended, set forth in the Company's quarterly report for the fiscal quarter
ended June 30, 1994 as filed with the Securities and Exchange Commission on
Form 10-Q, and the unaudited consolidated balance sheet of MDFS and its
consolidated Subsidiaries as of June 30, 1994 and the related unaudited
consolidated statements of income and income retained for growth and cash
flows of MDFS and its consolidated Subsidiaries for the six months then ended,
a copy of which has been delivered to each of the Banks, fairly present, in
conformity with generally accepted accounting principles applied on a basis
consistent with the financial statements referred to in subsection (a) of this
Section, the consolidated financial position of the Company and its
consolidated Subsidiaries and the consolidated financial position of MDFS and
its consolidated Subsidiaries as of such date and their respective
consolidated results of operations and cash flows for such six-month period
(subject to normal year-end adjustments).
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<PAGE>29
(c) Since June 30, 1994 there has been no material adverse change in
the business, financial position or results of operations of the Company and
its consolidated Subsidiaries, considered as a whole.
SECTION 4.05. LITIGATION. Except as disclosed in the reports listed
in Section 4.11, there is no action, suit or proceeding pending against, or to
the knowledge of the Company threatened against, the Company or any of its
Subsidiaries before any court or arbitrator or any governmental body, agency
or official in which there is a reasonable possibility of an adverse decision
which could materially adversely affect the business or consolidated financial
position of the Company and its consolidated Subsidiaries or which in any
manner draws into question the validity of this Agreement or the Notes.
SECTION 4.06. COMPLIANCE WITH ERISA. To the best of MDC's knowledge,
each member of the ERISA Group has fulfilled its obligations under the minimum
funding standards of ERISA and the Internal Revenue Code with respect to each
Plan and is in compliance in all material respects with the presently
applicable provisions of ERISA and the Internal Revenue Code with respect to
each Plan. No member of the ERISA Group has (i) sought a waiver of the
minimum funding standard under Section 412 of the Internal Revenue Code in
respect of any Plan, (ii) failed to make any contribution or payment to any
Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made
any amendment to any Plan or Benefit Arrangement, which has resulted or could
result in the imposition of a Lien or the posting of a bond or other security
under ERISA or the Internal Revenue Code or (iii) incurred any liability under
Title IV of ERISA other than a liability to the PBGC for premiums under
Section 4007 of ERISA.
SECTION 4.07. ENVIRONMENTAL MATTERS. The Company has reviewed its
potential liabilities under Environmental Laws and, on the basis of such
review, the Company has reasonably concluded that the costs of compliance with
Environmental Laws are unlikely to have a material adverse effect on the
business, financial condition or results of operations of the Company and its
consolidated Subsidiaries, considered as a whole.
SECTION 4.08. TAXES. United States Federal income tax returns for
MDC and its Subsidiaries have been examined and closed through the fiscal year
ended December 31, 1985. The Borrowers and their respective Subsidiaries (or
MDC on their behalf) have filed all United States Federal income tax returns
and all other material tax returns which are required to be filed by them and
have paid all taxes due pursuant to such returns or pursuant to any assessment
received by them which is not being contested in good faith. The charges,
accruals and reserves on the books of each Borrower and its Subsidiaries in
respect of taxes or other governmental charges are, in the opinion of such
Borrower, adequate.
SECTION 4.09. SUBSIDIARIES. Each corporate Subsidiary of the Company
is a corporation duly incorporated, validly existing and in good standing
under the laws of its jurisdiction of incorporation, and has all corporate
powers and all material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted.
SECTION 4.10. NOT AN INVESTMENT COMPANY. Neither Borrower is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
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<PAGE>30
SECTION 4.11. DISCLOSURE. The Company's report on Form 10-K for its
fiscal year ended December 31, 1993, the Company's reports on Form 10-Q for
its fiscal quarters ended March 31, 1994 and June 30, 1994, in each case,
complied in all material respects with the applicable requirements of the
Securities Exchange Act of 1934 and the rules and regulations of the
Securities and Exchange Commission thereunder.
ARTICLE V
COVENANTS
The Company agrees that, so long as any Bank has any Commitment
hereunder or any amount payable under any Note remains unpaid:
SECTION 5.01. INFORMATION. The Borrowers will deliver to each of the
Banks:
(a) as soon as available and in any event within 120 days after the
end of each fiscal year of the Borrowers, a consolidated balance sheet of
each Borrower and its consolidated Subsidiaries as of the end of such
fiscal year and the related consolidated statements of income and income
retained for growth and cash flows of such Borrower and its consolidated
Subsidiaries for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, all reported on
in a manner acceptable to the Securities and Exchange Commission by Ernst &
Young or other independent public accountants of nationally recognized
standing (it being understood that the delivery of the Company's Report on
Form 10-K filed with the Securities and Exchange Commission shall satisfy
the requirements of this subsection (a) with respect to the Company so long
as the information required to be contained in such Report is substantially
the same as that required on the date hereof);
(b) as soon as available and in any event within 60 days after the
end of each of the first three quarters of each fiscal year of the
Borrowers, a consolidated balance sheet of each Borrower and its
consolidated Subsidiaries as of the end of such quarter and the related
consolidated statements of income and income retained for growth and cash
flows of such Borrower and its consolidated Subsidiaries for such quarter
and for the portion of such Borrower's fiscal year ended at the end of such
quarter, setting forth in the case of such earnings and earnings retained
for growth and cash flows in comparative form the figures for the
corresponding quarter and the corresponding portion of such Borrower's
previous fiscal year, all certified (subject to normal year-end
adjustments) as to fairness of presentation, generally accepted accounting
principles and consistency by the chief financial officer, treasurer,
assistant treasurer or controller of such Borrower (it being understood
that delivery of the Company's Report on Form 10-Q filed with the
Securities and Exchange Commission shall satisfy the requirements of this
subsection (b) with respect to the Company (other than the delivery of the
related officer's certificate) so long as the information required to be
contained in such Report is substantially the same as that required on the
date hereof);
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of the
chief financial officer, treasurer, assistant treasurer or controller of
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<PAGE>31
the Company (i) setting forth in reasonable detail the calculations
required to establish whether the Company was in compliance with the
requirements of Sections 5.07 to 5.12, inclusive, on the date of such
financial statements and (ii) stating whether any Default exists on the
date of such certificate and, if any Default then exists, setting forth the
details thereof and the action which the relevant Borrower is taking or
proposes to take with respect thereto;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the firm of
independent public accountants which reported on such statements whether
anything has come to their attention to cause them to believe that any
Default existed on the date of such statements;
(e) within five days after any officer of the Company obtains
knowledge of any Default, if such Default is then continuing, a certificate
of the chief financial officer, treasurer, assistant treasurer or
controller of the Company setting forth the details thereof and the action
which the Company is taking or proposes to take with respect thereto;
(f) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements
on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or
their equivalents) which the Company shall have filed with the Securities
and Exchange Commission;
(g) as soon as possible, and in any event within ten days after MDC
or the Company knows or has reason to know that any of the events or
conditions specified below with respect to any Plan or Multiemployer Plan
have occurred or exist, a statement signed by a financial officer of the
Company setting forth details respecting such event or condition and the
action, if any, which the Company or any ERISA Affiliate proposes to take
with respect thereto (and a copy of any report or notice required to be
filed with or given to the PBGC by the Company or an ERISA Affiliate with
respect to such event or condition):
(i) any reportable event, as defined in Section 4043(b) of ERISA
and the regulations issued thereunder, with respect to a Plan, as to
which the PBGC has not by regulation waived the requirement of Section
4043(a) of ERISA that it be notified within 30 days of the occurrence
of such event (provided that a failure to meet the minimum funding
standard of Section 412 of the Internal Revenue Code or Section 302 of
ERISA shall be a reportable event regardless of the issuance of any
waivers in accordance with Section 412(d) of the Internal Revenue
Code);
(ii) the filing under Section 4041 of ERISA of a notice of intent
to terminate any Plan or the termination of any Plan;
(iii) the institution by the PBGC of proceedings under Section
4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Plan, or the receipt by the Company or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has
been taken by the PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal by the Company or any
ERISA Affiliate under Section 4201 or 4204 of ERISA from a
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<PAGE>32
Multiemployer Plan, or the receipt by the Company or any ERISA
Affiliate of notice from a Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA
or that it intends to terminate or has terminated under Section 4041A
of ERISA; and
(v) the institution of a proceeding by a fiduciary or any
Multiemployer Plan against the Company or any ERISA Affiliate to
enforce Section 515 of ERISA, which proceeding is not dismissed within
30 days;
(h) as soon as available and in any event within 60 days after the
end of each of the first three fiscal quarters of each fiscal year of the
Company and within 120 days after the end of each fiscal year of the
Company, (i) a portfolio concentration report, detailing the amounts of the
portfolio and the number of customers by industry type and specifically
listing each Receivable Obligation the Receivable Value of which is greater
the 10% of Net Worth, (ii) a delinquency report, substantially in the form
heretofore supplied to each Bank, summarizing all accounts that are 60 or
more days past due and (iii) a report summarizing all Receivable
Obligations which, subsequent to the original contract date, have been
changed to defer payment of a material amount of principal or interest, in
the case of a note receivable, or a lease payment, in the case of a lease
receivable; and
(i) from time to time such additional information regarding the
financial position or business of the Borrowers and their respective
Subsidiaries as the Documentation Agent, at the request of any Bank, may
reasonably request.
SECTION 5.02. MAINTENANCE OF PROPERTY; INSURANCE. (a) The Company
will keep, will cause each of its Subsidiaries to keep, and will require each
lessee of any of its properties to keep, all property useful and necessary in
its business in good working order and condition, ordinary wear and tear
excepted.
(b) The Company will, and will cause each of its Subsidiaries to,
maintain (either in the name of the Company or in such Subsidiary's own name)
with financially sound and responsible insurance companies, insurance on all
their respective properties in at least such amounts and against at least such
risks (and with such risk retention) as are usually insured against in the
same general area by companies of established repute engaged in the same or a
similar business; and will furnish to the Banks, upon request from the
Documentation Agent, information presented in reasonable detail as to the
insurance so carried.
SECTION 5.03. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The
Company will continue, and will cause each Subsidiary of the Company listed in
Exhibit F hereto to continue, to engage in business of the same general type
as now conducted by the Company and such Subsidiaries, and will preserve,
renew and keep in full force and effect, and will cause each such Subsidiary
to preserve, renew and keep in full force and effect their respective
corporate existence and their respective material rights, privileges and
franchises necessary or desirable in the normal conduct of business.
SECTION 5.04. COMPLIANCE WITH LAWS. The Company will comply, and
cause each Subsidiary of the Company to comply, in all material respects with
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<PAGE>33
all applicable laws, ordinances, rules, regulations and requirements of
governmental authorities (including, without limitation, Environmental Laws
and ERISA and the rules and regulations thereunder), except where the
necessity of compliance therewith is contested in good faith and by
appropriate proceedings if such proceedings have become necessary to permit
such good faith contest.
SECTION 5.05. INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Company
will keep, and will cause each Subsidiary of the Company to keep, proper books
of record and account in which full, true and correct entries shall be made of
all dealings and transactions in relation to its business and activities; and
will permit, and will cause each Subsidiary of the Company to permit,
representatives of any Bank at such Bank's expense to visit and inspect any of
their respective properties, to examine and make abstracts from any of their
respective books and records and to discuss their respective affairs, finances
and accounts with their respective officers, employees and independent public
accountants, all at such reasonable times and as often as may reasonably be
desired.
SECTION 5.06. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. None of
the Borrowers and the Restricted Subsidiaries will (i) consolidate or merge
with or into any other Person or (ii) sell, lease or otherwise transfer,
directly or indirectly, all or a majority of the assets of such Borrower and
its Subsidiaries, taken as a whole, to any other Person; PROVIDED that (x) any
Restricted Subsidiary may merge into the Company or another Restricted
Subsidiary and (y) any of the Borrowers and the Restricted Subsidiaries may
merge with any other Person if such Borrower or Restricted Subsidiary is the
surviving corporation and no Default shall have occurred and be continuing
immediately before or after such merger.
SECTION 5.07. ADJUSTED DEBT. The Company shall not, and shall not
permit any Restricted Subsidiary to, create, incur, assume or otherwise become
liable upon any Adjusted Debt (other than Non-Recourse Debt) if, after giving
effect thereto and to any concurrent transactions, Adjusted Debt (other than
Non-Recourse Debt) would exceed 4.5 times Adjusted Capital Base.
SECTION 5.08. MINIMUM NET WORTH. Net Worth will at no time be less
than (i) $220,000,000 plus (ii) the cumulative amount by which Net Worth is
increased after June 30, 1994 as a result of capital contributions or the
issuance or sale of equity securities less (iii) the cumulative amount (but
not more than $50,000,000) by which Net Worth is decreased after June 30, 1994
as a result of redemptions of Series A Preferred Stock.
SECTION 5.09. DIVIDENDS. The Company shall not, and shall not permit
any Restricted Subsidiary to, declare or pay any dividend (other than a
dividend payable in stock of the Company or any dividend payable by a
Restricted Subsidiary to the Company or another Restricted Subsidiary) or
authorize or make any other distribution on any stock of the Company, whether
now or hereafter outstanding, or make any payment on account of the purchase,
redemption or other retirement of any shares of such stock or any other
securities of the Company, or make any other distribution in respect thereof,
either directly or indirectly, unless at the date of such declaration in the
case of a dividend or at the date of such distribution or other payment, in
each case after giving effect, as if paid, to the proposed dividend,
distribution or payment, (i) the Company and the Restricted Subsidiaries would
not be prohibited from becoming liable for at least $1.00 of additional
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<PAGE>34
Adjusted Debt (other than Non-Recourse Debt) pursuant to Section 5.07 and (ii)
no Default shall have occurred and be continuing.
SECTION 5.10. PAYMENTS TO MDC. The Company shall not, and shall not
permit any Restricted Subsidiary to:
(a) pay any dividends or other distributions in respect of any of
their respective shares of capital stock to MDC or any Affiliate of MDC
(except dividends payable solely in shares of such capital stock or
dividends payable by a Restricted Subsidiary to the Company or a Restricted
Subsidiary), or make any payment of any principal of any Subordinated Debt
owing to MDC or any Affiliate of MDC (other than the Company or a
Restricted Subsidiary) if, after giving effect thereto and to any
concurrent transactions, (i) the Company and the Restricted Subsidiaries
could not incur at least $1.00 of additional Adjusted Debt (other than Non-
Recourse Debt) pursuant to Section 5.07 or (ii) any Default shall have
occurred and be continuing;
(b) make any payment of the principal of or any premium or interest
on any Adjusted Debt (other than Non-Recourse Debt) or any Subordinated
Debt owing to MDC or any Affiliate of MDC (other than the Company or a
Restricted Subsidiary), unless, at the time of making such payment and
giving effect thereto, no Default shall have occurred and be continuing,
except that the Company may make a payment of the principal of Senior Debt
owing to MDC or any Affiliate of MDC without regard to the restriction of
this subsection (b) if simultaneously with such payment it pays a principal
amount of all other Senior Debt then outstanding that bears the same
proportion to the principal amount of such other Senior Debt outstanding as
the principal amount of the Senior Debt owing to MDC or such Affiliate so
paid bears to the principal amount of the Senior Debt owing to MDC and any
Affiliates of MDC outstanding immediately prior to such payment; or
(c) make any Investment in MDC or any Affiliate of MDC (other than
the Company, a Restricted Subsidiary or any Person that is an Affiliate of
MDC only because of an interest of the Company in such Person), except that
the Company may make advances to MDC or any Affiliate of MDC so long as:
(w) the aggregate amount of such advances outstanding at any
time does not exceed 25% of Net Worth at such time;
(x) each such advance is evidenced by a note of MDC having a
maturity not in excess of 60 days;
(y) after giving effect to any such advance and to any
concurrent transactions, the Company and the Restricted Subsidiaries
could incur at least $1.00 of additional Adjusted Debt (other than
Non-Recourse Debt) pursuant to Section 5.07; and
(z) at the time of making each such advance, no Default shall
have occurred and be continuing; and
PROVIDED that no such advances shall be outstanding during at least one
period of 60 consecutive days during any twelve-month period.
Notwithstanding the foregoing provisions of this clause (c), the
Company or any Restricted Subsidiary may, in the ordinary course of its
business, enter into (as lessor or lender) leasing or secured lending
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<PAGE>35
agreements with MDC or any Affiliate of MDC (as lessee or borrower), so
long as the aggregate Receivable Value thereof shall not exceed 15% of Net
Worth at the time.
SECTION 5.11. LIMITATIONS ON OPERATING LEASES. The Company shall
not, nor shall it permit any Restricted Subsidiary to, as lessee (except where
the Company or a Restricted Subsidiary is the lessor), enter into any
operating lease, whether of real or personal property, requiring the payment
by the Company or any Restricted Subsidiary of aggregate Net Rental Payments
in any calendar year as to all such leases in excess of 2.5% of Net Worth
(calculated at the time of entering into such lease), PROVIDED that there
shall be excluded from the above limitation (i) operating leases where the
Company or a Restricted Subsidiary in turn leases the property to a third
party, in which case the aggregate amount of all Net Rental Payments payable
by the Company or a Restricted Subsidiary under such excluded operating leases
(discounted at a rate of 8% per annum, compounded at the frequency at which
such payments are payable thereunder) shall be treated as Adjusted Debt for
purposes of this Agreement, and (ii) operating leases covering data processing
equipment and vehicles with original or amended terms of less than three
years.
SECTION 5.12. NEGATIVE PLEDGE. The Company shall not, and shall not
permit any Restricted Subsidiary to:
(a) subject to any Lien, except as provided below, any of its
property or assets, or any of the property or assets of any Restricted
Subsidiary; PROVIDED that this restriction shall not apply to:
(1) Liens on any real estate, equipment or other physical
property, whether real, personal or mixed and whether or not held by
the Company or a Restricted Subsidiary principally for lease to third
parties (in the case of each such Lien, the "Relevant Property") and
any receivables, chattel paper or general intangibles arising from the
lease, sale or other disposition of the Relevant Property, in each
case to secure all or part of (i) the purchase price of the Relevant
Property, (ii) Debt incurred to finance such purchase price or (iii)
other Debt incurred within 90 days after the acquisition of the
Relevant Property (such Lien to exist prior to the acquisition of the
Relevant Property or to arise within 90 days thereafter) or the
acquiring hereafter of any Relevant Property subject to any existing
Lien securing Adjusted Debt (whether or not assumed); PROVIDED that
the sum, without duplication, of:
(x) the aggregate unpaid principal amount of Adjusted Debt
described in this Section 5.12(a)(1) plus
(y) the aggregate unpaid principal amount of Permitted
Restricted Subsidiary Debt
shall not at any time exceed 20% of Net Tangible Assets;
(2) Liens on property of a corporation or firm existing at the
time such corporation or firm is merged into or consolidated with the
Company or a Restricted Subsidiary or at the time of acquisition of
the assets of a corporation or firm as an entirety or substantially as
an entirety by the Company or a Restricted Subsidiary;
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<PAGE>36
(3) the creation of any Lien on aircraft or equipment held by
the Company or a Restricted Subsidiary for lease to third parties, or
on the lease in respect thereof, if such Lien secures Non-Recourse
Debt;
(4) the leasehold interest of a lessee of property owned by the
Company or a Restricted Subsidiary;
(5) Liens on property of the Company or a Restricted Subsidiary
in favor of the United States or any State thereof, or any department,
governmental body, agency or instrumentality or political subdivision
of any such jurisdiction, to secure partial, progress, advance or
other payments pursuant to any contract or statute;
(6) easements, liens, franchises or other minor encumbrances on
or over any real property which do not materially detract from the
value of such property or its use in the business of the Company or a
Restricted Subsidiary;
(7) materialmen's, mechanics', carriers', workmen's, repairmen's
or other like liens arising in the ordinary course of business, or
deposits to obtain the release of such liens;
(8) any deposit or pledge of assets (i) with any surety company
or clerk of any court, or in escrow, as collateral in connection with,
or in lieu of, any bond on appeal from any judgement or decree against
the Company or a Restricted Subsidiary, or in connection with other
proceedings or actions at law or in equity by or against the Company
or a Restricted Subsidiary; or (ii) as security for the performance of
any contract or undertaking not directly or indirectly related to the
borrowing of money or the securing of indebtedness, if made in the
ordinary course of business; or (iii) with any governmental agency,
which deposit or pledge is required or permitted to qualify the
Company or a Restricted Subsidiary to conduct business, to maintain
self-insurance, or to obtain the benefits of any law pertaining to
workmen's compensation, unemployment insurance, old age pensions,
social security or similar matters;
(9) any extension, renewal or replacement (or successive
extensions, renewals or replacements), in whole or in part, of any
Lien referred to in the foregoing clauses (1) through (8), PROVIDED
that (i) the principal amount of any and all obligations and
indebtedness secured thereby shall not exceed the principal amount
thereof so secured at the time of such extension, renewal or
replacement and (ii) such extension, renewal or replacement shall be
limited to all or a part of the property which secured the Lien so
extended, renewed or replaced (plus improvements on such property); or
(10) any Lien on aircraft or equipment acquired by the Company
primarily for lease to third parties in the nature of purchase money
security interests which are ordinarily extinguished by the Company in
the normal course of business within 180 days after such Lien arises.
(b) Notwithstanding subsection (a) of this Section 5.12, the Company
or any Restricted Subsidiary may at any time create or permit to exist any
such Lien not otherwise permitted by said subsection (a) if, after giving
effect thereto, the aggregate principal amount secured by all such Liens
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<PAGE>37
(or, in the case of any Derivatives Obligations secured solely by cash and
cash equivalents, the amount of such cash and cash equivalents) of the
Company and all Restricted Subsidiaries does not at such time exceed 15% of
Net Worth.
SECTION 5.13. USE OF PROCEEDS. The proceeds of the Loans made to
each Borrower under this Agreement will be used by such Borrower for its
general corporate purposes. None of such proceeds will be used, directly or
indirectly, for the purpose, whether immediate, incidental or ultimate, of
buying or carrying any "margin stock" within the meaning of Regulation U.
SECTION 5.14. TRANSACTIONS WITH AFFILIATES. The Company will not,
and will not permit any of its Subsidiaries to, directly or indirectly, pay
any funds to or for the account of, make any investment (whether by
acquisition of stock or indebtedness, by loan, advance, transfer of property,
guarantee or other agreement to pay, purchase or service, directly or
indirectly, any Debt, or otherwise) in, lease, sell, transfer or otherwise
dispose of any assets, tangible or intangible, to, or participate in, or
effect any transaction in connection with any joint enterprise or other joint
arrangement with, any Affiliate of the Company; PROVIDED that the foregoing
provisions of this Section shall not prohibit:
(a) the Company from declaring or paying any lawful dividend so long
as, after giving effect thereto, no Default shall have occurred and be
continuing,
(b) the Company or any Subsidiary of the Company from making sales to
or purchases from any Affiliate of the Company and, in connection
therewith, extending credit or making payments, or from making payments for
services rendered by any Affiliate of the Company, if such sales or
purchases are made or such services are rendered in the ordinary course of
business and on terms and conditions at least as favorable (except for
Immaterial Exceptions) to the Company or such Subsidiary as the terms and
conditions which would apply in a similar transaction with a Person not an
Affiliate of the Company,
(c) the Company or any Subsidiary of the Company from making payments
of principal, interest and premium on any Debt of the Company or such
Subsidiary held by an Affiliate of the Company if the terms of such Debt
are as favorable (except for Immaterial Exceptions) to the Company or such
Subsidiary as the terms which could have been obtained at the time of the
creation of such Debt from a lender which was not an Affiliate of the
Company and
(d) the Company or any Subsidiary of the Company from participating
in, or effecting any transaction in connection with, any joint enterprise
or other joint arrangement with any Affiliate of the Company if the Company
or such Subsidiary participates in the ordinary course of its business and
on a basis no less advantageous (except for Immaterial Exceptions) than the
basis on which such Affiliate of the Company participates.
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As used in this Section, the term "Immaterial Exceptions" means exceptions to
the requirements of clauses (b), (c) and (d) above which, in the aggregate,
are not material to the business, financial position or results of operations
of the Company and its Subsidiaries considered as a whole.
ARTICLE VI
DEFAULTS
SECTION 6.01. EVENTS OF DEFAULT. If one or more of the following
events ("Events of Default") shall have occurred and be continuing:
(a) any principal of any Loan shall not be paid when due, or any
interest, fees or other amount payable hereunder shall not be paid within
five Domestic Business Days after it becomes due;
(b) the Company shall fail to observe or perform any covenant
contained in Section 5.01(e) or in Sections 5.06 to 5.12, inclusive;
(c) any Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause
(a) or (b) above) for 30 days after written notice thereof has been given
to such Borrower by the Documentation Agent at the request of any Bank;
(d) any representation, warranty, certification or statement made by
either Borrower in this Agreement or in any certificate, financial
statement or other document delivered pursuant to this Agreement shall
prove to have been incorrect in any material respect when made (or deemed
made);
(e) MDFS, the Company and/or one or more Subsidiaries of the Company
shall fail to make any payment in respect of any Material Financial
Obligations when due or within any applicable grace period;
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Material Financial Obligations or
enables the holder of such Material Financial Obligations or any Person
acting on such holder's behalf to accelerate the maturity thereof or
terminate such holder's commitment thereunder;
(g) MDFS, the Company or Subsidiaries having, individually or in the
aggregate, shareholder's equity exceeding $10,000,000 shall, in each case,
(i) commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, (ii)
consent to any such relief or to the appointment of or taking possession by
any such official in an involuntary case or other proceeding commenced
against it, (iii) make a general assignment for the benefit of creditors,
(iv) fail generally to pay its debts as they become due or (v) take any
corporate action to authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced
against MDFS, the Company or Subsidiaries having, individually or in the
aggregate, shareholder's equity exceeding $10,000,000, in each case seeking
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liquidation, reorganization or other relief with respect to it or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of its
property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 60 days; or an order for relief
shall be entered against MDFS, the Company or Subsidiaries having,
individually or in the aggregate, shareholder's equity exceeding
$10,000,000 under the federal bankruptcy laws as now or hereafter in
effect;
(i) an event or condition specified in Section 5.01(g) hereof shall
occur or exist with respect to any Plan or Multiemployer Plan and, as a
result of such event or condition, together with all other such events or
conditions, a Borrower or any ERISA Affiliate shall incur or in the opinion
of the Required Banks shall be reasonably likely to incur a liability to a
Plan, a Multiemployer Plan or the PBGC (or any combination of the
foregoing) which is, in the determination of the Required Banks, material
in relation to the consolidated financial position of MDC and its
consolidated subsidiaries taken as a whole;
(j) one or more final judgments or orders for the payment of money in
excess of $10,000,000 in the aggregate shall be rendered by a court or
courts against the Company and/or any of its Subsidiaries and the same
shall not be discharged (or provision shall not be made for such
discharge), or a stay of execution thereof shall not be procured, within 30
days from the date of entry thereof and the Company or the relevant
Subsidiary shall not, within said period of 30 days, or such longer period
during which execution of the same shall have been stayed, appeal therefrom
and cause the execution thereof to be stayed during such appeal; or
(k) MDC shall no longer beneficially own, directly or indirectly,
more than 50% of the common equity of each of MDFS and the Company or shall
no longer have the power, directly or indirectly, to elect a majority of
the directors of each of MDFS and the Company;
then, and in every such event, the Documentation Agent shall (i) if requested
by Banks having more than 50% in aggregate amount of the Syndicated
Commitments, by notice to the Borrowers terminate the Commitments and they
shall thereupon terminate, and (ii) if requested by Banks having more than 50%
of the aggregate amount of the Outstanding Exposures, by notice to the
Borrowers declare the Notes (together with accrued interest thereon) to be,
and the Notes shall thereupon become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by each Borrower; PROVIDED that in the case of any of the Events
of Default specified in clause (g) or (h) above with respect to either
Borrower, without any notice to such Borrower or any other act by the
Documentation Agent or the Banks, the Commitments shall thereupon terminate
and the Notes of such Borrower (together with accrued interest thereon) shall
become immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by each Borrower.
SECTION 6.02. NOTICE 0F DEFAULT. The Documentation Agent shall give
notice to the relevant Borrower under Section 6.01(c) promptly upon being
requested to do so by any Bank and shall thereupon notify all the Banks
thereof.
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ARTICLE VII
THE AGENTS
SECTION 7.01. APPOINTMENT AND AUTHORIZATION. Each Bank irrevocably
appoints and authorizes each of the Agents to take such action as agent on its
behalf and to exercise such powers under this Agreement and the Notes as are
delegated to such Agent by the terms hereof or thereof, together with all such
powers as are reasonably incidental thereto.
SECTION 7.02. AGENTS AND AFFILIATES. Morgan and Chase shall each
have the same rights and powers under this Agreement as any other Bank and may
exercise or refrain from exercising the same as though it were not an Agent,
and Morgan and Chase and the affiliates of each may accept deposits from, lend
money to, and generally engage in any kind of business with either Borrower or
any Subsidiary or affiliate of either Borrower as if it were not an Agent
hereunder.
SECTION 7.03. ACTION BY AGENTS. The obligations of each Agent
hereunder are only those expressly set forth herein. Without limiting the
generality of the foregoing, no Agent shall be required to take any action
with respect to any Default, except as expressly provided with respect to the
Documentation Agent in Article VI.
SECTION 7.04. CONSULTATION WITH EXPERTS. Each Agent may consult with
legal counsel (who may be counsel for either Borrower), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
SECTION 7.05. LIABILITY OF AGENTS. None of the Agents, their
respective affiliates or any of their respective directors, officers, agents
or employees shall be liable for any action taken or not taken by it in
connection herewith (i) with the consent or at the request of the Required
Banks or (ii) in the absence of its own gross negligence or willful
misconduct. None of the Agents, their respective affiliates or any of their
respective directors, officers, agents or employees shall be responsible for
or have any duty to ascertain, inquire into or verify (i) any statement,
warranty or representation made in connection with this Agreement or any
borrowing hereunder; (ii) the performance or observance of any of the
covenants or agreements of either Borrower; (iii) the satisfaction of any
condition specified in Article III, except receipt of items required to be
delivered to such Agent; or (iv) the validity, effectiveness or genuineness of
this Agreement, the Notes or any other instrument or writing furnished in
connection herewith. No Agent shall incur any liability by acting in reliance
upon any notice, consent, certificate, statement, or other writing (which may
be a bank wire, telex or similar writing) believed by it to be genuine or to
be signed by the proper party or parties.
SECTION 7.06. NOTICE OF DEFAULTS. No Agent shall be deemed to have
knowledge of the occurrence of a Default unless such Agent has received notice
from a Bank or the Company specifying such Default and stating that such
notice is a "Notice of Default". If an Agent receives such a notice of the
occurrence of a Default, such Agent shall give prompt notice thereof to the
Banks.
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SECTION 7.07. INDEMNIFICATION. Each Bank shall, ratably in
accordance with its Syndicated Commitment, indemnify each Agent and its
affiliates and their respective directors, officers, agents and employees (to
the extent not reimbursed by the Borrowers) against any cost, expense
(including counsel fees and disbursements), claim, demand, action, loss or
liability (except such as result from such Agent's gross negligence or willful
misconduct) that such indemnitees may suffer or incur in connection with this
Agreement or any action taken or omitted by such indemnitees hereunder.
SECTION 7.08. CREDIT DECISION. Each Bank acknowledges that it has,
independently and without reliance upon any Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon any Agent
or any other Bank, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking any action under this Agreement.
SECTION 7.09. SUCCESSOR AGENTS. Any Agent may resign at any time by
giving notice thereof to the Banks and the Borrowers. Upon any such
resignation, the Required Banks shall have the right to appoint a successor
Agent. If no successor Agent shall have been so appointed by the Required
Banks, and shall have accepted such appointment, within 30 days after the
retiring Agent gives notice of resignation, then the retiring Agent may, on
behalf of the Banks, appoint a successor Agent, which shall be a commercial
bank organized or licensed under the laws of the United States or of any State
thereof and having a combined capital and surplus of at least $500,000,000.
Upon the acceptance of its appointment as Agent hereunder by a successor
Agent, such successor Agent shall thereupon succeed to and become vested with
all the rights and duties of the retiring Agent, and the retiring Agent shall
be discharged from its duties and obligations hereunder. After any retiring
Agent's resignation hereunder as an Agent, the provisions of this Article
shall inure to its benefit as to any actions taken or omitted to be taken by
it while it was an Agent.
SECTION 7.10. AGENTS' FEES. The Company shall pay to each Agent for
its own account fees in the amounts and at the times previously agreed upon
between the Company and such Agent.
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. BASIS FOR DETERMINING INTEREST RATE INADEQUATE OF
UNFAIR. If prior to the first day of any Interest Period for any Euro-Dollar
Borrowing:
(a) the Administrative Agent is advised by the Reference Banks that
deposits in U.S. dollars (in the applicable amounts) are not being offered
to the Reference Banks in the London interbank market for such Interest
Period, or
(b) Banks having more than 50% of the aggregate amount of the
Syndicated Commitments advise the Administrative Agent that the London
Interbank Offered Rate as determined by the Administrative Agent will not
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adequately and fairly reflect the cost to such Banks of funding their
Euro-Dollar Loans for such Interest Period,
the Administrative Agent shall forthwith give notice thereof to the Borrowers
and the Banks, whereupon until the Administrative Agent notifies the Borrowers
that the circumstances giving rise to such suspension no longer exist, the
obligations of the Banks to make Euro-Dollar Loans shall be suspended. Unless
the relevant Borrower notifies the Administrative Agent at least two Domestic
Business Days before the date of any Euro-Dollar Borrowing for which a Notice
of Borrowing has previously been given that it elects not to borrow on such
date, such Borrowing shall instead be made as a Domestic Borrowing.
SECTION 8.02. ILLEGALITY. If any Regulatory Change shall make it
unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to
make, maintain or fund its Euro-Dollar Loans to either Borrower and such Bank
shall so notify the Administrative Agent, the Administrative Agent shall
forthwith give notice thereof to the other Banks and such Borrower, whereupon
until such Bank notifies such Borrower and the Administrative Agent that the
circumstances giving rise to such suspension no longer exist, the obligation
of such Bank to make Euro-Dollar Loans to such Borrower shall be suspended.
Before giving any notice to the Administrative Agent pursuant to this Section,
such Bank shall designate a different Euro-Dollar Lending Office if such
designation will avoid the need for giving such notice and will not, in the
judgment of such Bank, be otherwise disadvantageous to such Bank. If such
Bank shall determine that it may not lawfully continue to maintain and fund
any of its outstanding Euro-Dollar Loans to such Borrower to maturity and
shall so specify in such notice, such Borrower shall immediately prepay in
full the then outstanding principal amount of each such Euro-Dollar Loan,
together with accrued interest thereon. Concurrently with prepaying each such
Euro-Dollar Loan, such Borrower shall borrow a Domestic Loan in an equal
principal amount from such Bank (on which interest and principal shall be
payable contemporaneously with the related Euro-Dollar Loans of the other
Banks), and such Bank shall make such a Domestic Loan.
SECTION 8.03. INCREASED COST AND REDUCED RETURN. (a) If any
Regulatory Change shall impose, modify or deem applicable any reserve, special
deposit, insurance assessment or similar requirement (including, without
limitation, any such requirement imposed by the Board of Governors of the
Federal Reserve System but excluding any such requirement included in an
applicable Euro-Dollar Reserve Percentage) against assets of, deposits with or
for the account of, or credit extended by, any Bank (or its Euro-Dollar
Lending Office) or shall impose on any Bank (or its Euro-Dollar Lending
Office) or the London interbank market any other condition affecting its
Euro-Dollar Loans, its Notes or its obligation to make Euro-Dollar Loans and
the result of any of the foregoing is to increase the cost to such Bank (or
its Euro-Dollar Lending Office) of making or maintaining its Euro-Dollar
Loans, or to reduce the amount of any sum received or receivable by such Bank
(or its Euro-Dollar Lending Office) under this Agreement or under its Notes
with respect thereto, by an amount deemed by such Bank to be material, then,
within 15 days after demand by such Bank (with a copy to the Administrative
Agent), the relevant Borrower shall pay to such Bank such additional amount or
amounts as will compensate such Bank for such increased cost or reduction.
(b) If any Bank shall have determined that any Regulatory Change
regarding capital adequacy has or would have the effect of reducing the rate
of return on capital of such Bank (or its Parent) as a consequence of such
Bank's obligations hereunder to a level below that which such Bank (or its
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Parent) could have achieved but for such adoption, change, request or
directive (taking into consideration its policies with respect to capital
adequacy) by an amount deemed by such Bank to be material, then from time to
time, within 15 days after demand by such Bank (with a copy to the
Administrative Agent), the Company shall pay to such Bank such additional
amount or amounts as will compensate such Bank (or its Parent) for such
reduction.
(c) Each Bank will promptly notify the Borrowers and the
Administrative Agent of any event of which it has knowledge, occurring after
the date hereof, which will entitle such Bank to compensation pursuant to this
Section and will designate a different Applicable Lending Office if such
designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank. Subject to Section 8.06, a certificate of any
Bank claiming compensation under this Section and setting forth the additional
amount or amounts to be paid to it hereunder shall be conclusive in the
absence of manifest error. In determining such amount, such Bank may use any
reasonable averaging and attribution methods.
SECTION 8.04. TAXES. (a) Any and all payments by either Borrower to
or for the account of any Bank or Agent hereunder or under any Note shall be
made free and clear of and without deduction for any and all present or future
taxes, duties, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, EXCLUDING, in the case of each Bank and
Agent, taxes imposed on its income, and franchise or similar taxes imposed on
it, by a jurisdiction under the laws of which such Bank or Agent (as the case
may be) is organized, in which its principal executive office is located, or
in which it is otherwise subject to income, franchise or similar taxes (unless
such Bank or Agent would be subject to such taxes if the transactions
contemplated by this Agreement were the only business activities of such Bank
or Agent in such jurisdiction) or, in the case of each Bank, in which its
Applicable Lending Office is located (all such non-excluded taxes, duties,
levies, imposts, deductions, charges, withholdings and liabilities, whether or
not required to be deducted from any such payment, being hereinafter referred
to as "Taxes"). If either Borrower shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder or under any Note to any
Bank or Agent, (i) the sum payable shall be increased as necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section 8.04) such Bank or Agent (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) such Borrower shall make such deductions,
(iii) such Borrower shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable law and
(iv) such Borrower shall furnish to the Administrative Agent, at its address
referred to in Section 10.01, the original or a certified copy of a receipt
evidencing payment thereof.
(b) In addition, the Borrowers agree to pay any present or future
stamp or documentary taxes and any other excise or property taxes, or charges
or similar levies which arise from any payment made hereunder or under any
Note or from the execution or delivery of, or otherwise with respect to, this
Agreement or any Note (hereinafter referred to as "Other Taxes").
(c) The relevant Borrower agrees to indemnify each Bank and Agent for
the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts
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<PAGE>44
payable under this Section 8.04) paid by such Bank or Agent (as the case may
be) and any penalties, interest and expenses arising therefrom or with respect
thereto. This indemnification shall be made within 15 days from the date such
Bank or Agent (as the case may be) makes demand therefor.
(d) Each Bank or Agent organized under the laws of a jurisdiction
outside the United States, on or prior to the date of its execution and
delivery of this Agreement in the case of each Bank or Agent listed on the
signature pages hereof and on or prior to the date on which it becomes a Bank
or Agent in the case of each other Bank and Agent, and from time to time
thereafter if requested in writing by a Borrower (but only so long as such
Bank or Agent remains lawfully able to do so), shall provide such Borrower
with Internal Revenue Service form 1001 or 4224, as appropriate, or any
successor form prescribed by the Internal Revenue Service, validly certifying
that such Bank or Agent is entitled to benefits under an income tax treaty to
which the United States is a party which exempts from withholding tax, or
reduces the rate of withholding tax on, payments hereunder or under any Notes
or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States. If the form provided by a Bank or Agent at the time such Bank or
Agent first becomes a party to this Agreement indicates a United States
withholding tax rate in excess of zero, withholding tax at such rate shall be
considered excluded from "Taxes" as defined in Section 8.04(a) imposed by the
United States.
(e) For any period with respect to which a Bank or Agent has failed
to provide either Borrower with the appropriate valid form pursuant to Section
8.04(d) (unless such failure is due to a change in treaty, law or regulation
occurring subsequent to the date on which a valid form originally was required
to be provided), such Bank or Agent shall not be entitled to indemnification
by such Borrower under Section 8.04(a) with respect to Taxes imposed by the
United States; PROVIDED that should a Bank or Agent, which is otherwise exempt
from or subject to a reduced rate of withholding tax, become subject to Taxes
because of its failure to deliver a form required hereunder, such Borrower
shall take such steps as such Bank or Agent shall reasonably request to assist
such Bank or Agent to recover such Taxes.
(f) If either Borrower is required to pay additional amounts to or
for the account of any Bank pursuant to this Section 8.04, then such Bank will
change the jurisdiction of its Applicable Lending Office so as to eliminate or
reduce any such additional payment which may thereafter accrue if such change,
in the judgment of such Bank, is not otherwise disadvantageous to such Bank.
SECTION 8.05. DOMESTIC LOANS SUBSTITUTED FOR AFFECTED EURO-DOLLAR
LOANS. If (i) the obligation of any Bank to make Euro-Dollar Loans to either
Borrower has been suspended pursuant to Section 8.02 or (ii) any Bank has
demanded compensation under Section 8.03 or 8.04 with respect to its Euro-
Dollar Loans to either Borrower and the relevant Borrower shall, by at least
five Euro-Dollar Business Days' prior notice to such Bank through the
Administrative Agent, have elected that the provisions of this Section shall
apply to such Bank, then, unless and until such Bank notifies such Borrower
that the circumstances giving rise to such suspension or demand for
compensation no longer exist:
(a) all Loans to such Borrower which would otherwise be made by such
Bank as Euro-Dollar Loans shall be made instead as Domestic Loans (on which
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interest and principal shall be payable contemporaneously with the related
Euro-Dollar Loans of the other Banks), and
(b) after each of its Euro-Dollar Loans to such Borrower has been
repaid, all payments of principal which would otherwise be applied to repay
such Euro-Dollar Loans shall be applied to repay its Domestic Loans to such
Borrower instead.
SECTION 8.06. DETERMINATIONS TO BE REASONABLE AND NOT DISCRIMINATORY.
Determinations and allocations by any Bank for purposes of this Article VIII
or Section 2.13 as to the effect of any Regulatory Change (or the effect of
reserves maintained pursuant thereto) on its costs or rate of return, or on
amounts receivable by it in respect of Loans, and as to the amounts required
to compensate such Bank under this Article VIII or Section 2.13, shall be
conclusive, PROVIDED that (i) such determinations and allocations are made on
a reasonable basis and (ii) such Bank treats the Loans outstanding hereunder
no less favorably than it treats loans of the same type outstanding to other
borrowers at the time of such determination.
ARTICLE IX
GUARANTY
SECTION 9.01. THE GUARANTY. The Company hereby unconditionally
guarantees the full and punctual payment (whether at stated maturity, upon
acceleration or otherwise) of the principal of and interest on each Note
issued by MDFS pursuant to this Agreement, and the full and punctual payment
of all other amounts payable by MDFS under this Agreement. Upon failure by
MDFS to pay punctually any such amount, the Company shall forthwith on demand
pay the amount not so paid at the place and in the manner specified in this
Agreement.
SECTION 9.02. GUARANTY UNCONDITIONAL. The obligations of the Company
under this Article IX shall be unconditional and absolute and, without
limiting the generality of the foregoing, shall not be released, discharged or
otherwise affected by:
(i) any extension, renewal, settlement, compromise, waiver or release
in respect of any obligation of MDFS under this Agreement or any Note, by
operation of law or otherwise;
(ii) any release, impairment, non-perfection or invalidity of any
direct or indirect security for any obligation of MDFS under this Agreement
or any Note;
(iii) any change in MDFS's ownership of 100% of the outstanding common
stock of the Company or any change in the corporate existence, structure or
ownership of MDFS, or any insolvency, bankruptcy, reorganization or other
similar proceeding affecting MDFS or its assets or any resulting release or
discharge of any obligation of MDFS contained in this Agreement or any
Note;
(iv) the existence of any claim, set-off or other rights which the
Company may have at any time against MDFS, any Agent, any Bank or any other
Person, whether in connection herewith or any unrelated transactions,
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PROVIDED that nothing herein shall prevent the assertion of any such claim
by separate suit or compulsory counterclaim;
(v) any invalidity or unenforceability relating to or against MDFS
for any reason of this Agreement or any Note, or any provision of
applicable law or regulation purporting to prohibit the payment by MDFS of
the principal of or interest on any Note or any other amount payable by it
under this Agreement; or
(vi) any other act or omission to act or delay of any kind by MDFS,
any Agent, any Bank or any other Person or any other circumstance
whatsoever which might, but for the provisions of this Section, constitute
a legal or equitable discharge of the Company's obligations hereunder.
SECTION 9.03. DISCHARGE ONLY UPON PAYMENT IN FULL; REINSTATEMENT IN
CERTAIN CIRCUMSTANCES. The Company's obligations under this Article IX shall
remain in full force and effect until the Commitments shall have terminated
and the principal of and interest on MDFS's Notes and all other amounts
payable by MDFS under this Agreement shall have been paid in full. If at any
time any payment of the principal of or interest on any Note of MDFS or any
other amount payable by MDFS under this Agreement is rescinded or must be
otherwise restored or returned upon the insolvency, bankruptcy or
reorganization of MDFS or otherwise, the Company's obligations under this
Article IX with respect to such payment shall be reinstated at such time as
though such payment had been due but not made at such time.
SECTION 9.04. WAIVER BY THE COMPANY. The Company irrevocably waives
acceptance hereof, presentment, demand, protest and any notice not provided
for herein, as well as any requirement that at any time any action be taken by
any Person against MDFS or any other Person. The Company also waives any
right it might otherwise have under any applicable law to revoke its guarantee
under this Article IX as to subsequent transactions.
SECTION 9.05. SUBROGATION. The Company irrevocably waives any and
all rights to which it may be entitled, by operation of law or otherwise, upon
making any payment hereunder to be subrogated to the rights of the payee
against MDFS with respect to such payment or against any direct or indirect
security therefor, or otherwise to be reimbursed, indemnified or exonerated by
or for the account of MDFS in respect thereof.
SECTION 9.06. STAY OF ACCELERATION. If acceleration of the time for
payment of any amount payable by MDFS under this Agreement or its Notes is
stayed upon insolvency, bankruptcy or reorganization of MDFS, all such amounts
otherwise subject to acceleration under the terms of this Agreement shall
nonetheless be payable by the Company hereunder forthwith on demand by the
Documentation Agent made at the request of the Required Banks.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. NOTICES. All notices, requests and other
communications to any party hereunder shall be in writing (including bank
wire, telex, facsimile transmission or similar writing) and shall be given to
such party: (x) in the case of either Borrower or any Agent, at its address,
facsimile number or telex number set forth on the signature pages hereof, (y)
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in the case of any Bank, at its address or telex number set forth in its
Administrative Questionnaire or its facsimile number set forth on the
signature pages below or (z) in the case of any party, such other address,
facsimile number or telex number as such party may hereafter specify for the
purpose by notice to the Administrative Agent, the Documentation Agent and the
Borrowers. Each such notice, request or other communication shall be
effective (i) if given by telex, when such telex is transmitted to the telex
number specified in this Section and the appropriate answer back is received,
(ii) if given by mail, 72 hours after such communication is deposited in the
mails with first class postage prepaid, addressed as aforesaid or (iii) if
given by any other means, when delivered at the address specified in this
Section; PROVIDED that notices to the Administrative Agent under Article II or
Article VIII shall not be effective until received.
SECTION 10.02. NO WAIVERS. No failure or delay by any Agent or any
Bank in exercising any right, power or privilege hereunder or under any Note
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by
law.
SECTION 10.03. EXPENSES; INDEMNIFICATION. (a) The Company agrees to
pay (i) all reasonable out-of-pocket expenses of the Documentation Agent,
including reasonable fees and disbursements of special counsel for the
Documentation Agent, in connection with the preparation and administration of
this Agreement, any waiver or consent hereunder or any amendment hereof or any
Default or alleged Default hereunder and (ii) if an Event of Default occurs,
all out-of-pocket expenses incurred by each Agent and each Bank, including
fees and disbursements of counsel, in connection with such Event of Default
and collection, bankruptcy, insolvency and other enforcement proceedings
resulting therefrom.
(b) The Borrowers jointly and severally agree to indemnify each Agent
and Bank, their respective affiliates and the respective directors, officers,
agents and employees of the foregoing (each an "Indemnitee") and hold each
Indemnitee harmless from and against any and all liabilities, losses, damages,
costs and expenses of any kind, including, without limitation, settlement
costs and the reasonable fees and disbursements of counsel, which may be
incurred by such Indemnitee in connection with any investigative,
administrative or judicial proceeding (whether or not such Indemnitee shall be
designated a party thereto) brought or threatened relating to or arising out
of this Agreement or any actual or proposed use of proceeds of Loans
hereunder; PROVIDED that no Indemnitee shall have the right to be indemnified
hereunder for such Indemnitee's own gross negligence or willful misconduct as
determined by a court of competent jurisdiction; and PROVIDED FURTHER that
this subsection (b) shall not apply to any such liabilities, losses, damages,
costs and expenses arising from any legal action brought by either Borrower to
enforce its rights under this Agreement unless such Borrower loses such
action.
SECTION 10.04. SHARING OF SET-OFFS. Each Bank agrees that if it
shall, by exercising any right of set-off or counterclaim or otherwise,
receive payment of a proportion of the aggregate amount of principal and
interest due with respect to the Note of either Borrower held by it which is
greater than the proportion received by any other Bank in respect of the
aggregate amount of principal and interest due with respect to the Note of
<PAGE>
<PAGE>48
such Borrower held by such other Bank, the Bank receiving such proportionately
greater payment shall purchase such participations in the Notes held by the
other Banks, and such other adjustments shall be made, as may be required so
that all such payments of principal and interest with respect to the Notes of
such Borrower held by the Banks shall be shared by the Banks pro rata;
PROVIDED that nothing in this Section shall impair the right of any Bank to
exercise any right of set-off or counterclaim it may have and to apply the
amount subject to such exercise to the payment of indebtedness of such
Borrower other than its indebtedness hereunder. Each Borrower agrees, to the
fullest extent it may effectively do so under applicable law, that any holder
of a participation in a Note of such Borrower, whether or not acquired
pursuant to the foregoing arrangements, may exercise rights of set-off or
counterclaim and other rights with respect to such participation as fully as
if such holder of a participation were a direct creditor of such Borrower in
the amount of such participation.
SECTION 10.05. AMENDMENTS AND WAIVERS. Any provision of this
Agreement or the Notes may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed by the Borrowers and the
Required Banks (and, if the rights or duties of any Agent or any Swingline
Bank are affected thereby, by such Agent or such Swingline Bank, as the case
may be); PROVIDED that no such amendment or waiver shall, unless signed by all
the Banks, (i) increase or decrease the Syndicated Commitment of any Bank
(except for a ratable decrease in the Commitments of all Banks) or the
Swingline Commitment of any Swingline Bank, or subject any Bank to any
additional obligation, (ii) reduce the principal of or rate of interest on any
Loan or any fees hereunder, (iii) postpone the date fixed for any payment of
principal of or interest on any Loan or any fees hereunder or for the
termination of any Commitment or (iv) change the percentage of the Commitments
or of the aggregate unpaid principal amount of the Notes, or the number of
Banks, which shall be required for the Banks or any of them to take any action
under this Section or any other provision of this Agreement.
SECTION 10.06. SUCCESSORS AND ASSIGNS. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that neither Borrower may
assign or otherwise transfer any of its rights under this Agreement without
the prior written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Syndicated
Commitment or any or all of its Loans. In the event of any such grant by a
Bank of a participating interest to a Participant, whether or not upon notice
to the Borrowers and the Agents, such Bank shall remain responsible for the
performance of its obligations hereunder, and the Borrowers and the Agents
shall continue to deal solely and directly with such Bank in connection with
such Bank's rights and obligations under this Agreement. Any agreement
pursuant to which any Bank may grant such a participating interest shall
provide that such Bank shall retain the sole right and responsibility to
enforce the obligations of the Borrowers hereunder including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of this Agreement; PROVIDED that such participation agreement may
provide that such Bank will not agree to any modification, amendment or waiver
of this Agreement described in clause (i), (ii), or (iii) of Section 10.05
without the consent of the Participant. The Borrowers agree that each
Participant shall, to the extent provided in its participation agreement (but
subject to subsection (e) of this Section), be entitled to the benefits of
<PAGE>
<PAGE>49
Article VIII with respect to its participating interest. An assignment or
other transfer which is not permitted by subsection (c) or (d) below shall be
given effect for purposes of this Agreement only to the extent of a
participating interest granted in accordance with this subsection (b).
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all, or a proportionate part of all, of its
rights and obligations under this Agreement and the Notes, and such Assignee
shall assume such rights and obligations, pursuant to an Assignment and
Assumption Agreement in substantially the form of Exhibit D hereto executed by
such Assignee and such transferor Bank, with (and subject to) the subscribed
consent of the Company, which consent shall not be unreasonably withheld, and
each Swingline Bank, with notice to the Administrative Agent and the
Documentation Agent; PROVIDED that, if an Assignee is an affiliate of such
transferor Bank having a rating of BBB+ or higher, or Baa1 or higher, by any
two of S&P, Moody's and D&P, no such consent shall be required. Upon
execution and delivery of such instrument and payment by such Assignee to such
transferor Bank of an amount equal to the purchase price agreed between such
transferor Bank and such Assignee, such Assignee shall be a Bank party to this
Agreement and shall have all the rights and obligations of a Bank with a
Syndicated Commitment as set forth in such instrument of assumption, and the
transferor Bank shall be released from its obligations hereunder to a
corresponding extent, and no further consent or action by any party shall be
required. Upon the consummation of any assignment pursuant to this subsection
(c), the transferor Bank, the Administrative Agent, the Documentation Agent
and the Borrowers shall make appropriate arrangements so that, if required,
new Notes are issued to the Assignee. In connection with any such assignment,
the transferor Bank shall pay to the Administrative Agent an administrative
fee for processing such assignment in the amount of $2,500. If the Assignee
is not incorporated under the laws of the United States or a State thereof, it
shall deliver to the Company and the Administrative Agent certification as to
exemption from deduction or withholding of any United States federal income
taxes in accordance with Section 8.04.
(d) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Notes to a Federal Reserve Bank. No such
assignment shall release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's rights
shall be entitled to receive any greater payment under Section 8.03 or 8.04
than such Bank would have been entitled to receive with respect to the rights
transferred, unless such transfer is made with the Company's prior written
consent or by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring
such Bank to designate a different Applicable Lending Office under certain
circumstances or at a time when the circumstances giving rise to such greater
payment did not exist.
SECTION 10.07. COLLATERAL. Each of the Banks represents to the
Agents and each of the other Banks that it in good faith is not relying upon
any "margin stock" (as defined in Regulation U) as collateral in the extension
or maintenance of the credit provided for in this Agreement.
SECTION 10.08. GOVERNING LAW; SUBMISSION TO JURISDICTION. This
Agreement and each Note shall be governed by and construed in accordance with
the laws of the State of New York. Each Borrower hereby submits to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York and of any New York State court sitting in New York City
<PAGE>
<PAGE>50
for purposes of all legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby. Each Borrower irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court
has been brought in an inconvenient forum.
SECTION 10.09. COUNTERPARTS; INTEGRATION; EFFECTIVENESS. This
Agreement may be signed in any number of counterparts, each of which shall be
an original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement constitutes the entire agreement and
understanding among the parties hereto and supersedes any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof. This Agreement shall become effective upon receipt by
the Documentation Agent of counterparts hereof signed by each of
the parties hereto (or, in the case of any party as to which an executed
counterpart shall not have been received, receipt by the Documentation Agent
in form satisfactory to it of telegraphic, telex or other written confirmation
from such party of execution of a counterpart hereof by such party).
SECTION 10.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWERS, THE
AGENTS AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
<PAGE>
<PAGE>51
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and
year first above written.
MCDONNELL DOUGLAS
FINANCE CORPORATION
By /s/ Thomas J. Lawlor, Jr.
Title: Sr. V.P. - Chief
Financial Officer
4060 Lakewood Boulevard
Long Beach, CA 90808-1700
Facsimile number: 310-627-3284
MCDONNELL DOUGLAS FINANCIAL
SERVICES CORPORATION
By /s/ Thomas J. Lawlor, Jr
Title: Sr. V.P. - Chief
Financial Officer
4060 Lakewood Boulevard
Long Beach, CA 90808-1700
Facsimile number: 310-627-3284
<PAGE>
<PAGE>52
Syndicated
Commitments
$25,000,000 MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By /s/ Diana H. Imhoff
Title: Associate
$25,000,000 THE BANK OF NEW YORK
By /s/ Olayinka Bamgbose
Title: Assistant Vice President
$25,000,000 THE CHASE MANHATTAN BANK, N.A.
By /s/ Luca Bettini
Title: Vice President
$25,000,000 THE INDUSTRIAL BANK OF JAPAN, LTD
By /s/ Toshinari Iyoda
Title: Senior Vice President
$20,000,000 BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By /s/ Yvonne C. Dennis
Title: Vice President
$20,000,000 BANK OF MONTREAL
<PAGE>
<PAGE>53
By /s/ Richard W. Camm
Title: Senior Manager, Credit
$20,000,000 CHEMICAL BANK
By /s/ Richard W. Stewart
Title: Vice President
$20,000,000 NATIONAL WESTMINSTER BANK PLC
By /s/ Stephen J. Sayre
Title: Vice President
$20,000,000 THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Gerald F. Mackin
Title: Vice President
$20,000,000 THE LONG-TERM CREDIT BANK OF JAPAN,
LTD.
By /s/ Motokazu Uematsu
Title: Deputy General Manager
_________________
Total Syndicated
Commitments
$220,000,000
=================
<PAGE>
<PAGE>54
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By /s/ Diana H. Imhoff
Title: Associate
60 Wall Street
New York, New York 10260-0060
Attention: Diana Imhof
Telex number: 177615
Facsimile number: 212-648-5014
THE CHASE MANHATTAN BANK, N.A.,
as Agent
By /s/ Luca Bettini
Title: Vice President
1 Chase Manhattan Plaza
New York, New York 10081
Attention: Kirk Simonetti
Facsimile number: 718-242-6909
<PAGE>
<PAGE>55
PRICING SCHEDULE
The "LIBOR Margin" and "Commitment Fee Rate" for any day are the
respective percentages set forth below in the applicable row under the column
corresponding to the Status and Usage that exists on such day:
---------------------------------------------------------------------
Status Level I Level II Level III
---------------------------------------------------------------------
LIBOR Margin
Usage less than or
equal to 50% 0.35% 0.375% 0.4375%
Usage more than 50% 0.35% 0.375% 0.45%
Commitment Fee Rate 0.10% 0.125% 0.15%
----------------------------------------------------------------------
Level IV Level V Level VI
----------------------------------------------------------------------
LIBOR Margin
Usage less than or
equal to 50% 0.50% 0.625% 0.75%
Usage more than 50% 0.55% 0.6875% 1.00%
Commitment Fee Rate 0.20% 0.225% 0.3125%
For purposes of this Schedule, the following terms have the following
meanings:
"Level I Status" exists at any date if, at such date, the Company's
long-term debt is rated A or higher by S&P or A2 or higher by Moody's.
"Level II Status" exists at any date if, at such date, (i) the
Company's long-term debt is rated A- or higher by S&P or A3 or higher by
Moody's and (ii) Level I Status does not exist.
"Level III Status" exists at any date if, at such date, (i) the
Company's long-term debt is rated BBB+ or higher by S&P or Baa1 or higher by
Moody's and (ii) neither Level I Status nor Level II Status exists.
"Level IV Status" exists at any date if, at such date, (i) the
Company's long-term debt is rated BBB or higher by S&P or Baa2 or higher by
Moody's and (ii) none of Level I Status, Level II Status and Level III Status
exists.
"Level V Status" exists at any date if, at such date, (i) the
Company's long-term debt is rated BBB- or higher by S&P or Baa3 or higher by
Moody's and (ii) none of Level I Status, Level II Status, Level III Status or
Level IV Status exists.
"Level VI Status" exists at any date if, at such date, no other Status
exists.
<PAGE>
<PAGE>56
"Moody's" means Moody's Investors Service, Inc.
"S&P" means Standard and Poor's Ratings Group.
"Status" means, at any date, whichever of Level I Status, Level II
Status, Level III Status, Level IV Status, Level V Status or Level VI Status
exists at such date.
"Usage" means at any date the percentage equivalent of a fraction (i)
the numerator of which is the aggregate outstanding principal amount of the
Syndicated Loans and Swingline Loans at such date, after giving effect to any
borrowing or payment on such date, and (ii) the denominator of which is the
aggregate amount of the Syndicated Commitments at such date, after giving
effect to any reduction of the Syndicated Commitments on such date. For
purposes of this Schedule, if for any reason any Loans remain outstanding
after termination of the Commitments, the Usage for each date on or after the
date of such termination shall be deemed to be greater than 50%.
The credit ratings to be utilized for purposes of determining a Status
are the publicly announced ratings assigned to unsecured senior obligations of
the Company without third party credit support (the "Long-Term Securities").
Ratings assigned to any obligation which is secured or which has the benefit
of third party credit support shall be disregarded. Notwithstanding the
foregoing two sentences, if the obligations of the Company under this
Agreement and its Notes are hereafter secured or entitled to the benefit of
any third party credit support, then the credit ratings utilized in
determining a Status shall, if the Company so requests by written notice to
the Documentation Agent, be the ratings assigned to any other senior
obligations of the Company that are secured by the same collateral or entitled
to the benefit of the same third party credit support, in each case equally
and ratably with the obligations of the Company under this Agreement and the
Notes (and such obligations shall be "Long-Term Securities" for purposes of
the next succeeding paragraph).
For purposes of determining Status, if at any date the rating of the
Long-Term Securities by Moody's shall be higher or lower than the comparable
rating by S&P by two or more rating levels (it being understood that for these
purposes an S&P rating of A+ is comparable to a Moody's rating of A1, an S&P
rating of A is comparable to a Moody's rating of A2, and so forth), then the
rating of the Long-Term Securities by each of Moody's and S&P shall be deemed
to be one rating level above the lower of the two actual ratings.
<PAGE>
<PAGE>57
EXHIBIT A
NOTE
New York, New York
____________, 199_
For value received, [name of Borrower], a Delaware corporation (the
"Borrower"), promises to pay to the order of _________ (the "Bank"), for the
account of its Applicable Lending Office, the unpaid principal amount of each
Loan made by the Bank to the Borrower pursuant to the Credit Agreement
referred to below on the last day of the Interest Period relating to such
Loan. The Borrower promises to pay interest on the unpaid principal amount of
each such Loan on the dates and at the rate or rates provided for in the
Credit Agreement. All such payments of principal and interest shall be made
in lawful money of the United States in Federal or other immediately available
funds at the office of The Chase Manhattan Bank, N.A., 1 Chase Manhattan
Plaza, New York, New York 10081.
All Loans made to the Borrower by the Bank, the respective types and
maturities thereof and all repayments of the principal thereof shall be
recorded by the Bank and, if the Bank so elects in connection with any
transfer or enforcement hereof, appropriate notations to evidence the
foregoing information with respect to each such Loan then outstanding may be
endorsed by the Bank on the schedule attached hereto, or on a continuation of
such schedule attached to and made a part hereof; PROVIDED that the failure of
the Bank to make any such recordation or endorsement shall not affect the
obligations of the Borrower hereunder or under the Credit Agreement.
This note is one of the Notes referred to in the Credit Agreement
dated as of September 29, 1994 among McDonnell Douglas Finance Corporation,
McDonnell Douglas Financial Services Corporation, the banks listed on the
signature pages thereof and The Chase Manhattan Bank, N.A., and Morgan
Guaranty Trust Company of New York, as Agents (as the same may be amended from
time to time, the "Credit Agreement"). Terms defined in the Credit Agreement
are used herein with the same meanings. Reference is made to the Credit
Agreement for provisions for the prepayment hereof and the acceleration of the
maturity hereof.
[NAME OF BORROWER]
By________________________
Title:
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
<PAGE>
<PAGE>58
__________________________________________________________________
Amount of
Amount of Type of Principal Maturity Notation
Date Loan Loan Repaid Date Made By
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
<PAGE>
<PAGE>59
EXHIBIT B
OPINION OF
COUNSEL FOR THE BORROWERS
To the Banks and the Agents
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Documentation Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
I have acted as counsel for McDonnell Douglas Finance Corporation and
McDonnell Douglas Financial Services Corporation (the "Borrowers" and each one
a "Borrower") in connection with the Credit Agreement dated as of September
29, 1994 (the "Credit Agreement") among the Borrowers, the banks listed on the
signature pages thereof and The Chase Manhattan Bank, N.A., and Morgan
Guaranty Trust Company of New York, as Agents (the "Agents"). Unless
otherwise defined herein, terms defined in the Credit Agreement are used
herein as therein defined. This opinion is being rendered to you at the
request of my clients pursuant to Section 3.01(b) of the Credit Agreement.
I have examined originals or copies, certified or otherwise identified
to my satisfaction, of such documents, corporate records, certificates of
public officials and other instruments and have conducted such other
investigations of fact and law as I have deemed necessary or advisable for
purposes of this opinion.
With your consent I have relied, with respect to certain factual
matters, upon certificates of officers of the Borrowers and the
representations and warranties of the Borrowers set forth in the Credit
Agreement. I have assumed the genuineness of all signatures by all parties
other than the Borrowers and the authenticity of all documents submitted to me
as originals and the conformity with originals of all documents submitted to
me as copies.
Whenever a statement herein is qualified by "to the best of my
knowledge", "known to me" or a similar phrase, it is intended to indicate that
I do not have current actual knowledge of the inaccuracy of such statement.
However, except as otherwise expressly indicated, I have not undertaken any
independent investigation to determine the accuracy of such statement, and any
limited inquiry undertaken by me during the preparation of this opinion should
not be regarded as such an investigation. No inference as to my knowledge of
any matters bearing on the accuracy of any such statement should be drawn from
the fact of my representation of the Borrowers.
<PAGE>
<PAGE>60
I am opining herein as to the effect on the Credit Agreement and the
Notes only of the federal laws of the United States, the laws of the State of
California and the General Corporation Law of the State of Delaware, and I
express no opinion with respect to the laws of any other jurisdiction.
Upon the basis of the foregoing, I am, as of the date hereof and
subject to all qualifications, assumptions, limitations and exceptions set
forth in this letter, of the opinion that:
1. Each Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of Delaware, and has all corporate powers
and, to the best of my knowledge, all governmental licenses, authorizations,
consents and approvals required to carry on its business in all material
respects as now conducted.
2. The execution, delivery and performance by each Borrower of the
Credit Agreement and its Notes are within such Borrower's corporate powers,
have been duly authorized by all necessary corporate action, and, to the best
of my knowledge, require no action by or in respect of, or filing with, any
governmental body, agency or official (except that the Credit Agreement may be
required to be filed by the Company with the Securities and Exchange
Commission ("SEC")), and do not contravene, or constitute a default under, any
provision of applicable law or regulation known to me or of the certificate of
incorporation or by-laws of such Borrower or of any material agreement,
judgment, injunction, order, decree or other instrument known to me and
binding upon such Borrower or any of its Subsidiaries or result in the
creation or imposition of any Lien on any material asset of such Borrower or
any of its Subsidiaries.
3. The Credit Agreement constitutes a valid and binding agreement of
each Borrower and the Notes of each Borrower, when money has been loaned to
such Borrower thereunder in accordance with the Credit Agreement, will
constitute valid and binding obligations of such Borrower, in each case
enforceable in accordance with its terms (except as limited hereinbelow).
4. Except as disclosed in the reports listed in Section 4.11 of the
Credit Agreement, there is no action, suit or proceeding pending against, or
to the best of my knowledge threatened against, either Borrower or any of its
Subsidiaries (i) seeking to enjoin or prevent the making or maintenance of any
of the Loans or which in any manner draws into question the validity of the
Credit Agreement or the Notes; or (ii) that is required to be disclosed as
material litigation under the requirements of the Securities Exchange Act of
1934 (the "Exchange Act") and the rules and regulations of the SEC thereunder
or would be required to be so disclosed if a Form 10-K were required to be
filed under the Exchange Act on the date hereof.
5. The Credit Agreement provides that the Credit Agreement and the
Notes are to be governed by and construed in accordance with the laws of the
State of New York. As between the Banks and the Borrowers, the choice of New
York law to govern the Credit Agreement and the Notes should be upheld as a
valid choice of law in any action in a court of competent jurisdiction within
the State of California, provided that such court may apply local procedural
rules applicable to such court. Even if such a court were to apply California
law as the governing law, however, I would give the opinion set forth in
paragraph 3 above (subject to all qualifications, assumptions, limitations and
exceptions set forth in this letter). This opinion does not cover any legal
actions brought in courts outside of the United States.
<PAGE>
<PAGE>61
My opinion in paragraph 3 above is subject to (a) bankruptcy,
insolvency, reorganization, moratorium, or other similar laws now or hereafter
in effect relating to or affecting creditors' rights generally, (b) the effect
of general principles of equity, including without limitation concepts of
materiality, reasonableness, good faith and fair dealing, and the possible
unavailability of specific performance or injunctive relief, regardless of
whether considered in a proceeding in equity or at law and (c) the
unenforceability under certain circumstance of provisions indemnifying a party
for its own violations of securities laws. Further, I express no opinion as
to the application or effect of any applicable fraudulent conveyance,
fraudulent transfer, fraudulent obligation or preferential transfer laws or
any laws governing the distribution of assets of a company to its shareholder
or any usury laws.
I assume that (i) each Bank is duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization, (ii) the
Credit Agreement has been duly authorized, executed and delivered by each
Bank, (iii) the Credit Agreement constitutes or will constitute the legally
valid and binding agreement of each Bank in accordance with their terms,
subject to the same exceptions (a), (b) and (c) set forth in the preceding
paragraph, and (iv) each Bank has the requisite corporate or other
organizational power and authority to perform its obligations under such
agreement.
This opinion is rendered only to you and is solely for your benefit in
connection with the above transactions. This opinion may not be relied upon
for any other purpose, or relied upon by any other person, firm or corporation
for any purpose without my prior written consent. This opinion is given on
behalf of the Borrowers by their in-house legal department, acting as
corporate counsel, and no individual including the undersigned shall have
personal liability for the contents hereof.
Very truly yours,
<PAGE>
<PAGE>62
EXHIBIT C
OPINION OF
DAVIS POLK & WARDWELL, SPECIAL COUNSEL
FOR THE DOCUMENTATION AGENT
To the Banks and the Agents
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Documentation Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have participated in the preparation of the Credit Agreement dated
as of September 29, 1994 (the "Credit Agreement") among McDonnell Douglas
Finance Corporation and McDonnell Douglas Financial Services Corporation (each
a "Borrower"), the banks listed on the signature pages thereof (the "Banks")
and The Chase Manhattan Bank, N.A., and Morgan Guaranty Trust Company of New
York, as Agents (the "Agents"), and have acted as special counsel for Morgan
Guaranty Trust Company of New York as Documentation Agent for the purpose of
rendering this opinion pursuant to Section 3.01(c) of the Credit Agreement.
Terms defined in the Credit Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The execution, delivery and performance by each Borrower of the
Credit Agreement and its Notes are within such Borrower's corporate powers and
have been duly authorized by all necessary corporate action.
2. The Credit Agreement constitutes a valid and binding agreement of
each Borrower and the Notes of each Borrower constitute valid and binding
obligations of such Borrower, in each case enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and by general principles of
equity.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of
the United States of America and the General Corporation Law of the State of
Delaware. In giving the foregoing opinion, we express no opinion (i) as to
<PAGE>
<PAGE>63
the effect (if any) of any law of any jurisdiction (except the State of New
York) in which any Bank is located which limits the rate of interest that such
Bank may charge or collect and (ii) as to the application of any applicable
fraudulent conveyance, fraudulent transfer or fraudulent obligation law or as
to the effect thereof on the validity, binding effect and enforceability of
the guaranty provided by the Company under the Credit Agreement.
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by any other person without our prior written consent.
Very truly yours,
<PAGE>
<PAGE>64
EXHIBIT D
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the
"Assignor"), [ASSIGNEE] (the "Assignee"), and MCDONNELL DOUGLAS FINANCE
CORPORATION (the "Company") and MCDONNELL DOUGLAS FINANCIAL SERVICES
CORPORATION ("MDFS", and together with the Company, the "Borrowers" and each a
"Borrower").
W I T N E S S E T H
WHEREAS, this Assignment and Assumption Agreement (the "Agreement")
relates to the Credit Agreement dated as of September 29, 1994 among the
Borrowers, the Assignor and the other Banks party thereto, as Banks, and The
Chase Manhattan Bank, N.A., and Morgan Guaranty Trust Company of New York, as
Agents (the "Credit Agreement");
WHEREAS, as provided under the Credit Agreement, the Assignor has a
Syndicated Commitment to make Syndicated Loans to the Borrowers in an
aggregate principal amount at any time outstanding not to exceed $__________,
PROVIDED that the aggregate outstanding principal amount of the Assignor's
Syndicated Loans to MDFS may not at any time exceed 7.28% of such Syndicated
Commitment;
WHEREAS, Syndicated Loans made by the Assignor under the Credit
Agreement in the aggregate principal amount of (i) $__________ are outstanding
to the Company and (ii) $_______ are outstanding to MDFS, at the date hereof;
and
WHEREAS, the Assignor proposes to assign to the Assignee all of the
rights of the Assignor under the Credit Agreement in respect of a portion of
its Syndicated Commitment thereunder in an amount equal to $__________ (the
"Assigned Amount"), together with a corresponding portion of each of its
outstanding Syndicated Loans, and the Assignee proposes to accept assignment
of such rights and assume the corresponding obligations from the Assignor on
such terms;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. All capitalized terms not otherwise defined
herein have the respective meanings set forth in the Credit Agreement.
SECTION 2. ASSIGNMENT. The Assignor hereby assigns and sells to the
Assignee all of the rights of the Assignor under the Credit Agreement to the
extent of the Assigned Amount, and the Assignee hereby accepts such assignment
from the Assignor and assumes all of the obligations of the Assignor under the
Credit Agreement to the extent of the Assigned Amount, including the purchase
<PAGE>
<PAGE>65
from the Assignor of the corresponding portion of the principal amount of each
of the Syndicated Loans made by the Assignor outstanding at the date hereof.
Upon the execution and delivery hereof by the Assignor, the Assignee and the
Borrowers and the payment of the amounts specified in Section 3 required to be
paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed
to the rights and be obligated to perform the obligations of a Bank under the
Credit Agreement with a Syndicated Commitment in an amount equal to the
Assigned Amount, and (ii) the Syndicated Commitment of the Assignor shall, as
of the date hereof, be reduced by a like amount and the Assignor released from
its obligations under the Credit Agreement to the extent such obligations have
been assumed by the Assignee. The assignment provided for herein shall be
without recourse to the Assignor.
SECTION 3. PAYMENTS. As consideration for the assignment and sale
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on
the date hereof in Federal funds the amount heretofore agreed between them.(1)
It is understood that commitment accrued to the date hereof are for the
account of the Assignor and such fees accruing from and including the date
hereof are for the account of the Assignee. Each of the Assignor and the
Assignee hereby agrees that if it receives any amount under the Credit
Agreement which is for the account of the other party hereto, it shall receive
the same for the account of such other party to the extent of such other
party's interest therein and shall promptly pay the same to such other party.
SECTION 4. CONSENT OF THE BORROWER. This Agreement is conditioned
upon the consent of the Borrowers and each Swingline Bank pursuant to Section
10.06(c) of the Credit Agreement. The execution of this Agreement by the
Borrowers is evidence of this consent. Pursuant to Section 10.06(c) each
Borrower agrees to execute and deliver a Note payable to the order of the
Assignee to evidence the assignment and assumption provided for herein.
(1) Amount should combine principal together with accrued interest and
breakage compensation, if any, to be paid by the Assignee, net of any
portion of any upfront fee to be paid by the assignor to the
assignee. It may be preferable in an appropriate case to specify
these amounts generically or by formula rather than as a fixed sum.
<PAGE>
<PAGE>66
SECTION 5. NON-RELIANCE ON ASSIGNOR. The Assignor makes no
representation or warranty in connection with, and shall have no
responsibility with respect to, the solvency, financial condition or
statements of the Borrowers, or the validity and enforceability of the
obligations of the Borrowers in respect of the Credit Agreement or any Note.
The Assignee acknowledges that it has, independently and without reliance on
the Assignor, and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement and will continue to be responsible for making its own independent
appraisal of the business, affairs and financial condition of the Borrowers.
SECTION 6. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. COUNTERPARTS. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.
[ASSIGNOR]
By_________________________
Title:
[ASSIGNEE]
By__________________________
Title:
MCDONNELL DOUGLAS
FINANCE CORPORATION
By__________________________
Title:
MCDONNELL DOUGLAS FINANCIAL
SERVICES CORPORATION
By__________________________
Title:
<PAGE>
<PAGE>67
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By___________________________
Title:
THE CHASE MANHATTAN BANK, N.A.
By
Title:
<PAGE>
<PAGE>68
EXHIBIT E
FORM OF SUBORDINATION PROVISIONS
Section 1401. Securities Subordinated to Senior Indebtedness.
The Company covenants and agrees, and each Holder of Securities, by
his acceptance thereof, likewise covenants and agrees, that the indebtedness
evidenced by the Securities and the payment of the principal of (and premium,
if any) and interest on each and all of the Securities is hereby expressly
subordinated, to the extent and in the manner hereinafter set forth, in right
of payment to the prior payment in full of Senior Indebtedness.
Anything in this Indenture or in the Securities to the contrary
notwithstanding, the indebtedness evidenced by the Securities shall be
subordinate and junior in right of payment, to the extent and in the manner
hereinafter set forth, to all Senior Indebtedness. Senior Indebtedness shall
continue to be Senior Indebtedness and entitled to the benefits of these
subordination provisions irrespective of any amendment, modification or waiver
of any term of Senior Indebtedness or extension or renewal of Senior
Indebtedness.
(a)(i) In the event the Company shall default in the payment of any
Senior Indebtedness when the same becomes due and payable, whether at
maturity or on a date fixed for prepayment or by declaration or otherwise,
then, unless and until such default shall have been cured or waived or
shall have ceased to exist, no direct or indirect payment (in cash,
property or securities or by set-off or otherwise) shall be made or agreed
to be made on account of the principal of, premium, if any, or interest or
any Additional Amounts on the Securities, or as a sinking fund for the
Securities, or in respect of any redemption, retirement, purchase or other
acquisition of any of the Securities.
(ii) Upon the happening of an event of default with respect to any
Senior Indebtedness, permitting the holders thereof to accelerate the
maturity thereof (other than under circumstances when the terms of
subdivision (a)(i) are applicable), then, unless and until such event of
default shall have been cured or waived or shall have ceased to exist, no
direct or indirect payment (in cash, property or securities or by set-off
or otherwise) shall be made or agreed to be made on account of the
principal of, or premium, if any, or interest or any Additional Amounts on
any Securities, or as a sinking fund for the Securities, or in respect of
any redemption, retirement, purchase or other acquisition of any of the
Securities, during any period:
(A) of 90 days after written notice of such default shall have
been given to the Company by any holder of Senior Indebtedness; or
(B) in which any judicial proceeding shall be pending in respect
of such default and a notice of acceleration of the maturity of such
Senior Indebtedness shall have been transmitted to the Company in
respect of such default.
<PAGE>
<PAGE>69
(b) In the event of
(i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding
relating to the Company, its creditors or its property,
(ii) any proceeding for the liquidation, dissolution or other
winding-up of the Company, voluntary or involuntary, whether or not
involving insolvency or bankruptcy proceedings,
(iii) any assignment by the Company for the benefit of creditors,
or
(iv) any other marshalling of the assets of the Company,
all Senior Indebtedness (including any interest accruing after the
commencement of any such proceedings) shall first be paid in full before
any payment or distribution, whether in cash, securities or other property,
shall be made to any Holder of Securities on account of the Securities.
Any payment or distribution, whether in cash, securities or other property
(other than securities of the Company or any other corporation provided for
by a plan of reorganization or readjustment the payment of which is
subordinate, at least to the extent provided in this Article Fourteen with
respect to the Securities, to the payment of all Senior Indebtedness at the
time outstanding and to any securities issued in respect thereof under any
such plan of reorganization or readjustment), which would otherwise (but
for the provisions of this Article Fourteen) by payable or deliverable in
respect of the Securities shall be paid or delivered directly to the
holders of Senior Indebtedness in accordance with the priorities then
existing among such holders until all Senior Indebtedness (including any
interest thereon accruing after the commencement of any such proceedings)
shall have been paid in full.
(c) In the event that any Security shall be declared due and payable
as the result of the occurrence of any one or more defaults in respect
thereof, under circumstances when the terms of subdivision (b) are not
applicable, no payment shall be made in respect of any Securities unless
and until all Senior Indebtedness shall have been paid in full or such
declaration and its consequences shall have been rescinded and all such
defaults shall have been remedied or waived.
(d) If any payment or distribution of any character or any security,
whether in cash, securities or other property (other than securities of the
Company or any other corporation provided for by a plan of reorganization
or readjustment the payment of which is subordinate, at least to the extent
provided in the provisions of this Article Fourteen with respect to the
Securities, to the payment of all Senior Indebtedness at the time
outstanding and to any securities issued in respect thereof under any such
plan of reorganization or readjustment), shall be received by any Holder of
Securities in contravention of any of the terms hereof and before all the
Senior Indebtedness shall have been paid in full, such payment or
distribution or security shall be received in trust for the benefit of, and
shall be paid over or delivered and transferred to, the holders of the
Senior Indebtedness at the time outstanding in accordance with the
priorities then existing among such holders for application to the payment
of all the Senior Indebtedness remaining unpaid, to the extent necessary to
pay all such Senior Indebtedness remaining unpaid, to the extent necessary
<PAGE>
<PAGE>70
to pay all such Senior Indebtedness in full. In the event of the failure
of any Holder of Securities to endorse or assign any such payment,
distribution or security, each holder of Senior Indebtedness is hereby
irrevocably authorized to endorse or assign the same.
(e) Nothing contained herein shall impair, as between the Company and
the Holder of any Securities, the obligation of the Company to pay to the
Holder thereof the principal thereof and interest thereon as and when the
same shall become due and payable in accordance with the terms of such
Security, or prevent the Holder of any Securities from exercising all
rights, powers and remedies otherwise permitted by applicable law or
pursuant to the terms of this Indenture and the Security, upon a default or
Event of Default under this Indenture, all subject to the rights of the
holders of the Senior Indebtedness to receive cash, securities or other
property otherwise payable or deliverable to the Holders of the Securities.
(f) Senior Indebtedness shall not be deemed to have been paid in full
unless the holders thereof shall have received cash equal to the amount of
such Senior Indebtedness then outstanding. Upon the payment in full of all
Senior Indebtedness, the Holders of Securities shall be subrogated to all
rights of any holders of Senior Indebtedness to receive any further
payments to distributions applicable to the Senior Indebtedness until all
amounts owing on the Securities shall have been paid in full, and such
payments or distributions received by the holders of the Securities by
reason of such subrogation, of cash, securities or other property which
otherwise would be paid or distributed to the holders of Senior
Indebtedness, shall, as between the Company and its creditors other than
the holders of Senior Indebtedness, on the one hand, and the Holders of
Securities, on the other hand, be deemed to be a payment by the Company on
account of Senior Indebtedness and not on account of Securities.
The Company shall given prompt written notice to the Trustee of any
insolvency, bankruptcy, receivership, liquidation, reorganization,
readjustment, composition or other similar proceeding relating to the Company
within the meaning of this Section 1401. Upon any payment or distribution of
assets of the Company referred to in this Article Fourteen, the Trustee,
subject to the provisions of Section 601, and the Holders of Securities shall
be entitled to rely upon a certificate of the Trustee in bankruptcy, receiver,
assignee for the benefit of creditors or other liquidating agent making such
payments or distribution, delivered to the Trustee or to the Holders of
Securities, for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article Fourteen.
In the event that the Trustee determines, in good faith, that further
evidence is required with respect to the right of any person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Section 1401, the Trustee may request such person to furnish evidence to
the reasonable satisfaction of the Trustee as to the amount of Senior
Indebtedness held by such person, as to the extent to which such person is
entitled to participate in such payment or distribution, and as to other facts
pertinent to the rights of such person under this Section 1401, and if such
evidence is not furnished, the Trustee may defer any payment to such person
pending judicial determination as to the right of such person to receive such
payment.
<PAGE>
<PAGE>71
Section 1402. Effectuation of Subordination by Trustee.
Each Holder of Securities, by his acceptance thereof, authorizes and
directs the Trustee in his behalf to take such action as may be necessary or
appropriate to effectuate, as between the Holders of the Securities the
holders of Senior Indebtedness, the subordination provided in this Article and
appoints the Trustee his attorney-in-fact for any and all such purposes.
Section 1403. Knowledge of Trustee.
Nothing contained in this Article Fourteen or elsewhere in this
Indenture, shall (a) prevent the Company from setting aside in trust or
depositing with the Trustee or any Paying Agent, at any time except during the
pendency of any of the proceedings or upon the happening or during the
pendency of any of the proceedings or upon the happenings or continuance of
any of the events referred to in Section 1401, moneys for the payment of
principal of, or premium, if any, or interest on, the Securities, or (b)
prevent the application by the Trustee or Paying Agent of any moneys deposited
with it hereunder by or on behalf of the Company to the payment of or on
account of the principal of, or the premium, if any, or interest on the
Securities, if the Trustee or the Paying Agent, as the case may be, did not
have written notice of any event prohibiting such application by the close of
business on the Business Day immediately prior to the date of such
application.
Notwithstanding the provisions of this Article or any other provisions
of this Indenture, the Trustee shall not be charged with knowledge of the
existence of any Senior Indebtedness or of any default or event of default
with respect to any Senior Indebtedness or any fact or facts which would
prohibit the making of any payment of moneys to or by the Trustee, or the
taking of any other action by the Trustee, unless and until the Trustee shall
have received written notice thereof from the Company, any Holder of
Securities, any paying or conversion agent of the Company or the holder or
representative of any class of Senior Indebtedness who shall have been
certified by the Company or otherwise established to the reasonable
satisfaction of the Trustee to be such holder or representative or by the
trustee under any indenture pursuant to which Senior Indebtedness shall be
outstanding.
Section 1404. Trustee's Relation to Senior Indebtedness.
The Trustee shall be entitled to all the rights set forth in this
Article with respect to any Senior Indebtedness at the time held by it, to the
same extent as any other holder of Senior Indebtedness, and nothing in Section
613 or elsewhere in this Indenture shall deprive the Trustee of any of its
rights as such holder. Nothing in this Article Fourteen shall apply to claims
of or payment to the Trustee under or pursuant to Section 607.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee and the Trustee shall not be liable to
any holder of Senior Indebtedness if it shall pay over or deliver to Holders,
the company or any other Person monies or assets to which any holder of Senior
Indebtedness shall be entitled by virtue of this Article or otherwise.
<PAGE>
<PAGE>72
Section 1405. Rights of Holders of Senior Indebtedness Not Impaired.
No right of any present or future holder of any Senior Indebtedness to
enforce the subordination herein shall at any time or in any way be prejudiced
or impaired by any act or failure to act on the part of the Company or by any
non-compliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
RELATED DEFINITIONS
"Additional Amounts" means any additional amounts which are required
by a Security or by or pursuant to a Board Resolution, under circumstances
specified therein, to be paid by the Company in respect of such security.
"Indenture" means the indenture or other document under which the
Subordinated Debt is outstanding.(1)
"Securities" means the securities evidencing the Subordinated Debt.
"Senior Indebtedness" means all of the indebtedness of, or guaranteed
by, the Company for borrowed money (including the principal of, premium, if
any, or interest on any such borrowed money and any commitment fees for
unborrowed amounts which, if borrowed, would constitute Senior Indebtedness),
whether currently outstanding or hereafter incurred, unless, under the
instrument evidencing the same or under which the same is outstanding, it is
expressly provided that such indebtedness is subordinate to other indebtedness
and obligations of the Company.
"Trustee" means the trustee under the Indenture.(2)
(1) If the Subordinated Debt is not issued under an
Indenture, references to the Indenture and the Trustee
should be modified or deleted as appropriate.
(2) If the Subordinate Debt is not issued under an Indenture,
references to the Indenture and the Trustee should be modified
or deleted as appropriate.
<PAGE>
<PAGE>73
EXHIBIT F
MAJOR SUBSIDIARIES
MDFC Equipment Leasing Corporation
MDFC Loan Corporation
McDonnell Douglas Overseas Finance Corporation
McDonnell Douglas Aircraft Finance Corporation
<PAGE>1
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-3, No. 33-31419) of McDonnell Douglas Finance Corporation and in the
related Prospectuses of our report dated January 17, 1995, with respect to the
consolidated financial statements, schedules and selected financial data of
McDonnell Douglas Finance Corporation included in this Form 10-K for the year
ended December 31, 1994.
/s/ Ernst & Young LLP
Orange County, California
March 30, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 13,100
<SECURITIES> 0
<RECEIVABLES> 351,700
<ALLOWANCES> (40,700)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,929,600
<CURRENT-LIABILITIES> 0
<BONDS> 1,111,300
<COMMON> 5,000
0
50,000
<OTHER-SE> 127,400
<TOTAL-LIABILITY-AND-EQUITY> 1,929,600
<SALES> 0
<TOTAL-REVENUES> 187,600
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12,300
<LOSS-PROVISION> 9,900
<INTEREST-EXPENSE> 108,300
<INCOME-PRETAX> 41,900
<INCOME-TAX> 13,600
<INCOME-CONTINUING> 28,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,300
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>1
EXHIBIT 99
McDonnell Douglas Finance Corporation and Subsidiaries
Computation of Ratio of Income to Fixed Charges
Years Ending December 31,
(Dollars in millions) 1994 1993 1992 1991 1990
Income from continuing operations
before income taxes and
cumulative effect of
accounting change $ 41.9 $ 40.8 $48.0 $57.2 $98.9
Fixed charges(1) 111.8 120.0 149.4 202.0 219.9
Income from continuing operations
before income taxes, cumulative
effect of accounting change and
fixed charges $153.7 $160.8 $197.4 $259.2 $318.8
Ratio of income to fixed charges 1.37 1.34 1.32 1.28 1.45
(1) Includes interest expense, amortization of discount and preferred
stock dividends.
